First, let's take a look at where current regulation falls short. The problem of—let's call it "overly aggressive"—collection tactics was dealt with by Congress back in 1977 with the passage of the federal Fair Debt Collection Practices Act, which is administered by the FTC. Over the course of the last 34 years, however, many things have changed. Firstly, the debt collection business has grown geometrically and is insanely lucrative thanks to a parade of recessions, and perhaps more importantly, due to the fact that the government itself began selling off large packages of bad debts in the early 1990s through the Resolution Trust Corporation—a big business indeed. Secondly, new technologies have enabled potentially abusive tactics, like robo-calling, that could not have been anticipated in 1977. And finally, the increasingly obvious weaknesses of the federal law got the states into the act, and thus nearly every state has a different law on the books purporting to protect consumers from collection abuse. The principal federal law in this area is the Federal Trade Commission Act—of 1914. You read that right—1914.
The FTC is a good agency in many ways, but it was established to do the "trust-busting" work of the Wilson administration. You really think an agency that needs to approve a merger between Exxon and Mobil can really help when your 13-year-old daughter gets that call? Here is what I believe the CFPB needs to do:
1. Consolidate Regulatory Authority
Created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the CFPB has broad power to create and enforce rules regarding collection practices, and in theory at least, will be far more capable of doing so than the beleaguered FTC. All federal regulatory authority must be consolidated within the CFPB, with the FTC having concurrent jurisdiction only for large scale frauds operating across many state lines, and even then only when the CFPB asks for help. Furthermore, the new Bureau must coordinate with any state agency active in the area, perhaps by suggesting uniform state regulation, and uniform intergovernmental procedures.
2. Set Clear and Simple Rules
It is an absolute necessity that we have a simple set of regulations that must be followed nationwide by EVERYONE who attempts to collect a debt as well as uniform enforcement and strict penalties for those who would violate those regulations. Right now, state and federal penalties for abusive collection practices vary widely; in some jurisdictions, a small fine—small enough to be disregarded by profitable agencies and high earning individual collectors—is the only available sanction.