In recent years, the amount of debt being sent to collections by lenders of all types has scaled back considerably, but it remains a major problem for many financial institutions. To that end, some might now be considering new methods for dealing with the issue.
Currently, it's believed that about 23 million accounts nationwide — whether they be auto loans, credit cards, or either personal or business loans — are not current on payments, and those balances are estimated to be worth $287 billion, according to a report from the American Bankers Association's Banking Journal. Further, there is currently some $1 trillion in student loan debt still outstanding.
As a consequence of these facts, many experts in the financial services and consumer lending industries believe that debt collections efforts of both bank and non-bank financial institutions will come into the crosshairs of the federal Consumer Financial Protection Bureau, the report said. The CFPB began overseeing collection firms with receipts of more than $10 million annually at the start of the new year.
What might be examined more closely
One of the major issues that the CFPB is expected to take a good look at in trying to better regulate the debt collections industry, is the way in which delinquent and defaulted balances are sold to these non-bank agencies, the report said. Already, there have been numerous accusations that certain banks sell swaths of charge offs to these companies without having all the required documentation that prove the borrowers actually are responsible for the balances in question.
A recent investigation into these allegations by the U.S. Officer of the Comptroller of the Currency caused several major banks to stop collecting bad credit card debt, the report said. Further, and along the same lines, more consumers might now be showing up to fight lawsuits brought against them by lenders. While banks win about 95 percent of these suits because most debtors don't show up for the court date, those who do win their cases the vast majority of the time.
Banking experts note that the CFPB's participation in regulation of the financial services industries has already netted a lot of consumer complaints about debt collections practices, the report said. Because some 30 percent of complaints collected in the first seven months of 2012 related to bad debts in some way, it's likely that this will only lead to more federal intercession in the industry. Many worry that the CFPB and OCC might next look into whether attempts to collect defaults for which consumers are not necessarily responsible involves any culpability on the part of the original lender that sold the balance to a collections agency.
What might banks do in the future?
Because of this more intense scrutiny, many experts in the banking industry now believe it's important for lenders and collections agencies to do all they can to get ahead of any potential regulatory changes, the report said. Tougher enforcement and routine overhauls of regulation should now be seen as the norm, and doing more to ensure consumer protection is a must, especially for large banks.
Many of these institutions are already struggling to comply with the new regulations, and further CFPB action could only complicate their efforts, the report said. As such, it might be wise for these banks to outsource tasks related to complying with debt collection rules so as to dodge any potential snags they may encounter when new provisions are finally released.
What all this might mean for consumers
Because many people have faced significant issues related to debt collection on accounts for which they may not be responsible, many consumer advocates say that greater regulation of the entire industry by the CFPB and other government agencies is a good thing. However, consumers would still do well to make sure they are doing all they can to avoid the problem by ensuring all their bills – whether they're for credit cards, student loans, a mortgage or something else – are paid on time and in full every month.
While it may not always be possible to avoid the issue of debt being erroneously listed in one's name, payment history, nonetheless, makes up 35 percent of a borrower's credit rating. As such, it's vital to stay current. And when it comes to ensuring there are no unfair markings listed on one's credit report, the only way to do this is by ordering a copy of these documents regularly and checking them over. If any such entries are discovered, consumers should contact a credit repair law firm, which may be able to help them fix the problems and return their credit standing to where it deserves to be.