[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
EXAMINING LEGISLATION TO PROTECT
CONSUMERS AND SMALL BUSINESS
OWNERS FROM ABUSIVE DEBT
COLLECTION PRACTICES
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
----------
SEPTEMBER 26, 2019
----------
Printed for the use of the Committee on Financial Services
Serial No. 116-54
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
EXAMINING LEGISLATION TO PROTECT CONSUMERS AND SMALL BUSINESS OWNERS
FROM ABUSIVE DEBT COLLECTION PRACTICES
EXAMINING LEGISLATION TO PROTECT
CONSUMERS AND SMALL BUSINESS
OWNERS FROM ABUSIVE DEBT
COLLECTION PRACTICES
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 26, 2019
__________
Printed for the use of the Committee on Financial Services
Serial No. 116-54
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
U.S. GOVERNMENT PUBLISHING OFFICE
42-354 PDF WASHINGTON : 2020
HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California PETER T. KING, New York
GREGORY W. MEEKS, New York FRANK D. LUCAS, Oklahoma
WM. LACY CLAY, Missouri BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri SEAN P. DUFFY, Wisconsin
ED PERLMUTTER, Colorado STEVE STIVERS, Ohio
JIM A. HIMES, Connecticut ANN WAGNER, Missouri
BILL FOSTER, Illinois ANDY BARR, Kentucky
JOYCE BEATTY, Ohio SCOTT TIPTON, Colorado
DENNY HECK, Washington ROGER WILLIAMS, Texas
JUAN VARGAS, California FRENCH HILL, Arkansas
JOSH GOTTHEIMER, New Jersey TOM EMMER, Minnesota
VICENTE GONZALEZ, Texas LEE M. ZELDIN, New York
AL LAWSON, Florida BARRY LOUDERMILK, Georgia
MICHAEL SAN NICOLAS, Guam ALEXANDER X. MOONEY, West Virginia
RASHIDA TLAIB, Michigan WARREN DAVIDSON, Ohio
KATIE PORTER, California TED BUDD, North Carolina
CINDY AXNE, Iowa DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts ANTHONY GONZALEZ, Ohio
BEN McADAMS, Utah JOHN ROSE, Tennessee
ALEXANDRIA OCASIO-CORTEZ, New York BRYAN STEIL, Wisconsin
JENNIFER WEXTON, Virginia LANCE GOODEN, Texas
STEPHEN F. LYNCH, Massachusetts DENVER RIGGLEMAN, Virginia
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota
Charla Ouertatani, Staff Director
C O N T E N T S
----------
Page
Hearing held on:
September 26, 2019........................................... 1
Appendix:
September 26, 2019........................................... 63
WITNESSES
Thursday, September 26, 2019
Auchterlonie, Sarah, Shareholder, Brownstein Hyatt Farber Schreck 13
Bedard, John H., Jr., Owner, Bedard Law Group, P.C............... 15
Chopra, Hon. Rohit, Commissioner, Federal Trade Commission....... 5
Desai, Bhairavi, Executive Director, New York Taxi Workers
Alliance....................................................... 8
Gould, Rev. Dr. Cassandra, Pastor, Quinn Chapel A.M.E. Church
(Jefferson City, MO); and Executive Director, Missouri Faith
Voices......................................................... 7
Jimenez, Dalie, Professor of Law, University of California,
Irvine School of Law........................................... 11
Kuehnhoff, April, Staff Attorney, National Consumer Law Center... 10
APPENDIX
statements:
Auchterlonie, Sarah.......................................... 95
Bedard, John H., Jr.......................................... 64
Chopra, Hon. Rohit........................................... 68
Desai, Bhairavi.............................................. 75
Gould, Rev. Dr. Cassandra.................................... 122
Jimenez, Dalie............................................... 126
Kuehnhoff, April............................................. 304
Additional Material Submitted for the Record
Waters, Hon. Maxine:
Written statement of Main Street Alliance.................... 344
Ocasio-Cortez, Alexandria:
Various inserts.............................................. 353
EXAMINING LEGISLATION TO PROTECT
CONSUMERS AND SMALL BUSINESS
OWNERS FROM ABUSIVE DEBT
COLLECTION PRACTICES
----------
Thursday, September 26, 2019
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10:10 a.m., in
room 2128, Rayburn House Office Building, Hon. Maxine Waters
[chairwoman of the committee] presiding.
Members present: Representatives Waters, Maloney,
Velazquez, Meeks, Clay, Scott, Green, Foster, Beatty,
Gottheimer, Lawson, Tlaib, Porter, Axne, Pressley, Ocasio-
Cortez, Adams, Dean, Garcia of Illinois, Garcia of Texas,
Phillips; McHenry, Wagner, Posey, Luetkemeyer, Huizenga,
Stivers, Barr, Tipton, Williams, Hill, Emmer, Zeldin,
Loudermilk, Davidson, Kustoff, Hollingsworth, Rose, Steil,
Gooden, and Riggleman.
Chairwoman Waters. The Financial Services Committee will
come to order.
Without objection, the Chair is authorized to declare a
recess of the committee at any time.
Today's hearing is entitled, ``Examining Legislation to
Protect Consumers and Small Business Owners from Abusive Debt
Collection Practices.''
I now recognize myself for 4 minutes to give an opening
statement.
Today, the committee will examine legislation to curb
predatory and abusive debt collection practices. Last year
alone, the Consumer Financial Protection Bureau (CFPB) received
over 81,000 consumer complaints about debt collection
practices.
Since the creation of the CFPB's Consumer Complaint
Database, the agency has received more complaints about debt
collection than any other issue.
According to a CFPB survey on debt collection, nearly one
in three Americans with a credit record was contacted by at
least one creditor or collector trying to collect one or more
debts during the previous year.
In some instances, consumers are relentlessly pursued by
debt collectors regarding debts that they no longer owe or
debts that are not theirs. Some consumers are not informed of
their rights under the law.
Communities of color are disproportionately affected by
predatory debt collectors. The CFPB's survey on debt collection
found that people of color reported being contacted by debt
collectors more frequently than their white peers.
Small business owners also face predatory debt collection
practices. Unlike consumers, small business owners do not
currently have the same protections under the law. For
instance, entities pursuing business debts are not covered or
bound by the Fair Debt Collection Practices Act.
Furthermore, small business owners may also face a
predatory clause buried in their debt contract called a
``confession of judgment.'' A confession of judgment is a loan
contract that forces the borrower to waive defenses they could
lawfully use in court.
Predatory debt collectors have used this tactic to force
courts to rule against borrowers regardless of the specifics of
the case. This has resulted in garnished wages, and seized
property, at times without the knowledge and consent of the
small business owner.
The New York Times highlighted how this problem has
impacted New York City. New York City's taxi medallion drivers
have needlessly suffered at the hands of predatory debt
collectors and contract agreements.
Given the impact of predatory debt collection practices on
Americans across the country, it is particularly important for
the CFPB to stand up for consumers. Unfortunately, the CFPB's
proposal to address predatory debt collection, which was
released in May of this year by Director Kraninger, fails to
protect Americans from harassment by debt collectors.
Under the CFPB's proposal, debt collectors would be allowed
to send unlimited emails and text messages to consumers, and to
call them up to 7 times a week, per debt, to collect debts.
The rule fails to address consumer privacy concerns and
fails to protect consumers against debt collection attorneys
who make misleading statements in court documents. The rule
also does not go far enough to create strong guidelines to
ensure that consumers receive disclosures or to protect
consumers against the collection of time-barred debt.
This is an unacceptable failure by our consumer watchdog,
which simply must do more for hardworking American consumers.
Today, we will hear from a group of expert witnesses, and
discuss several legislative proposals that have been put forth
by members of the committee in order to better protect
consumers and small business owners from predatory debt
collection practices.
I look forward to the testimony of our witnesses, and to
advancing solutions to address this pressing issue.
I now recognize the ranking member of the committee, the
gentleman from North Carolina, Mr. McHenry, for 5 minutes for
an opening statement.
Mr. McHenry. Thank you, Madam Chairwoman.
And thank you to the witnesses for being here.
A CFPB study conducted in 2017 found that 63 percent of
consumers said they were contacted too frequently by debt
collectors or creditors. In 2018, the Consumer Financial
Protection Bureau received more than 81,000 consumer complaints
related to debt collection. In some cases, the CFPB and the
Federal Trade Commission received complaints from consumers
being called anywhere from 7 to 20 times a day.
The data proves that consumers aren't happy with debt
collectors. So, we can all agree there is a problem. The
current regime does not work for the American people.
One cause could be the Fair Debt Collection Practices Act
(FDCPA), the principal statute governing debt collection
activity.
The FDCPA was signed into law by President Carter in 1977--
1977 also is the year that Apple Corporation was incorporated.
And so it is fair to say that much has changed in terms of
technology and how society interacts since that time.
The CFPB recognizes the need to modernize the FDCPA and the
rules surrounding debt collection. Despite what you will hear
today from my friends on the other side of the aisle, the CFPB
is working to fix this problem for the benefit of the American
consumer.
The proposed rule addresses the use of newer technologies,
establishes clear bright-line rules limiting call attempts and
telephone conversations, and clarifies consumer protections,
disclosure requirements, and communications with consumers.
That includes opt-out instructions in every email, text
message, or other electronic communication.
It also addresses the standard for contact through social
media platforms and requires a collector to communicate with a
consumer about a debt before furnishing information to a
consumer reporting agency.
How consumers want to be contacted is different now than
what was contemplated in the existing rule, so let's
acknowledge that. Text messages, well, if you want to talk to a
millennial, text them. Trying to get them to answer the phone,
give me a break, it's not possible.
So in short, the CFPB's proposed rule offers certainty for
consumers and clear rules of the road for debt collectors.
Given the discussions we have had in this committee this year,
I am surprised that more of my colleagues are not commending
the steps taken by Director Kraninger.
This modernization isn't just important to consumers. Small
businesses in America and healthcare providers across this
country depend on third-party collectors to manage receivables
and ensure that they are compensated for services that have
been provided.
Federal, State, and local governments also depend on the
collections industry for tax payments. Government-related debts
represent 16 percent of all debt collections. So, we need to
think about the taxpayers in this term as well, because that
means that the vast majority of taxpayers are paying on time,
and they would see their taxes go up if there is not a way to
collect from those who are not paying.
That money, which covers everything from unpaid parking
tickets to unpaid taxes, is better spent on things like
infrastructure and education rather than just letting those who
aren't paying, not pay.
Madam Chairwoman, the reality is that prices increase for
all when some decline to pay. Methods for debt collection can
and should improve. But we must allow for modernization that
appropriately accounts for the vast changes in technology and
the way that consumers wish to be communicated with.
I look forward to a productive hearing, and I thank our
witnesses on this vast panel for appearing.
Chairwoman Waters. I now recognize the Chair of our
Subcommittee on Consumer Protection and Financial Institutions,
Mr. Meeks, for 1 minute.
Mr. Meeks. Thank you, Chairwoman Waters, for calling this
important hearing.
In many ways, this hearing is an important capstone to a
series of hearings held in the committee and the subcommittee
this year. Indeed, in the Full Committee, the chairwoman has
held hearings on the student loan crisis, which is straining an
entire generation, as well as a hearing exploring a whole host
of problems with credit rating agencies and the FICO score. The
credit rating agencies have not only divulged data on a large
share of the American population, but often report false and
inaccurate data on consumers, negatively impacting millions of
borrowers.
Another hearing was held on the CFPB, which, under the
current Administration, is abandoning its core mission to
protect vulnerable consumers.
In the subcommittee, I have chaired hearings on payday
loans, as well as the Community Reinvestment Act, and ongoing
discriminatory practices in lending. Across-the-board, we see
how consumers and borrowers, particularly in communities of
color, are vulnerable to abusive and predatory practices.
Consideration of debt collection practices is critical as
we consider the circumstances of American families, 40 percent
of which struggle to make ends meet on a monthly basis.
I yield back.
Chairwoman Waters. I now recognize the ranking member of
the subcommittee, Mr. Luetkemeyer, for 1 minute.
Mr. Luetkemeyer. Thank you, Madam Chairwoman.
Before I begin, I would like to welcome my constituent, the
Reverend Dr. Cassandra Gould, from the Third Congressional
District of Missouri. Thank you for appearing before the
committee. I look forward to discussing this important topic
with you as we go forward.
Millions have forgotten that debt collectors were once the
legal businesses targeted by the Obama Administration's harmful
Operation Choke Point. However, just yesterday, all of the
Majority members of this committee voted in support of the Safe
Banking Act, which contains language to end Operation Choke
Point and stop villainizing these businesses.
I think we can all agree we have a responsibility to ensure
that consumers and small businesses are protected from abusive
debt collection practices, but we cannot forget the important
role debt collectors play in our economy and for American small
business owners.
The CFPB's recent rule governing debt collection practices
outlines small changes that would make a real difference to
American consumers, including the ability to opt out of debt
collection emails or text messages, and caps on the number of
phone calls.
I thank the witnesses for appearing, and I look forward to
a robust discussion on ways to modernize and responsibly
regulate debt collection across the nation.
With that, Madam Chairwoman, I yield back.
Chairwoman Waters. I want to welcome today's distinguished
panel of witnesses: the Honorable Rohit Chopra, Commissioner,
Federal Trade Commission; the Reverend Dr. Cassandra Gould,
Pastor, Quinn Chapel A.M.E. Church in Jefferson City, Missouri,
and executive director, Missouri Faith Voices; Ms. Bhairavi
Desai, executive director, New York Taxi Workers Alliance; Ms.
April Kuehnhoff, staff attorney, National Consumer Law Center;
Professor Dalie Jimenez, professor of law, University of
California, Irvine School of Law; Ms. Sarah Auchterlonie,
shareholder, Brownstein Hyatt Farber Schreck; and Mr. John H.
Bedard, Jr., owner, Bedard Law Group, P.C.
Without objection, each of your written statements will be
made a part of the record.
For purposes of testimony, each of you will have 5 minutes
to summarize your testimony. When you have 1 minute remaining,
a yellow light will appear. At that time, I would ask you to
wrap up your testimony so we can be respectful of both the
witnesses' and the committee members' time.
Commissioner Chopra, you are now recognized for 5 minutes
to present your oral testimony.
STATEMENT OF THE HONORABLE ROHIT CHOPRA, COMMISSIONER, FEDERAL
TRADE COMMISSION
Mr. Chopra. Chairwoman Waters, Ranking Member McHenry, and
members of the committee, thank you for holding this hearing,
especially as it relates to the $1.6 trillion student loan
market.
Since the eruption of the financial crisis and its
decimation of the U.S. economy a decade ago, unemployment has
come down and the stock market is soaring. But the headline
statistics obscure the serious cracks in our economy. Stagnant
wages and rising costs mean that Americans are walking on an
economic tightrope where even a tiny jolt can send them into a
free fall.
According to multiple estimates, there are more than 70
million Americans with past-due bills in collections. Too
often, our system treats these individuals as if they are
morally bankrupt or free-riding, and the reality is so much
different. Many are battling medical bills that they may not
even owe due to a bureaucratic stalemate between their
insurance company and their hospital. Others fell behind on
utility bills or other household expenses after losing a shift
at work. And some are even jailed for not paying fees and
fines.
Many small businesses, who are looking to weather a slow
season, got caught up in lending schemes that ended up
destroying them and their business. And many people simply
finished school at the wrong time, entering the workforce with
a job that barely puts them on a path to pay off their student
debt.
Prior to serving as a Federal Trade Commissioner, I was
proud to be appointed by the Secretary of the Treasury as the
Consumer Financial Protection Bureau's first student loan
ombudsman, where I led the agency's work on behalf of student
loan borrowers.
During my time at the CFPB, we published widely cited
reports detailing the devastating impact of student loan debt
and pursued an aggressive enforcement agenda against law-
breaking companies in this industry.
Later, I served as a special adviser to the Secretary of
Education, where I saw firsthand how much influence and power
government contractors have over our student loan system.
There are roughly 9 million Americans in default on a
Federal student loan, with many more in serious delinquency,
and the Federal Government makes sure they know it. The
Department of Education student loan arm is one of the largest
financial institutions in the world. The government hires a
squadron of financial institutions to aggressively pursue
borrowers by slamming their credit, levying hefty fees, and
humiliating them with their employer.
Student loan companies should be helping borrowers get back
on their feet by advising them of all of the options for
managing their student debt. But instead, I have seen how these
companies have steered borrowers in a direction that benefits
their bottom line.
And here is the irony. When student loan borrowers make a
mistake, they pay dearly for it. They may not be able to pass
an employment verification check or rent an apartment. But when
student loan companies make mistakes and violate the law, the
Department of Education often covers for them and continues
lavishing them with valuable contracts and subsidies.
This is not a recent phenomenon. It has been going on for
years under multiple Administrations and multiple parties.
These policies are exacerbating the racial wealth gap and
undermining the American Dream.
The CFPB must act to address these serious problems, too.
We must ensure that companies that break the law face real
consequences, just as borrowers sometimes do. Congress also
needs to clean up the Department of Education's student loan
branch so that it puts borrowers, taxpayers, and our economy
ahead of contractors' profits.
We have to wake up to the realities of our broken student
loan debt collection system and fix it. And outside of student
lending, I believe the Federal Trade Commission (FTC) also
needs to act, especially where the CFPB cannot.
Technology has made it easier for lenders and debt
collectors to seize cars without warning. Despite receiving
authority in 2010 to put common-sense rules into place to
combat abuses here, the FTC has not yet made a proposal.
The FTC also has unique jurisdiction to attack debt
collection and discrimination issues in the small business
lending market, and we should look to restrict terms like
``confession of judgment'' that the FTC banned in consumer
loans long ago.
And the FTC also needs to scrutinize the role of big tech
on everything from algorithms to alternative currencies, like
Facebook's Libra, and how ad networks can profit from debt
collection scams. All of us need to act.
Thank you. And I look forward to your questions.
[The prepared statement of Commissioner Chopra can be found
on page 68 of the appendix.]
Chairwoman Waters. Thank you, Commissioner Chopra.
Reverend Gould, you are now recognized for 5 minutes to
present your oral testimony.
STATEMENT OF REVEREND DR. CASSANDRA GOULD, PASTOR, QUINN CHAPEL
A.M.E. CHURCH (JEFFERSON CITY, MO); AND EXECUTIVE DIRECTOR,
MISSOURI FAITH VOICES
Rev. Gould. Good morning, Chairwoman Waters, and members of
the committee.
I have come to represent the faith community who is doing
our part in trying to uplift the burden that many Americans
face. I am a member of the Faith and Credit Roundtable Steering
Committee of the Center for Responsible Lending, a founding
member of Faith for Just Lending, and I come here today as a
faith leader who serves on the front line of those fighting
against financial predation and as a person who is often
entrusted with the painful stories of shame and trauma that is
experienced by hardworking individuals who are preyed upon by
bad financial actors, and often seem to have their dignity
disregarded by the predatory practices of debt collectors.
Prior to being called into full-time ministry, I spent
approximately 17 years in the financial industry. During this
time, I became painfully aware of the increasingly harmful
practices of debt collectors as well as the increasingly
predatory practices of lenders, especially payday lenders.
In my role as pastor, activist, and public theologian, I
advocate for economic justice and racial equity. It is through
this work that I have been extremely familiar with the work of
the Consumer Financial Protection Bureau.
On June 2, 2016, I was a panelist at the hearing held in
Kansas City to discuss what would become the payday rule. Since
that time, I have been in constant communication, and have met
with each of the Bureau's Directors--Director Cordray, Director
Mulvaney, and now Director Kraninger--multiple times.
In each of those conversations, I have admonished them to
actually just live up to their name, to be a bureau that
actually protected consumers.
I am here today to express my concern and represent the
faith community in our collective concerns about the current
proposed rule and to share stories from families and
individuals suffering in Missouri where, according to the
National Consumer Law Center, 31 percent of the residents of
Missouri are in debt collection. Missouri is a State that is 83
percent white, but 65 percent of the residents who are in debt
collection are people of color and African Americans.
In the Book of Proverbs 22:22, we are reminded not to
oppress or exploit poor people because they are poor. I believe
that this proposed rule legalizes the exploitation of some of
the most vulnerable members in society. The harassment and
abuse hurts all families, but wreaks disproportionate harm on
families of color where systemic discrimination in housing,
employment, and financial services already persist. Debt
collection, collection lawsuits, and judgments and wage
garnishments are more common in communities of color.
Forty-five percent of borrowers living in areas that are
predominantly communities of color had debt in collections
versus 27 percent of those living in predominantly white areas,
and that information is according to the Urban Institute.
In the State of Missouri, where I serve in Jefferson City,
we suffered a tornado that damaged and destroyed over 513
residences, and it is evident even now that some people are
struggling to get back into housing because of zombie debts
that are coming up on their credit report because of debt
collectors. And now, some of those people are facing
homelessness.
And so again, I am here to represent those stories and to
hold the CFPB accountable to actually protect consumers.
[The prepared statement of the Rev. Dr. Gould can be found
on page 122 of the appendix.]
Chairwoman Waters. Thank you very much, Reverend Gould.
Ms. Desai, you are now recognized for 5 minutes to present
your oral testimony.
STATEMENT OF MS. BHAIRAVI DESAI, EXECUTIVE DIRECTOR, NEW YORK
TAXI WORKERS ALLIANCE
Ms. Desai. Thank you, Madam Chairwoman, and good morning,
all Honorable Members of Congress.
I, myself, and 15 of my brothers drove down this morning at
3 a.m. from New York City to represent the interests of a
workforce that is deeply in crisis.
Debt is basically a life sentence to poverty. And for
drivers, it means that they have been handcuffed to the wheel 7
days a week, for 14-hour shifts.
Mr. McHenry. Madam Chairwoman, if the testimony will
suspend.
Chairwoman Waters. Thank you, Ranking Member McHenry.
He is absolutely correct. You may not display your signs in
the hearing room. Would you kindly put them down, please?
Mr. McHenry. Thank you, Madam Chairwoman.
Chairwoman Waters. Thank you.
Ms. Desai. As I was saying, debt is a life sentence to
poverty. And for drivers, it means that they have been
handcuffed to the wheel 7 days a week, for 12- to 14-hour
shifts.
There have been so many stories of drivers having multiple
heart attacks and not being able to take even a day off after
they have left that hospital, or going straight from chemo
sessions or kidney dialysis back to the wheel, to driving. And
even then, what they are facing is lifelong debt.
On average, medallion owner-drivers in New York City pay
about $3,500 a month today in mortgage payments for that
medallion, which is just a license from the City of New York
that allows you to operate a yellow cab for commercial
purposes, with the exclusive right to street hail.
Between 2004 and 2014, through 16 auctions, the City of New
York made $850 million from the sale of these medallions. The
City counted its money. The banks, the lenders, and the brokers
that made fees from these sales from interest-only payments
have also been able to count their money. Meanwhile, the men
and women who entered into these agreements are all now in
lifelong debt.
As the market value of the medallions has fallen--at one
point, it had been a million dollars a couple of years ago, to
now less than $150,000--the only negotiations we are seeing
from the lenders is to reduce payments from, let's say, $3,500
a month, to $1,500 a month, with the criteria that that
agreement is now extended from 15 years to 50 years.
For 50 years, you are left in debt. It is absolutely
demoralizing, and you feel the weight of it.
There were 9 driver suicides in New York City in 2018.
Among the drivers, 3 were owner-drivers, who represent 2
percent of the total workforce, but were among 33 percent of
the drivers whose despairs has led to suicide.
And they are not alone. The real stories are the tens of
thousands of drivers we see today who are really dying a slow
death from despair, from stress, and from the crisis of this
debt.
Confessions of judgment have basically meant that when this
market started to fall, drivers were told that they had to pay
the total sum of what was owed on that debt; they had to
produce $350,000 to $400,000 overnight.
There are so many stories of people who went into a panic
mode, afraid that if they did not pay up, they may lose their
house, or they may not be able to get another loan for their
kid's student loan. It is a vicious cycle.
And we need to address predatory lending practices where,
in our case, brokers and lenders knew that the value was
inflated. Some of these lenders were, in fact, plotting to
leave the industry at the same moment in time that they were
luring individual drivers, a workforce of 90 percent
immigrants, into the same industry that they were trying to
leave.
Banks who were no longer able to loan in the housing market
because of the role they played in the mortgage crisis entered
into our industry and took advantage of this workforce.
We need to address both the predatory practices, and the
fact that seven government agencies knew. They made a profit
for the City, they watched our people go deep into poverty and
lifelong debt, and we have seen heart attacks and suicides, and
they did nothing about it. And that is really at the heart of
the issue today.
This is a debt that itself needs to be addressed by the
City of New York. They need to put some money on the table, and
buy back these loans, or refinance them at the current market
value, so that individual owner-drivers are no longer in debt
at an average of $600,000 while they remain in a daily, weekly
debt of hundreds of dollars and an annual debt of $25,000 a
year just to pay for rent and other cost-of-living expenses.
Thank you.
[The prepared statement of Ms. Desai can be found on page
75 of the appendix.]
Chairwoman Waters. Thank you very much for your testimony.
I am going to have to say a word about the signs that are
being held behind you.
The Chair is responsible under the Rules of the House and
the Rules of the Committee to maintain order and preserve
decorum.
In the committee room, members of the audience are reminded
that disruption of congressional business is a violation of
Federal law and an offense. We welcome and encourage your
presence, but we cannot accept disruptions.
So, I thank you. I know that you are anxious to have your
message seen by all of the Members, but if you would just keep
your signs down. We do want to hear the testimony, and we are
very appreciative for your patience.
With that, I want to thank you, Ms. Desai.
And, Ms. Kuehnhoff, you are now recognized to present your
oral testimony.
STATEMENT OF APRIL KUEHNHOFF, STAFF ATTORNEY, NATIONAL CONSUMER
LAW CENTER
Ms. Kuehnhoff. Chairwoman Waters, Ranking Member McHenry,
and members of the committee, thank you for inviting me to
testify today regarding how to protect consumers and small
business owners from abusive debt collection practices.
I offer my testimony here on behalf of the low-income
clients of the National Consumer Law Center.
Across the United States, contact with debt collectors is a
common experience for consumers. In 2017, 71 million Americans
with a credit report, about one in three, had one or more debts
in collection reported on that credit report. In predominantly
non-white areas, that number is even higher, with 45 percent,
nearly one in two consumers, with one or more debts reported on
a credit report.
These numbers highlight the disproportionate and sobering
role that debt plays in some communities. Indeed, consumer
experiences with debt and collection vary based on income, race
and ethnicity, ability to speak English, age, and military
service, among other factors.
For the vast majority of consumers who are in debt, it is
not an unwillingness to pay their debts but a host of other
factors that leads people into debt collection, including
stagnant wages, job loss, divorce, health problems, predatory
lending, and a weakening financial safety net.
However, no matter how people end up in debt, they should
not suffer abuse or harassment from debt collectors.
In 1977, Congress enacted the Fair Debt Collection
Practices Act (FDCPA) to protect consumers from abusive debt
collection practices. Unfortunately, abusive collection
practices are still an issue today, despite the passage of the
FDCPA, and debt collection is frequently a top source of
complaints from consumers to Federal and State agencies.
Major categories of debt collection problems that consumers
face include collection without adequate information, where
debt collectors pursue debts without reviewing the
documentation needed to ensure that they are collecting the
right amount from the right person; mass filings of collection
lawsuits, which frequently lead to default judgments against
consumers, regardless of the merits of the case, and often
being filed by large collection law mills; collection of time-
barred zombie debts, which cannot be collected without mistakes
or deception; harassment; threats; privacy violations; and
other abuses long prohibited by the FDCPA.
The Consumer Financial Protection Bureau has the ability to
address many of these problems through its debt collection
rulemaking. Unfortunately, the CFPB has proposed a rule that is
going to do more to protect debt collectors than consumers.
Among other problems, this rule will permit excessive calls
to consumers. It will allow electronic delivery of critical
written disclosures without even confirming that the consumers
can receive these important messages. It will allow collectors
to contact consumers by email, text, and other means without
their consent. And it will permit violations of consumers'
privacy.
The proposed rule will allow collection of old debts,
leading to abuse, deception, and mistakes, and it will also
provide safe harbors for attorneys who make false, deceptive,
or misleading representations in court documents.
Congress, of course, can also address these abusive debt
collection practices and can clarify and improve the FDCPA.
These bills that we are going to discuss today are designed to
do just that.
We support congressional actions on a variety of debt-
related reforms. To name a few, updating the penalties under
the FDCPA for inflation to deter abusive conduct; clarifying
the FDCPA's coverage with respect to what is a debt and who is
a debt collector; protecting small business owners from
confessions of judgment and other abusive practices; and
conducting strong oversight over the CFPB to ensure that it is
living up to its mandate to protect consumers.
We are happy to work with Congress to address these and
other debt collection problems. Thank you for the close
attention that you are paying to these issues and for the
opportunity to provide testimony. I look forward to your
questions.
[The prepared statement of Ms. Kuehnhoff can be found on
page 304 of the appendix.]
Chairwoman Waters. Thank you, Ms. Kuehnhoff.
Professor Jimenez, you are now recognized to present your
oral testimony.
STATEMENT OF DALIE JIMENEZ, PROFESSOR OF LAW, UNIVERSITY OF
CALIFORNIA, IRVINE SCHOOL OF LAW
Ms. Jimenez. Thank you, Chairwoman Waters, Ranking Member
McHenry, and members of the committee. Thank you for holding
this hearing and allowing me to present my views on these
important topics.
I am a law professor at the University of California,
Irvine School of Law, but I am here in my personal capacity. I
have studied consumer debt and debt collection for over a
decade. In my experience, most consumers want to repay their
debts. The majority feel deep shame in being unable to do so.
Debt collection is an important part of the economy. And I
also think most debt collectors want to do the right thing. But
the current system penalizes collectors who try to do the right
thing. Regulatory compliance has costs, but in the absence of
regulation, it is risky to do the right thing if your
competitors will do the cheap thing instead.
The system is broken in a myriad of ways, but today I want
to focus on just two of them: the structural data integrity
problems in debt buying; and zombie debts.
Once a debt is sold, the integrity of the information
needed to collect on it--things like how much is owed, who owes
it, at what interest rate, and when the last payment was made--
is always questionable. When debt buyers have to prove that
they are the rightful owner of that individual's debt, and that
the amount claimed is the exact amount owed, they have a lot of
difficulty.
This is a classic collective action problem perfectly
suited for regulation. I am not alone in saying this. Financial
institutions and debt buyers have urged the same in comments to
the CFPB. Unfortunately, the CFPB missed the opportunity to fix
this in its current rules.
My written testimony contains a more complete proposal, but
I urge this committee to consider legislation that would
clarify that debt buyers are subject to the FDCPA, as you have
a bill, H.R. 403, but also add original creditors to the list
and require those creditors who sell debt to stand behind the
accuracy of the information that they sell, and to provide
account documents at the time of sale, and also to prohibit
debt collectors from contacting a consumer until they have
engaged in due diligence about the sales contract and account
documentation.
To deter illegal conduct, I also urge this committee to
favorably report H.R. 3948 (the Debt Collection Practices
Harmonization Act), and adjust FDCPA statutory damages to
inflation.
The second structural problem I want to urge you to fix is
what is colloquially called ``zombie debts.'' Currently, a debt
can follow a consumer for way too long, in some cases
practically forever, as you have heard.
My proposal here expands upon the draft bill entitled,
``Strengthening Legal Protections on Debt Collection Actions.''
That bill prohibits the restart of the statute of limitations
clock every time a consumer makes a payment or acknowledges a
debt. It is a great start.
But I would urge this committee to go further and support a
single Federal collection period that extinguishes consumer
debts once and for all after a specified period. I suggest 7
years to comport with the Fair Credit Reporting Act.
This law would automatically extinguish not simply the
legal remedy of collecting through the courts, which is what
statutes of limitation do, but any kind of repayment. Judgments
would get a separate statute of limitations. I also suggest 7
years, for simplicity. When the applicable period expires, the
debtor's obligation to the creditor and the creditor's rights
to collect cease to exist. Any judgment obtained on what would
be an extinguished debt would be void and consumers would have
a private right of action against the collector.
Collectors would have 14 years to collect on a consumer
debt, and if they are not able to secure repayment in those 14
years, the debt would be extinguished and attempts to collect
would expose them to consumer lawsuits with statutory penalties
and fees.
The law in this area is too complex. I thought I was a
pretty savvy consumer when I was 21 years old, and I was
bullied by a debt collector into paying a debt I did not owe. I
was an authorized user on a credit card debt, but the collector
led me to believe that I would be sued over this debt by the
end of the week.
If wasn't until years later that I learned that authorized
users are not responsible for credit card charges, particularly
if they never used the card. You might chalk up this incident
to the naivete of youth, but I have seen many fall prey to this
complexity, and not just consumers.
In 2014, I reviewed the case of Mr. Okoroafor in
Massachusetts, a 73-year-old retiree who was sent to jail for
30 days for refusing to pay a $500 debt. Mr. Okoroafor had
testified that his sole source of income came from a State
pension, but neither he nor apparently the district judge who
sent him to jail knew that State law exempted that income from
collection.
Consumers and collectors, and judges, quite frankly, need
simplicity. A Federal statutory collection period that cannot
be restarted, and that applies to all consumer debts, would be
a good start.
Thank you for the opportunity to share my thoughts with you
today. I look forward to your questions.
[The prepared statement of Ms. Jimenez can be found on page
126 of the appendix.]
Chairwoman Waters. Thank you, Ms. Jimenez.
Ms. Auchterlonie, you are now recognized to present your
oral testimony.
STATEMENT OF SARAH AUCHTERLONIE, SHAREHOLDER, BROWNSTEIN HYATT
FARBER SCHRECK
Ms. Auchterlonie. Chairwoman Waters, Ranking Member
McHenry, and committee members, thank you for inviting me to
discuss accounts collections in the consumer and small business
marketplaces.
Smart regulation of debt collection is essential. On the
one hand, deceptive and harassing conduct must not be
tolerated. On the other hand, regulation must ensure that small
businesses can provide services when consumers don't have the
cash, with the trust that they will later get paid.
Without a healthy collections market, consumers will lose
affordable access to dentists, healthcare, housing, and
traditional credit products.
Previously, I was an attorney with the U.S. Treasury's
Office of Thrift Supervision, and later was a founding employee
and acting Deputy Enforcement Director with the Consumer
Financial Protection Bureau. For years, I led a team of
enforcement attorneys in investigations and litigations,
including FDCPA matters.
After moving to Denver, Colorado, I co-authored the legal
treatise, ``Consumer Finance Law and Compliance,'' and two
Governors of the State of Colorado have appointed me to
represent the citizens of the State at large on the Colorado
Banking Board, the policy and rulemaking body for Colorado's
banking system.
Congratulations on the passage of the Safe Banking Act, by
the way.
At the CFPB, I observed a wide variety of debt collection
practices. In private practice, I have helped the ARM (accounts
receivable management) industry clients enhance their
compliance systems. I have listened to probably thousands of
debt collection calls in these efforts. And most recently, I
worked with dozens of ARM industry members to help draft a 154-
page comment to the CFPB's Regulation F to implement the FDCPA.
From these experiences, I have learned that debt collection
has become increasingly a profession that provides consumers
with flexible options for resolving debts. Empathy and problem-
solving are key tactics. And the collections industry is one of
the most diverse in financial services: 32 percent of
collection agencies are woman-owned, and over 70 percent of the
workforce is female.
Significantly, valid disputes are rare, and early contacts
pay off for consumers. Thirty percent of all debt is early-out
debt, meaning that as soon as the customer is contacted, he or
she pays it. In most cases, this avoids credit reporting and
collection lawsuits. It is a customer service call more than a
collection call.
When those early contacts can't happen due to call
blocking, call avoiding, call caps, or other impediments,
consumers lose the chance for a quick, harmless fix. Limiting
meaningful communication about accounts ultimately harms
consumers.
Congress enacted the FDCPA in 1977, and the statute's text
still refers to telegrams. Forget email and text. As you can
guess, agencies struggle to meet consumer preferences for
contact methods, like email or text, because the law
surrounding their use is unclear. Electronic messaging is
efficient, reduces third-party exposure, and is more likely to
be opened and actually provide consumers information about
their important statutory rights.
Email is a superior tool, but without straightforward
regulations, it can't be used. Personal telephone contacts are
also important. Over the phone, agents can tell consumers about
how to verify coverage with health insurance companies, to
apply for creditor hardship programs, or enter into an
affordable payment plan.
The key here is protecting consumer choice. Consumers must
participate in conversations about how to resolve their debt.
And consumers should keep the choice to select the methods they
want to use to talk about it: email; text; or telephone.
Fortunately, under both the CAN-SPAM Act (Controlling the
Assault of Non-Solicited Pornography and Marketing Act of
2003), and the FDCPA, consumers retain their rights,
respectively, to opt out of the communication method, just as
they would with any other commercial message, or choose to
completely cease and desist contacts from collectors. Further
regulations that make consumer choice harder to implement
should be discouraged.
As a former government enforcement attorney, and someone
who now represents consumers pro bono, I urge everyone in this
body to view with skepticism arguments from organizations
against adding clarity and uniformity to the FDCPA. We need
model forms, safe harbor voicemails, and uniform agreements
about language where the FDCPA is ambiguous.
When the legal regime governing the ARM industry is clear,
reflects consumer preferences, and is designed to give
consumers control over how their debts are resolved, it
benefits consumers, collectors, and creditors alike.
Thank you.
[The prepared statement of Ms. Auchterlonie can be found on
page 95 of the appendix.]
Chairwoman Waters. Thank you very much, Ms. Auchterlonie.
Mr. Bedard, you are now recognized to present your oral
testimony.
STATEMENT OF JOHN H. BEDARD, JR., OWNER, BEDARD LAW GROUP, P.C.
Mr. Bedard. Chairwoman Waters, Ranking Member McHenry, and
House Financial Services Committee members, my name is John
Bedard. Thank you for inviting me to testify about the work of
the credit and collection industry.
This is a very important time for consumers and debt
collectors in the wake of the Bureau's landmark release of the
first-ever proposal for rules implementing the Fair Debt
Collection Practices Act (FDCPA).
The credit and collection industry has been seeking clear
regulatory guidance on the FDCPA since its enactment in 1977.
The industry supported regulation in 1977, and the industry
supports clear, fair regulation today.
The Federal Trade Commission, the previous primary agency
with jurisdiction over the debt collection industry, did not
have rulemaking authority under the FDCPA. As a result, this
lack of regulatory guidance, in conjunction with Congress'
failure to update the statute, has resulted in outdated
requirements and a patchwork of interpretations of the FDCPA by
courts throughout the country.
The absence of clear regulation has also given birth to a
cottage industry of consumer attorneys who have done little to
protect consumers.
The Dodd-Frank Wall Street Reform and Consumer Protection
Act gave the CFPB rulemaking authority. The Bureau's proposal
for implementing the FDCPA, although imperfect in many
respects, is an important step forward in providing much-needed
clarity to the financial services marketplace, including
consumers.
I have been practicing law in Georgia for over 20 years. My
practice focuses on representing debt collectors, asset buyers,
creditors, and attorneys. I help clients stay in compliance
with the myriad of Federal and State laws regulating their
business. I also defend civil litigation and investigations
brought by consumers and by government.
In my role as managing attorney at Bedard Law Group, I am a
recognized authority on the FDCPA and the Fair Credit Reporting
Act. I am also a former member of the board of directors of the
industry's leading professional trade association, ACA
International, the Association of Credit and Collection
Professionals.
I serve as the State of Georgia compliance chairperson for
ACA International, and I am a former chairperson and Program
Designation Award recipient of ACA International's Members
Attorney Program. I travel the country auditing the compliance
practices of debt collectors and educating them on the
requirements of consumer financial laws.
Debt collectors play a critical role in ensuring that
consumers can continue to access credit and services. A healthy
connection between debt collectors and consumers increases
access to credit. It encourages the local appliance store to
sell that washing machine on terms, it encourages the local
dentist to provide those braces on the promise of future
payment, and it gives comfort to the auto mechanic that they
will be paid tomorrow for their repairs today.
I have seen firsthand the problems a lack of clear
regulatory guidance can create for both consumers and industry,
and the CFPB has at times exacerbated these problems through
unfair, agenda-driven enforcement actions.
Regulation by enforcement is wrong, it is unlawful, it is
happening today, and it needs to stop.
To fulfill its statutory mission and obligations properly,
the Bureau must first articulate rules and then strictly adhere
to fair, clear, and transparent enforcement practices.
I have represented clients and personally observed the
Bureau's actions fall short of these standards. Many targets of
Bureau enforcement actions have experienced one-sided Bureau
interpretations of the law and are often pressured into onerous
settlement terms, which impose obligations well beyond legal
requirements, just to avoid the extreme cost associated with
disrupting business operations and defending allegations.
The conveniences of modern technology can no longer be
ignored. The Bureau's proposal appropriately acknowledges the
need to bridge the communication gap between consumers and debt
collectors.
There can be little dispute that clear, fair regulation of
the industry helps consumers and industry. The Bureau's
proposal gives unconditional control to consumers over the
communication methods used by debt collectors. This control
gives consumers unprecedented power over the debt collection
process while at the same time building a stronger technology
bridge between consumers and debt collectors.
Thank you again for the opportunity to appear before this
committee. I look forward to answering your questions.
[The prepared statement of Mr. Bedard can be found on page
64 of the appendix.]
Chairwoman Waters. Thank you very much.
I now recognize myself for 5 minutes for questions. And I
am going to start with you, Mr. Chopra.
You heard what Mr. Bedard just said about the Consumer
Financial Protection Bureau, an important step forward. You
heard what Mr. McHenry said about the Bureau. As I understand
it, you did work there. You were employed at the Consumer
Financial Protection Bureau?
Mr. Chopra. Yes, for approximately 5 years.
Chairwoman Waters. In what capacity?
Mr. Chopra. I oversaw all of the student lending and
financial services work. I was also student loan ombudsman
during that time.
Chairwoman Waters. So, you know something about debt
collection?
Mr. Chopra. Yes.
Chairwoman Waters. All right. In your opinion, are agencies
like the CFPB and the FTC taking appropriate measures and
enforcing policies that can guide consumers in addressing their
complaints or harassment?
Mr. Chopra. I think recently, enforcement has been pretty
tepid, and all that does is benefit bad actors and harm those
who follow the law.
Chairwoman Waters. Ms. Desai, you were very passionate
about what is going on in New York, and I think we all heard
you. We have a number of New Yorkers here on the panel of
members. So, I am going to skip over that and let them address
what you shared with us.
But let me go to Ms. Jimenez. You talked about having been
involved in researching and working in debt collection for
years.
Ms. Jimenez. Yes.
Chairwoman Waters. What do you think can be done to
absolutely recognize that there is debt, and debt owed by
individuals that oftentimes, they can't pay because they don't
have the money? What do you think can be done to stop the
harassment, to stop the continuous calls and emails, et cetera,
and at the same time, credibly try and get your debt repaid?
Ms. Jimenez. I think the difficulty is in determining who
can pay but doesn't want to, and who cannot pay. And I think
there are a lot more ``cannots'' than the industry would hope.
A lot of people really simply--they may have a little money
left, but it is a question of, do you use that for food or for
your kids' activities or do you use that to pay off a credit
card?
Chairwoman Waters. You gave an example of the $500 of the
70-something-year-old gentleman who is excluded, who cannot be
forced to pay, given his income. Are there other instances of
that?
Ms. Jimenez. Yes, exemption laws or statutes of
limitations, if they work better than they do now, would
basically cut off the right and give us a specified period for
only specified types of income, nonexempt income for debt
collectors to seize.
The problem with many of these things is that they require
the consumer to show up and to actually assert their rights.
Anything that requires that, in my experience, is going to harm
the consumer because they are unlikely to do it.
Chairwoman Waters. So, there is no such thing as an
ombudsman in the court to represent those who can't very well
represent themselves, is that right?
Ms. Jimenez. This is throughout the 50 States, et cetera,
and so some courts have lawyer-for-the-day or clerk's offices
that try to help people.
But the vast majority of people are disheartened by their
debts. They know that they have not repaid someone. The
question is, is the person who is suing them the right party to
pay? And that is a real question that, because they are unable
to show up, they never actually get to ask.
Chairwoman Waters. Reverend Gould, you are here from
Jefferson City, Missouri, is that right?
Rev. Gould. Yes, Chairwoman Waters.
Chairwoman Waters. We have a Member here who represents
that area.
And you talked about minorities disproportionately being
harassed. Is this true in Jefferson City, and how do you know
this?
Rev. Gould. It is absolutely true. I pastor the oldest
African-American entity in Jefferson City. My church is 169
years old. And we are situated down the street from an
Historically Black College, Lincoln University. And so, I am
the pastor of the community.
And oftentimes, my parishioners, students and others find
their way to the church to share burdens and to ask for relief.
Oftentimes, benevolence is extended, sometimes to help people
avoid going to court.
In the aftermath of the tornado that we just had, I am
thinking of a young woman by the name of Lakaisha McCaleb. She
is an AfricanAmerican woman who owned the only 24-hour daycare
center in Jefferson City, and took care of approximately 75
children, most of them African American and children of color.
And she found herself--she did not own the building, she owned
the business, and cannot get another building because of past
credit issues that are in collections.
Chairwoman Waters. Thank you very much.
I now recognize the gentleman from North Carolina, Ranking
Member, McHenry, who is recognized for 5 minutes.
Mr. McHenry. Thank you, Madam Chairwoman.
I just have a question, leaving a voicemail, should that be
a safe thing for a debt collector to do?
Commissioner Chopra?
Mr. Chopra. I think it depends on the specific
circumstances.
Mr. McHenry. What do you mean? Let's say, I leave you one
voicemail, once a week. Let's just try that concept. Is that
acceptable?
Mr. Chopra. I think the challenge is that--
Mr. McHenry. How about a text?
Mr. Chopra. --if you leave the voicemail for someone who is
not the actual person with the debt--
Mr. McHenry. Okay. So, let me give you the scenario--let's
say I have your cell phone number, the cell phone number you
gave me in order to get the loan, and I call you on your cell
phone at the number that you gave me. Can I leave a voicemail?
Should I be legally able to leave a voicemail on your cell
phone that you provided me?
Mr. Chopra. If you provided that cell phone number--you
collected it and you have validated that you got it from the
right person? This is the question. The details matter.
Mr. McHenry. Okay. Then, let's say that in this scenario, I
have communicated with you previously on this. Can I leave you
a voicemail?
Mr. Chopra. If you have communicated previously, and you
have absolute accuracy about that--
Mr. McHenry. Okay. The absurdity of ``absolute accuracy.''
How about a text, can I text you?
Mr. Chopra. Has the consumer opted into that?
Mr. McHenry. I have previously texted you, and you have
paid. Can I then follow up and do that?
Mr. Chopra. If the consumer has opted in to what their
preferences are on being communicated.
Mr. McHenry. Okay. So what I am saying here is under
previous regimes--let's go to you, Ms. Auchterlonie. Where did
you previously work?
Ms. Auchterlonie. Prior to private practice, I was at the
CFPB.
Mr. McHenry. Okay. Doing what?
Ms. Auchterlonie. I was an acting Deputy Enforcement
Director. I led a team of 25 enforcement attorneys in the
investigation of--
Mr. McHenry. Prior to the proposed rule, how many times
could debt collectors call someone?
Ms. Auchterlonie. I would assume it is about the same as
what it is now, which is--
Mr. McHenry. Under the old rule, there was no cap on the
number of times that a consumer could be contacted.
Ms. Auchterlonie. No, no. It is very much court-driven. The
FDCPA has--
Mr. McHenry. But under the rules that are written, so we
are modifying the existing rules, is texting an innately bad
thing?
Ms. Auchterlonie. No, texting is not an innately bad thing.
We have studies showing that younger generations prefer to be
communicated to by text messages.
Mr. McHenry. Did the previous rule contemplate text
messaging or using a social media platform in order to
communicate with a consumer?
Ms. Auchterlonie. Not at all. There were no real previous
rules. It is just the FDCPA text, which was enacted in 1977.
Mr. McHenry. Okay. So what does the proposed rule do then?
How does that benefit the marketplace and the consumer?
Ms. Auchterlonie. The proposed rule takes a lot of the
uncertainty in the current legal scheme, which for the last 40
years has been really interpreted by the courts on a court-by-
court and then circuit-by-circuit basis, and pulls all of that
information and consideration together to try to create one
uniform national rule.
Mr. McHenry. And what value does that provide?
Ms. Auchterlonie. It provides consistency across the United
States so that particularly, the national debt collectors can
do the same thing in every jurisdiction.
It also has given us, the participants in the debt
collection industry, as well as you, yourself, the opportunity
to evaluate, as a whole and collectively, whether or not what
the Bureau is doing is a rational way to balance competing
priorities in the voicemail conundrum.
Mr. McHenry. Okay. So, that certainty provides clarity in
terms of lending then, so you are better able to consistently
collect debts.
Ms. Auchterlonie. It would. I would also say it is very
likely to reduce the number of telephone calls that a person is
likely to get because--
Mr. McHenry. Explain that. How is that the case? Because we
hear the doom and gloom that if I text you, that may be a bad
thing, or if I leave you a voicemail, that may be a bad thing.
Ms. Auchterlonie. Yes. Currently, because of the legal
concerns about leaving voicemails, when a collector gets a
voicemail message or an answering machine, they often just hang
up and say nothing, because that is safer from a legal
perspective.
We are all accustomed to getting those types of telephone
calls, and they are very annoying.
Mr. McHenry. Right. I think I just got one during this
testimony. So, I understand. I would have preferred a text, to
say what the heck they were going to ask me, so I can deal with
it.
So with that, I think it is important that we modernize the
rule, and give clarity to the marketplace and to consumers.
And I yield back.
Ms. Auchterlonie. Thank you.
Chairwoman Waters. Thank you.
I now recognize the gentlewoman from New York, Mrs.
Maloney, who is also the Chair of our Subcommittee on Investor
Protection, Entrepreneurship, and Capital Markets, for 5
minutes.
Mrs. Maloney. Thank you, Madam Chairwoman, for holding this
very, very important hearing.
Ms. Desai, after years of predatory lending and inflated
medallion prices, the Yellow Cabs of New York really turned
into financial traps for thousands of mostly immigrant drivers.
I think it is a New York City scandal, really. And after
several years of the worst lenders failed, the NCUA and the
FDIC took over their portfolios of taxi medallion loans, so the
government is now the owner of a lot of these loans, is that
correct?
Ms. Desai. That is my understanding.
Mrs. Maloney. Yes. Because a lot of these loans were
predatory to begin with, I personally think the NCUA and the
FDIC should put an immediate moratorium on medallion
foreclosures. That would be the decent, moral, right thing to
do.
But we should also look at the factors that enabled this to
occur. So could you tell us more about some of the predatory
lending practices--what were they, how did they occur, and the
history of how this disaster happened?
Ms. Desai. Sure. In the New York Times investigation, it
had outlined that a number of the lenders knew that the value
of the medallion was inflated, and, as I said earlier, there
were seven government agencies that knew the value was
inflated. There were reports at the State level from the
Department of Financial Services for a number of years. There
were reports by the NCUA itself, which oversaw the credits
unions, and reports by the Taxi and Limousine Commission, which
directly regulates the local industry. They knew the price was
inflated, and yet they continued to auction off more
medallions.
In fact, in 2014, the Taxi and Limousine Commission (TLL),
which sets the opening bid at an auction, set it at $800,000.
Now, mind you, the same agency officials, many of them who were
involved in setting it at that rate were the same individuals
who then allowed companies like Uber and Lyft to come in,
completely unregulated. And, in fact, once they left their jobs
at the TLC, many of them then went to work directly for those
same companies. So, that really has been what has felt like the
trap.
From 2002 to 2014, we also learned, primarily through the
Times investigation, that many of the lenders were actually
behind the scenes, plotting to leave the industry. Meanwhile,
they would pick up the phone, call individual lease drivers--so
drivers who had been leasing from garages, and were working 6,
7 days a week, 12-hour shifts--and would promise them the
American Dream. You invest in a medallion, and within 3 or 4 or
5 years, you will be able to refinance your medallion loan and
purchase a house, pay your kids' tuition for college, and so on
and so forth.
And so, those lenders really actively sold this dream. And,
meanwhile, the government agencies, particularly the TLC, was
taking out ads on an inflated value. Some of the government ads
actually showed that--the claims that the ads made were 13
percent higher in value than the actual value of the medallion.
And imagine you are a working-class person, someone just
really mainly trying to get out of poverty, and you are getting
a phone call from somebody that you worked for, for years, and
you see ads being displayed by your very own government, you
are thinking this is a safe venture for you to enter into.
Meanwhile, as the market started to crash, the lenders were
not asking for credit histories. At the time that they would
sign you up, they would not ask you for guaranties. But once
the loans started to go underwater, when there would be a
balloon payment--within 3 to 5 years, there is a balloon
payment, and at that time, you are able to refinance your loan.
During that period, the lenders would then ask you to put down
a guaranty. They would ask you about the assets of yourself but
also of other family members. And so, mid-loan, you are now
finding out that everything else you own is also at risk.
It was also mid-loan that the confessions of judgment were
then put on the table--
Chairwoman Waters. The gentlewoman from Missouri, Mrs.
Wagner, is recognized for 5 minutes.
Mrs. Maloney. Thank you.
Mrs. Wagner. Thank you, Madam Chairwoman.
Ms. Auchterlonie, following up on Ranking Member McHenry's
line of questioning, are you familiar with the legislation that
Barney Frank introduced in 2012 directing the CFPB to provide
clarity on how debt collectors can, in fact, leave voicemails?
The bill's purpose, as officially stated, was to ``amend
the Fair Debt Collection Practices Act to exempt a debt
collector from liability when leaving certain voicemail
messages for a consumer with respect to a debt as long as the
debt collector follows regulations as prescribed by the Bureau
of Consumer Financial Protection on the appropriate manner in
which to leave such a message, and for other purposes.''
How does that differ from what the CFPB proposed for
voicemails under Director Kathy Kraninger's, which many of my
Democrat colleagues have opposed? I am trying to understand the
difference here.
Ms. Auchterlonie. Yes. Thank you. I am aware of that. And I
appreciate you reading back the text.
It is really, the Bureau is following the spirit of what
that bill said. They made an effort to create what is called
the limited content message, which, in their view, was a
statement that is spelled out with great specificity in the
rule that collectors would be able to leave on voicemail
machines in order to identify themselves without doing what is
called third-party disclosure because the FDCPA prevents debt
collectors from disclosing to third parties the existence of
the debt.
The other part of the conundrum on voicemail messages is
that the FDCPA also requires debt collectors to give what is
called the mini-Miranda notice, which is, ``This message is
from a debt collector.'' And I think the same may be used in
connection with the collection of--
Mrs. Wagner. So Kathy Kraninger, Director of the CFPB right
now, is really trying to implement the same type of legislation
that Barney Frank offered in 2012, if I understand it properly,
is that correct?
Ms. Auchterlonie. Yes.
Mrs. Wagner. Is there is a scenario where a consumer who
has fallen into collections could benefit from a phone call or
an email communication from a debt collector?
Ms. Auchterlonie. Yes. The studies show that meaningful
conversation between a collection agency and someone in
collections gives the consumer the opportunity to avail
themselves of a number of choices. Often, they can settle the
debt for less than the face value. They might be able, if it is
medical debt, to enter into some--
Mrs. Wagner. And there is actually a communication--
Ms. Auchterlonie. Yes.
Mrs. Wagner. --going on. And I would assume that
communication with the consumer is a good thing in that
situation, correct?
Ms. Auchterlonie. It is. Yes.
Mrs. Wagner. If lenders cannot collect debt, does this have
any impact on their ability to extend credit? Specifically for
financial institutions, such as banks and credit unions, do
their safety and soundness requirements make it important for
them to be able to collect debt so that they can extend credit?
Ms. Auchterlonie. Yes. There is a clear relationship
between impaired debts and the amount of asset growth that the
bank regulatory agencies will allow institutions to--
Mrs. Wagner. How does the debt-collection process impact
both smaller and larger businesses throughout the country and
the larger economy?
Ms. Auchterlonie. Particularly with small businesses, a lot
of the times the reason that they hire a debt collector is
because they are professionals in trades--auto mechanics,
dentists, etc.--and they just don't have the infrastructure in
order to collect on their own accounts. And these may be small
accounts, but together they equal $40,000, $50,000, which is a
lot for an auto mechanic over the course of a year.
Mrs. Wagner. Okay.
Ms. Jimenez, I saw you nodding your head during Ranking
Member McHenry's line of questioning. Do you agree with Ms.
Auchterlonie's assessment, and do you see the need for
modernization in this space, ma'am?
Ms. Jimenez. I think we have a conundrum, and I think it is
not easy to solve. The problem is, we want to protect--and the
FDCPA protects--consumer privacy and the avoidance of
disclosure of a debt to a third party. And voicemails can be a
private thing, but they can also be a public thing, and it's
the same with text messages.
We also have a problem with, really, the data and the
information that the debt collector has about the consumer and
whether that is correct--
Mrs. Wagner. But the collector must follow regulations
prescribed by the Bureau, if I understand things correctly, and
those can be laid out, correct?
Ms. Jimenez. Sure. But right now--
Mrs. Wagner. So, there is an opportunity for modernization,
so that we could actually communicate.
Ms. Jimenez. I don't think--modernization, standardization
consistency, I think that is good for everybody. The--
Mrs. Wagner. Wonderful. Great.
Ms. Jimenez. --question is in the details.
Mrs. Wagner. Thank you.
I yield back.
Chairwoman Waters. Thank you.
The gentlewoman from New York, Ms. Velazquez, is recognized
for 5 minutes.
Ms. Velazquez. Thank you, Madam Chairwoman, and Ranking
Member McHenry.
Ms. Desai, do you think that if these taxi drivers knew
about the confession-of-judgment practice, and that their
entire account could be drained, they would have still taken
out these taxi medallions loans?
Ms. Desai. I think many would not have.
Ms. Velazquez. Thank you.
Commissioner Chopra?
Mr. Chopra. Confessions of judgment, just for background,
have actually been banned under the FTC credit practices rules
for many, many years. Those rules, though, do not cover loans
to small businesses. So the fact that confessions of judgment
are being used, especially for small, individual businesses,
including taxi drivers, is concerning.
Ms. Velazquez. Thank you.
Ms. Kuehnhoff, in response to the predatory lending
practices against New York taxi drivers and the series of
Bloomberg articles that ran last year, I have introduced H.R.
3490, the Small Business Lending Fairness Act, which will
prohibit confessions of judgment at the Federal level in
commercial lending practices.
Can you explain why this is something we need to implement
at the Federal level?
Ms. Kuehnhoff. Yes. Thank you for your question.
As we have been discussing, many important consumer
protections--either protections from predatory lending
practices or predatory debt collection practices--don't exist
for small businesses. So this bill would be a step in the right
direction to try to bring these small businesses under those
same types of protections that we provide for consumers,
especially small businesses that look a lot like consumers
because they are also particularly vulnerable.
Ms. Velazquez. Ms. Desai?
Ms. Desai. Yes, I would absolutely agree with that.
Ms. Velazquez. Mr. Chopra, the Federal Truth in Lending Act
(TILA) requires transparent disclosures in consumer finance but
does not apply to small businesses. I am currently working on
legislation that will expand this coverage. How would TILA
coverage to small businesses enable them to make fully informed
comparisons on their financing options?
Mr. Chopra. Yes, small-business borrowers, particularly the
smallest ones, are entrepreneurs. They would hugely benefit
from some of the same protections that consumers enjoy as well.
Ms. Velazquez. And, Ms. Desai, I know that Chairman Levin
on the New York City Council has been working with the
industry. Has there been any resolution to your case?
Ms. Desai. No.
And I am also a member of the city council's Medallion Task
Force. We need to address the predatory lending practices, but,
to be honest with you, the number-one concern for the 6,000
owner-driver families is to have the actual debt restructured.
It is, on average, $600,000, but the real market value,
when hedge funds are buying off foreclosed medallions, is
closer to $150,000. We want to see the current loans that the
owner-driver families are under be restructured to that amount,
and then their monthly mortgages, which right now average
$3,500, could be reduced to even $900. With that reduction,
they would no longer be in the annual debt of $25,000, that
they find themselves in today.
Ms. Velazquez. Thank you.
Madam Chairwoman, I yield back.
Chairwoman Waters. Thank you very much.
I will now yield to the gentleman from Florida, Mr. Posey,
for 5 minutes.
Mr. Posey. Thank you very much, Madam Chairwoman and
Ranking Member McHenry, for working together to ensure that we
guard innocent people against abusive and unfair debt-
collection practices.
Although they are not here today, I want to commend the
work of the Consumer Financial Protection Bureau in proposing a
new rule to modernize the implementation of the Fair Debt
Collection Practices Act. There may be some residual criticism
of the Bureau's proposal, but I think the public comment
process should bring out ideas for improving on a very good
start.
As we consider further concerns today, we need to keep in
mind that bad debts are a cost to lenders, either in writing
them off or in collecting them. Any business must cover its
costs to stay in business, and these bad-debt costs must be
covered. In the long run, that means higher interest rates or
finance charges for those who actually pay their debts. Higher
interest rates and risk to lenders mean less available credit
to those who can and do repay their debts. We all support
protecting debtors, but we must be careful not to push that
debt cost so high as to restrict credit access.
I have an abiding interest in protecting our
servicemembers. We have a draft bill, a discussion draft, in
front of us today that would prohibit debt collectors from
communicating with the commanding officer or officer in charge
of any servicemember regarding an outstanding debt. The bill
would also strengthen related prohibitions about false or
misleading representations to servicemembers.
This is based on the Military Lending Improvement Act from
the 115th Congress sponsored by the former U.S. Senator from
Florida, Bill Nelson.
As we look to improve this bill, what protections do we
need to put in place to address the special needs of
servicemembers?
And I will start with you, Mr. Bedard, and we will go to my
left, your right.
Mr. Bedard. Thank you.
I agree with you that these proposals do create a more
healthy communication between consumers and debt collectors.
When I read what you have proposed here, what I did not see
in that proposal was a confirmation that consumers can actually
consent to those communications. Consumers can consent to those
communications under the current state of the law, and to the
extent any proposals that changed the law preserved those
communications, I would encourage that as well.
Mr. Posey. Thank you.
Ms. Auchterlonie. When I was at the CFPB, I had the great
honor of working with Holly Petraeus, and I think she would be
very pleased to see that this is before the committee. I
support it.
Ms. Jimenez. Are we going down the--
Mr. Posey. Yes.
Ms. Jimenez. I am not an expert in servicemember affairs. I
do think that the bill that you have proposed is a good step.
It is wholly inappropriate that debt collectors are able to
talk to commanding officers. That exerts a pressure that really
no one should be able to have. I think it is similar to debt
collectors who could talk to employers, which really right now
they should be only doing for location information, but there
have been instances beyond that.
So, I support your bill.
Ms. Kuehnhoff. I think that the protections you have
proposed are important and in line with those that have been
outlined by the CFPB's Office of Servicemember Affairs.
I would highlight two others that have been presented in
those reports. Threatening reductions in rank and threatening
revocation of security clearance are both issues that have come
up in the CFPB's reports as well.
Mr. Posey. Very good. Thank you.
Ms. Desai. I would agree with everything that has been
stated. It just is such an outrageous practice.
Rev. Gould. I, too, concur that that is good ,but I also
want to emphasize that everybody deserves that same protection.
It reminds me of the payday lending rate cap that is available
to servicemembers but not available to all other Americans.
And so, it is good, and a step in the right direction, but
it needs to be inclusive, and everybody deserves the same
protection.
Thank you.
Mr. Chopra. Congressman, the only thing I would add is, the
Department of Defense has actually done work to show how
separations from the military due to financial distress are
very costly, both to the taxpayers and to our national
security. So to the extent we can go after some of the worst
abuses, strengthen the Military Lending Act (MLA), and look at
ways to improve the Servicemembers Civil Relief Act (SCRA),
those are all good steps.
Chairwoman Waters. Thank you.
The gentleman from Georgia, Mr. Scott, is recognized for 5
minutes.
Mr. Scott. Thank you very much, Madam Chairwoman. And let
me commend you on, again, having a very, very much-needed
hearing on debt collection and the unfairness that is happening
to all too many of our consumers.
Mr. John Bedard, how are you? One of my Georgia
constituents--
Mr. Bedard. Thank you.
Mr. Scott. --and one of our most distinguished lawyers, and
owner of the highly respected Bedard Law Group--
Mr. Bedard. Thank you.
Mr. Scott. --of Duluth, Georgia--
Mr. Bedard. That is correct.
Mr. Scott. --in my district. Thank you, sir. It's good to
have you here.
Mr. Bedard, let me ask you, we are working on this
committee, under the leadership of Chairwoman Waters, on the
issue of privacy, and in trying to get a good bill before the
CFPB, as well as dealing with the privacy issue with our
fintechs. So, it is a big issue to all of us, and certainly to
the nation.
But there was a survey that the CFPB did, and 63 percent of
the consumers who were contacted in that survey said they were
abused by debt collectors. But, more remarkably, 90 percent of
those who felt they were abused were contacted more than 3 or 4
times in a week, over and over again.
And so we have the CFPB's proposed regulation that makes
changes to the frequency and manner through which debt
collectors can communicate with consumers, including through
social media platforms and private messaging services.
With consumers already facing these enormous challenges in
safeguarding their most personal and sensitive information, do
you feel that the CFPB's proposed rule adequately protects the
privacy of our consumers?
Mr. Bedard. Thank you, Representative. The answer is yes.
And the proposal goes one step further. The proposal gives
control to consumers over those communication channels.
Consumers have an unconditional right to opt out of those
communications. So, to the extent consumers even feel at risk
of privacy exposure, they can control the process and they can
stop those communications by opting out, under the proposal.
Mr. Scott. Could you explain, when you say that the
consumers will have control, how will they explicitly have this
control?
Mr. Bedard. Thank you, Representative.
Under the current draft of the proposal, every
communication that is electronic between a debt collector and a
consumer must contain a clear explanation of the consumer's
right to opt out of electronic communications.
And the consumer has an unconditional right to opt out of
those communications. That is why I described that particular
rule as giving consumers control over those communication
methods.
Mr. Scott. Okay. Thank you very much.
Identity theft and fraud is another issue with which we are
very much concerned. It has come to my attention that many
consumers may be facing this as a result of debts that are
incorrectly attributed to them. And, in recent years, we have
seen an increase of cyber attacks and breaches that have
exposed the sensitive information.
So let me turn to you, Commissioner Chopra. Are consumers
who have experienced identity theft at greater risk of being
pursued for fraudulent debt?
Mr. Chopra. Yes.
Mr. Scott. They are. Why?
Mr. Chopra. There have been so many data breaches, not just
Equifax, not just Marriott, not just OPM. Our data is
everywhere. And consumers, even if we think we have some
control over it, it is floating all over the dark web and
through our economy.
Mr. Scott. Well, quickly, what protections do we have?
Mr. Chopra. Right now, there are not affirmative data
security and privacy protections generally writ large. The
Federal Trade Commission has talked openly about this. And this
is going be a problem as Big Tech continues to suck up more and
more of our data.
Mr. Scott. Thank you.
Chairwoman Waters. Thank you.
The gentleman from Missouri, Mr. Luetkemeyer, is recognized
for 5 minutes.
Mr. Luetkemeyer. Thank you, Madam Chairwoman.
I have, in my lifetime, been somebody who has actually made
some of these loans and then had to collect them. It is a good
way to make sure you understand, when you make a loan, you
better understand you have somebody across the table who can
actually--you don't have to go collect it from. So, it is
interesting to hear your discussion today.
Just out of curiosity, how many people on the witness panel
today have been in business, where you have actually written
the bottom of a paycheck, hired and fired, and also have sold
your products and services and had to collect the money for
those products and services? Anybody?
Great. So, you understand what I am talking about here.
It is interesting to see--I think, Ms. Jimenez or Ms.
Auchterlonie, one of you made the comment a while ago about the
percentage of people who pay immediately whenever they are
contacted.
My experience has been that most people are good people.
When they take the money out, they are there to take the loan
out to purchase a good or service because it is something that
they want or need for themselves or their family, and they
intend to pay the money back. They are not somebody whom you
have to hit over the head, drag them in, make them sign the
form, and then they walk out the door, and then you use that
loan form to go beat them over the head and go drag them in or
go collect money from them. That is not the way the process
works, which is sometimes what is inferred here by some of the
discussions we have had.
These are people who come in and want to borrow money, and
now they have a legal and just debt that they have to service.
And most people want to pay that debt back. We talked a little
bit today about a couple of instances, especially medical debt
and cyber breaches, as situations where we really need to have
the debt collectors and the lenders work with these people to
make sure that they are not negatively impacted.
But contact is extremely important. I can tell you from
personal experience that whenever somebody wants to take
advantage of you or they want to make sure they don't have to
make that payment on time, they will find a way not to answer
the phone, or not to answer the door. So, communication is key.
And I would appreciate--Mr. Bedard, you have talked about
this already quite a bit, and, Ms. Jimenez, you have talked
about it a little bit. Would you like to elaborate on how
important this is and where we can go with the bills that are
being proposed here, to make sure that there is fair contact
and that the consumer has to respond to it so that they
understand they have a responsibility in the situation, just
like the small business or the lender, whomever it is, has the
responsibility to collect that debt as well?
Ms. Auchterlonie. Yes. I do think that sometimes people
with outstanding debts and budget constraints have a tendency
to fall victim to the fight-or-flight syndrome and they don't
respond to the messages and they avoid those communications,
even when the communications can be helpful to them, which has
a tendency to increase the calls, increase the contacts, and
turn out some of these negative effects that we see.
What I really like about the Bureau's rule is first, that
it provides the opportunity for collection agencies to use
communication means that are now more predominant in our
society than just telephone.
Second, they have introduced a model form that, using focus
groups, they have been copy-testing for both readability and,
for lack of a better word, congeniality, in order to get over
that stiff statutory language that collection letters have
included recently.
And the idea is to help consumers feel more comfortable
engaging in the debt-collection process so that they have more
control over what happens to their outstanding accounts and can
engage in the settlements or receive more information or ask
questions and so on.
Mr. Luetkemeyer. Ms. Jimenez?
Ms. Jimenez. Yes. Thank you for the question.
I think we are talking about this as if consumers really
have only one debt that they are being contacted about, but
most of the time they have between 7 and 10 debts. And the
Bureau's rule on the contact limitations are per debt. So
imagine just being called on each debt, sort of a reasonable
amount of time, but that can really overwhelm someone and lead
one to realize that, ``Well, I can't really pay all of these,
say seven debts, and people who are contacting me. What am I
supposed to do?''
On the collector's side, of course they want to be the
first person to talk to you, because you are more likely to pay
that person. So, it is a collective action problem. And the
issue is that the debt collector may not be reaching the right
consumer because the information they have is incorrect.
I think that some of the Bureau's rules are exactly right.
I just think they did not fix the problem at its source, which
is with creditors. And so they are fixing around the edges,
when they really could have started at the beginning.
Mr. Luetkemeyer. One of the things I see here is, most
people whose debt has been referred to a debt collector, are
people who, for the initial debt, refused to talk to the
initial lender. At our institution, we didn't hand it over to a
debt collector until we had exhausted all of the other things
that we could do. So, these are folks who are kind of hardcore
at this point, that you have to find a way to really come down
and make sure you get some stuff collected.
Thank you very much.
Chairwoman Waters. The gentleman from New York, Mr. Meeks,
who is also the Chair of our Subcommittee on Consumer
Protection and Financial Institutions, is recognized for 5
minutes.
Mr. Meeks. Thank you, Madam Chairwoman.
I have introduced a piece of legislation, H.R. 3948, the
Debt Collection Practices Harmonization Act. And what that
would do is, it would extend protections of the Fair Debt
Collection Practices Act to State and local debt, to broaden
civil justice protections against abusive collection practices
and prevent the Secretary of the Treasury from using private
debt collectors to recoup debt arising out of a natural
disaster.
Now, what I have found is, around the nation, States and
localities employ debt collectors to collect on debts for
things like speeding tickets and other things, but they are not
a part of the Fair Debt Collection Practices Act. It doesn't
extend to them. My bill tries to close that loophole.
So, Reverend Gould, can you think of any reason why local
debt collectors should not have to comply with the basic
protections provided--local government debt collectors--with
the basic protections provided by the Fair Debt Collection
Practices Act?
Rev. Gould. Thank you, Congressman.
Not at all.
I spent more than 35 years of my life in St. Louis. There
was a little suburb called Ferguson, that most people are now
aware of. And after the killing of Mike Brown in 2014, the
Department of Justice really shined the light on predatory
practices by municipalities.
Of the 91 municipalities that make up St. Louis County, it
discovered that more than 60 percent of them received up to 50
and 60 percent of their income from things like traffic tickets
and traffic fines. People that I know personally have been sent
to jail.
And so, it is all connected. It is connected to predatory
lending. And I believe that your proposed bill is a bill that
actually helps to bridge that gap, because it is not just
private creditors that are actually putting this burden on
everyday citizens; it is also municipalities and other
governments.
Again, in the case of being in Jefferson City now, after a
tornado, people are not exempt from any of the debt that they
may owe, whether it is from a speeding ticket or from a
furniture store.
Mr. Meeks. Thank you very much.
Professor Jimenez, I know you have written about the
phenomenon of ``zombie debts'', which stem from an unregulated
industry that allows for the selling and reselling of unsecured
debts with little to no evidence of the sale record.
Is mandating certification that a debt is for the right
person and the right amount prior to taking a debt-collection
action sufficient to protect consumers from abusive collection
practices?
Ms. Jimenez. Thank you for the question.
I think that is a great step. I, in my written testimony,
have six or seven other things that I think would also be
helpful. But it starts with the seller. The seller has to be
the one to provide that documentation, because if they don't,
then no one else can.
And they have to make affirmative representations that they
are giving true information, contrary to the contracts that
have been floating around for the past 20 years, where they
disclaim accuracy of the information they are providing.
I think if we start there, it would go a long way.
Mr. Meeks. Would this type of certification regulation
place an undue administrative expense or burden on the debt
collectors?
Ms. Jimenez. Obviously, it takes some effort and some cost.
However, the question is, what is that balanced by? I think
having documents would help collectors collect from consumers
because they would see that, actually, okay, you do own this
debt, because you have some evidence.
So, I think it might balance out. It is hard to actually
say. I do think it is worth it, given that it would protect
consumers further than they are today.
Mr. Meeks. Thank you.
And let me just make another quick comment, because I know
a number of my colleagues have already talked about the taxi
industry in New York. And I know I only have 33 seconds. I
would have asked the question about a man who lives in my
district, in Jamaica, Queens. His name is Mohammed Hoque.
He came to this country from Bangladesh, and settled in New
York City. And in 2014, Mr. Hoque was told by a businessman
that if he was able to get $50,000 that day, he could get a
loan to purchase a million-dollar medallion. Long story short,
he signed the papers, and found out that he was signing
something in debt for $1.7 million, and couldn't pay it back,
so as a result, he is suffering today.
And if I had more time--but I am out of time. But those are
the kinds of issues, the small person--he is here today--the
small individual.
I yield back. Thank you, Madam Chairwoman.
Chairwoman Waters. Thank you very much.
The gentleman from Kentucky, Mr. Barr, is recognized for 5
minutes.
Mr. Barr. Thank you, Madam Chairwoman.
And thank you to our witnesses today.
I firmly believe that if someone takes out a loan or buys
something on credit, he or she should pay back what is owed.
And, Reverend Gould, I appreciated your reference and
citation to scripture. We see that principle of someone who
borrows should pay back what is owed also in scripture, in the
Book of Psalms and other places. The Bible has a lot to say
about financial matters, as you well know.
But obviously, in the event that a consumer is struggling
to repay, they should be treated with dignity, and they should
be treated with respect during the debt-collection process.
I do think some of the modernizations under the CFPB
proposal help achieve that very goal. The cost of unpaid debt
does not just disappear. Someone has to bear it. And I worry
that it may get passed along to other consumers, and if we
don't deal with that, the cost of credit goes up.
Ms. Auchterlonie, I wanted to ask you about your written
testimony in which you cite an academic study that suggests,
``In a competitive market, losses from uncollected debts are
passed on to other consumers in the form of higher prices and
restricted access to credit.''
Can you go into more detail about how modernizing debt-
collection rules could reduce the frequency of consumers
bearing the costs for others' unpaid debts?
Ms. Auchterlonie. Thank you.
I think the principal point is working on finding
comfortable, plain-language communication between the
collection agencies who represent the creditors and the
consumers. That is something that has been a problem recently
because so much of debt collection now is--and the kind of
clear, straightforward communication is stymied by fear of
plaintiffs' litigation.
I spoke to a debt collector a few months ago who said, ``I
don't write my letters for the least sophisticated consumers. I
write my letters for the most sophisticated plaintiffs'
lawyers.''
And that has become a real problem and is getting in the
way of direct communication between consumers and the
collectors, who are really just trying to care for the people
that they are talking to and help them work out their debts.
Mr. Barr. And, Ms. Auchterlonie, a follow-up question about
the 80,000 or so complaints in the CFPB's reporting about
complaints about debt collection.
In your written testimony, you state these numbers do not
correctly reflect the number of complaints about debt
collection because of the way the Bureau Complaint Database is
set up. Specifically, not all of those complaints are about the
debt-collection industry but may capture complaints about the
debt itself or other issues not fundamentally about the
collection practice or the firm.
How can the Bureau improve its Complaint Database to more
accurately reflect the nature and substance of the consumer
complaint?
Ms. Auchterlonie. The Complaint Database is set up with a
number of bullet-point questions, and consumers get to
categorize their complaints themselves. That effort really
isn't fixed or data-checked by any human beings, and I suggest
that doing so probably would be very burdensome.
I think the important point is not that the complaints
aren't helpful and valid; it is just that you can't look at raw
numbers and take them out of context. I think the big thing to
note is that, of all of the complaints about debt collection,
it actually represents less than .005 percent of all debt-
collection contacts.
And that is not saying that some people haven't had a lot
of bad experiences with the rogue collection agencies,
inexperienced collection agencies, or agencies that don't have
enough capital to invest in compliance. I am not discounting
those experiences at all. They are there. And that is why we
have enforcement from the FTC and the CFPB.
But when you just look at the numbers, it is not
necessarily an accurate picture and doom and gloom for the
whole industry.
Mr. Barr. Thank you for that insight.
Mr. Bedard, I want to get to your testimony about
regulation by enforcement. I could not agree with you more. I
think one of the greatest frustrations with the Consumer
Financial Protection Bureau is not giving the American people
the rules of the road and not giving us clarity. How can you
comply when there is no due process? How can you comply with a
law when you don't know what the law is? And so, I think you
are spot-on. And I think the Bureau should be commended and
Director Kraninger should be commended for trying to provide
clarity for regulated parties in our country.
In your opinion, is the process that the Bureau used for
their proposed rule a step in the right direction away from
regulation by enforcement and toward a more regular, orderly,
established guidance that does fulfill that promise of due
process?
Mr. Bedard. Thank you, Representative.
Yes, this proposal is a step in the right direction. It
brings clarity to an area of the law which is today not clear.
And so, I do agree with you. Thank you for recognizing
that. It is very important to everybody who is the subject of
an inquiry of the CFPB.
Mr. Barr. Thank you.
I yield back.
Chairwoman Waters. The gentlewoman from Ohio, Mrs. Beatty,
who is also the Chair of our Subcommittee on Diversity and
Inclusion, is recognized for 5 minutes.
Mrs. Beatty. Thank you very much, Madam Chairwoman, for
having this hearing today.
And let me thank all of the witnesses for being here and
for your testimony.
I have several questions I am going try to get through. And
for a couple of them, I am just going to ask you to go down the
row and say ``yes,'' ``no,'' or ``I don't know'' or what you
think.
But let me start with the first question because in Ohio,
the great State that I represent, debt collection is a problem.
Ms. Kuehnhoff, according to the Consumer Financial
Protection Bureau's Complaint Database, debt collection was the
topic most complained about by Ohioans, with over 16,000
complaints.
More than one-third of these complaints directly address
the issue of attempting to collect debt that was not owed. Is
there anything that you know of in CFPB's debt-collection rule
that attempts to address this issue? Because it is the number-
one issue that consumers are having in the State of Ohio.
Ms. Kuehnhoff. Thank you for your question.
I think that one concern about the proposed rule is, as
originally outlined in 2016, the CFPB had a large section about
what was called substantiation of information, making sure that
debt collectors had the documentation to know that they were
approaching the right person about the right amount, and that
is not part of this proposal that is before us now with the
proposed rule.
Mrs. Beatty. Okay. Thank you.
Reverend Gould, in your testimony, you stated that the
comment letter by the Faith & Credit Roundtable submitted to
the Consumer Bureau regarding the debt-collection rule urged
them to ban collections on time-barred zombie debts in and out
of court.
Can you explain why your organization believes this is
necessary to adequately protect our consumers?
Rev. Gould. Yes. In most States, there were actually zombie
laws. And so this collection of debts, like in the State of
Missouri, that are older than 10 years, should already be
illegal. The lack of protection around that actually opens up
people who are already very vulnerable to sometimes having to
pay something they don't even know about.
I went to college in 1982. My father died when I was 17
years old. About 5 years ago, I needed a transcript and was not
able to get it because the school said that I owed tuition. My
mother is now also deceased, 10 years next month. My parents
paid for my education, so I had no way of defending that bill.
I had never received anything from Southern Illinois
University. And I literally could not get this transcript until
a couple of years ago when somebody actually said it was a
mistake.
But after me going to get my transcript, they started to
send me a bill every month that I had no way to defend, because
the people who were responsible for paying it 30 years ago were
deceased.
Mrs. Beatty. Okay. Thank you.
For the next question, we will start with you, Professor
Jimenez, under Section 813 of the Fair Debt Collection
Practices Act, if a consumer can prove a violation, they are
eligible to be awarded $1,000 in damages over and above what
the consumer receives for actual damages.
Do you know if this $1,000 cap has ever been updated since
the FDCPA made it a rule in 1978?
Ms. Jimenez. It has not.
Mrs. Beatty. Okay.
So now, let me ask you this. And just answer ``yes'' or
``no,'' down the row.
We will start with you, Mr. Chopra. Do you believe this
$1,000 cap sufficiently disincentivized debt collectors from
engaging in this type of behavior we too often see? Is this
enough?
Mr. Chopra. Absent indexing to inflation, just like all
civil penalties, as well in the government, it may not provide
that deterrent effect.
Mrs. Beatty. Okay.
Rev. Gould. No.
Ms. Desai. No.
Ms. Kuehnhoff. No.
Ms. Jimenez. No.
Mrs. Beatty. Keep going. You are next. Yes or no?
Ms. Auchterlonie. I am not sure. I think there is a lot of
deterrent value--
Mrs. Beatty. So, $1,000 is enough, in your mind?
Ms. Auchterlonie. I think--
Mrs. Beatty. For it to be capped at that since 1978?
Ms. Auchterlonie. Well, plaintiffs' attorneys are asking
for a lot more than that.
Mrs. Beatty. It is a ``yes'' or ``no.'' We know it has been
since 1978. We know that it has not been.
Ms. Auchterlonie. You could index it. And plaintiffs'
attorneys--
Mrs. Beatty. So, that would be a ``no.'' Is that correct?
Ms. Auchterlonie. That would be a ``no.''
Mrs. Beatty. Okay.
Mr. Bedard?
Mr. Bedard. The answer is ``yes'' because of the other
remedies that are available under the statute.
Mrs. Beatty. But do you think there is a difference between
actual damages and punitive damages?
Mr. Bedard. Thank you, Representative. There is a
difference, yes. And the statute--
Mrs. Beatty. Okay. I'm sorry. My time is up.
Mr. Bedard. Thank you.
Chairwoman Waters. Thank you.
The gentleman from Colorado, Mr. Tipton, is recognized for
5 minutes.
Mr. Tipton. Thank you, Madam Chairwoman.
And I thank the panel for taking the time to be here.
In my real life, I am a small-business guy, and we would
wholesale out product, extend credit, and hope that it would
get paid back, and the vast majority of the time, it did. But
we certainly had a couple of circumstances where, after we had
exhausted all of our remedies, placed calls for 6 months to 9
months, trying to be able to get paid back, we had to turn to a
credit collection agency.
And now, in this role, I have had the opportunity to be
able to visit with a few of those folks who run those
businesses. And I come from a rural part of the country, and so
it is critically important for us to be able to have access to
credit, to make sure the bills are paid for those small
businesses. I did want to be able to point out that a lot of
the credit agencies that I did visit with were pretty
compassionate people who are trying to be able to figure out a
way to be able to help people actually right their fiscal ship,
to maintain their credit, and be able to stand up for them.
Ms. Auchterlonie, if lenders can't collect debt, does that
have an impact on the ability of small-business owners and
potential homeowners to be able to obtain credit?
Ms. Auchterlonie. Yes, it certainly does. For highly
regulated industries like banks, of course, there are limits
once you have impaired debts. For small businesses, it is a
cash-flow issue. If you don't have the cash coming in, you
don't have the opportunity to provide services in advance. And,
as we noted, services are the predominant form of debts in debt
collection right now.
Mr. Tipton. Yes, I think it is often easy to forget about
some of the practical impacts that can often flow through. I
cite back to my business. We used those receivables to be able
to pay our employees, who had their debts. It is a little bit
of a domino effect to be able to actually deal with it.
And, Mr. Bedard, if you would maybe speak--you were talking
about some clarity with my colleague in terms of the rule.
Would you speak--I think it would be good for the committee to
hear some of that clarity on the proposed rule from Director
Kraninger.
Mr. Bedard. Thank you.
Under the current state of the law, it is not clear how
consumers can utilize electronic means of communication to
communicate with consumers, especially when those consumers
desire those electronic communications.
One of the many things that this proposal does, is it--and
I will use his term--it creates the ``rules of the road'' on
how consumers can communicate with debt collectors using
electronic methods in ways that satisfy all of us that
consumers will be treated fairly. That is what this proposal
does. It does it for email. It does it for text messages. We
have heard a little bit today about how it does that for phone
calls.
And that very clarity is what helps the collection process.
It helps consumers. It helps bring access to credit and the
cost of credit to consumers in ways that keep the system
functioning.
Mr. Tipton. So, it is a way to be able to collect the debt.
Ms. Auchterlonie, maybe you would like to speak to it as
well? What type of borrowers are harmed most when creditors
have to constrict credit because of their inability to be able
to collect the debt?
Ms. Auchterlonie. The riskiest borrowers.
Mr. Tipton. Okay. So the people who may need the credit are
ultimately hurt the most.
Ms. Kuehnhoff. The people who are deemed the most risky or
the least likely to pay are the ones who first get cut off the
credit spectrum.
Mr. Tipton. Okay.
Ms. Jimenez, did you have any--
Ms. Jimenez. I think that is right.
Although I will say that I am not sure--in fact, I don't
think access to credit is something that ought to be defended
at all costs, in the way that sometimes it is phrased. You
know, ``This is going to increase the cost or cut off access.''
Sometimes, it is the access to credit for the riskiest
borrowers that actually sinks them further and further into
debt and despair. And I think it is that easy access to credit
for people, who maybe it was even known by the creditor were
unlikely to repay, that actually poses a larger problem.
Mr. Tipton. Thanks.
Ms. Auchterlonie, you came out of the CFPB. In your view,
is the rulemaking in line with work previously done by the
Bureau?
Ms. Auchterlonie. Oh, this rule has been in progress for
years.
Mr. Tipton. Okay.
Ms. Auchterlonie. The principal architects are career
public servants, at this point, who have operated under several
Directors. And, we have been talking about many of these issues
and solving these issues for a long time.
Mr. Tipton. Great. Thank you so much.
I yield back.
Chairwoman Waters. The gentleman from Florida, Mr. Lawson,
is recognized for 5 minutes.
Mr. Lawson. Thank you, Madam Chairwoman.
And I welcome the witnesses to the committee.
Earlier, there was some discussion about student loan
payments and so forth. Young Americans are increasingly
accumulating debt for their education and student loans. They
will be assessed collection fees in addition to the student
loans they already owe. These fees vary, depending on who holds
the loans, but they can be anywhere from 18 percent to 40
percent of the outstanding balance. To put it into perspective,
to add an extra 40 percent to a student-loan balance of $30,000
would mean that the balance is $42,000.
There is currently no law capping what debt collectors can
charge for collection fees on a Federal student loan. In your
opinion, should there be a cap? And what percentage should the
cap be?
Anyone can respond to that. And I will start off on this
end here.
Mr. Chopra. Sure. Let's just say, Federal student loans, no
one should be defaulting, because there are statutory rights to
income-driven repayment, that if you can't afford it, your
payment is tied to your income, and it can be as low as zero.
Yet our system, how it is administered by the Department of
Education under multiple Administrations, continues to favor
the contractors over the borrowers and the taxpayers.
We need to completely revamp this system. And I encourage
this committee, which has jurisdiction over a lot of these
issues--the Treasury Department gave an exception to the
Department of Education which is allowing this to go on, and I
think the Treasury Secretary needs to rethink that.
But there should not be--this essentially adds insult to
injury, and it does not let those people get back on their feet
to participate in the economy. It actually is a sentence for
them that they will never be able to essentially buy a home or,
frankly, even pass an employment verification check.
Rev. Gould. Thank you, Congressman.
It is not just young people. As a person who went back to
school to get graduate degrees so that I could have a
professional life in the ministry, I sit here with student-loan
debt.
There are various movements across the country from faith-
based organizations--I am thinking of the Samuel DeWitt Proctor
Conference, with the Micah program that they have that is
designed to actually help pastors and preachers who have that
kind of student-loan debt.
So, there should be some limitations.
And we also have to talk about the wealth gap and the
wealth gap that is disproportionate in communities of color,
which then exacerbates the ability to pay.
Mr. Lawson. Would anyone else care to respond?
Ms. Jimenez. Thank you for the question.
I think, like Commissioner Chopra said, we need to overhaul
the system. Borrowers need to be able to have rights against
their servicers so that their servicers have to do things like
timely giving them a loan payment history, and if not, then
they ought to have a clear private right of action against
servicers for violations of those rights.
And we need to investigate why more white borrowers than
Black borrowers are in income-driven repayment programs, which
are the repayment programs that Commissioner Chopra talked
about that would allow them to be current even if they cannot
repay.
Mr. Lawson. Okay. Thank you.
I want to try to get in one other question. Ms. Jimenez,
despite the increased number of payment options available to
Federal student-loan borrowers, one in every four borrowers is
delinquent and in default on the Federal debt.
I introduced a bill that changes the repayment period on
Stafford loans from 6 months to 1 year after graduation. Would
you support this change? If not, I would like to hear your
feedback on why not?
I have a large number of students in my district, over
100,000. And they, a lot of times, don't have jobs, and they
have to start paying at 6 months instead of trying to get a
chance to get established.
My time has run out, but I just want a quick comment from
you.
Ms. Jimenez. I think if we could get--it is not a bad idea.
I think, ultimately, if we could get those borrowers in income-
driven repayment from the beginning, it wouldn't matter, it
would be even more helpful. Because even if they couldn't get a
job after 1 year, they would be in zero-dollar payments for
however long.
So there are many, many ways that we can do that. It is too
complicated to explain how, but--
Mr. Lawson. Okay. Thank you.
And I yield back.
Chairwoman Waters. Thank you.
The gentleman from Texas, Mr. Williams, is recognized for 5
minutes.
Mr. Williams. Thank you, Madam Chairwoman.
I, too, am a small-business owner. I sell and I finance
automobiles. I have always tried to collect debts on my own.
About 50 years ago, I went to a place called Whiskey Flats,
Texas, to a trailer park to collect a payment on a used car I
had sold. When I knocked on the individual's trailer, he told
me I should leave immediately, and from the sound of his voice,
I did just that. As I was walking away from the property, I
noticed he had a ``George McGovern for President'' bumper
sticker on his truck that I had sold him. So I figured that he
had a little bad judgment, just for that reason. Now, this
incident made me realize that sometimes I may need to turn to
the pros to get the money that was rightfully owed to my
business.
For small-business owners like myself, high accounts
receivable balances directly reduce cash flows--it is just
simple math--that are necessary to keep the doors open. In an
ideal world, everyone would be financially accountable and
would pay their debts like you are supposed to. But in a time
where we are debating proposals to forgive student-loan debt
and to remove negative information from credit reports, we
cannot be demonizing this profession that holds people
responsible for their financial decisions. As a business
becomes more reliant on credit, we need to ensure that we have
practical, modern ways to collect this debt.
So, Ms. Auchterlonie, while the new CFPB rule is a
significant improvement from the initial iteration, it still
misses the mark in some significant areas. Can you give us your
opinion on how this proposed rule can be further improved upon?
Ms. Auchterlonie. Thank you, sir.
One of the major criticisms I have about the rule is that
it requires debt-collection agencies to provide itemized
validation of debt, which requires essentially up to nine new
data fields, when they send their letters with debt information
to consumers. And for anyone who has ever had to reprogram
systems that involve significant data fields, it is a big
expense for the industry. And it is even a bigger expense for
the creditors who send their collections accounts to debt-
collection agencies.
Our concern, principally, is that the small businesses who
may right now only send 25 or 30 collection accounts per year
won't have the ability to provide this information to the debt-
collection professionals, and, thus, they won't be able to hire
a professional in order to have the debt collected in that
legal, FDCPA-covered manner.
Mr. Williams. Okay. Thank you.
We have heard about the important function that debt
collectors serve in our economy, and, as any industry, there
are unfortunately some bad actors that need to be held
accountable when they break the law.
However, we have also heard about the confusing and
outdated nature of the regulations that have penalized
legitimate businesses who think they are doing the right thing
and they are hit with frivolous lawsuits.
If this industry had clear guidance on what is expected
from the regulators, bad actors would be driven out of the
marketplace through competition. That is the beauty of
capitalism.
So, Commissioner Chopra, before I continue with my
question, are you a capitalist or are you a socialist?
Mr. Chopra. I believe in markets, and I am a capitalist.
Mr. Williams. Thank you very much. So, with that, what
effect do you think debt collectors have on the cost of credit?
Mr. Chopra. This is actually a market in which normal
market forces don't work. Consumers don't get to choose who
their debt collector is, so they don't actually have market
power to take their business elsewhere. And often, many small
businesses actually are outraged when they hear how someone is
treating their customers.
So, this is actually an example where regulation helps both
legitimate businesses and consumers, because you cannot vote
with your feet.
When we think about how we can make the debt-collection
industry work, we have to think about what is right for
consumers and the honest businesses. Because, right now--and I
have seen a lot of debt collectors--they are at a competitive
disadvantage because of abuses in the market. So the market
simply cannot work.
We should be thinking about honest businesses, about
consumers, and a regulation that actually makes sure it is
working for them rather than just for the ones who sidestep the
law and face no real accountability for it. That is how we will
make a market work here.
Mr. Williams. All right. Thank you.
Mr. Bedard, in your testimony, you mentioned that the CFPB
has exacerbated the problems with the debt-collection industry
through unfair, agenda-driven enforcement actions.
I have spoken to many businesses around Texas who have been
bullied into settlements by this rogue agency so they will not
have to spend years defending these costly, politically driven
allegations.
Can you elaborate on the statement from your testimony and
give us an example of where the CFPB has tried to regulate by
enforcement?
Mr. Bedard. Yes. Thank you, Representative.
The concerns of your constituents are legitimate. There are
areas in the law in which there is no clarity about what the
proper behavior is.
And when I talk about regulation by enforcement, what we
mean is that, instead of creating a rule first and then
expecting everybody to follow the rule, what has happened and
what we have seen in the past is enforcement actions and
investigations, which, you are correct, take years--
Chairwoman Waters. The gentlewoman from Michigan, Ms.
Tlaib, is recognized for 5 minutes.
Ms. Tlaib. Thank you, Madam Chairwoman.
And thank you all so much for being here and for
testifying.
One of the things that I, as a Member of Congress, in the
first 8 months, just even talking to my residents--we just
passed a bill out of this committee, of which I am very proud,
and with the wonderful support of our Madam Chairwoman here,
H.R. 3622, the Restoring Unfairly Impaired Credit and
Protecting Consumers Act, which reduces the debt on someone's
credit report from 7 years to 4 years, which is a better
indicator anyway, and which would be transformative for so many
of our folks that we represent and advocate for.
But our residents are being scammed. And that is the part
that I feel like gets missing about collection, is the ones who
were unfairly targeted with high interest rates, predatory
lending--unfairly, because they didn't know what their rights
were before they signed. I feel like there needs to be a better
balance in this conversation, in this debate, in this
committee. And I feel like that gets lost.
Because I know my residents; they are not buying these
expensive cars or these luxury items. It is their lives. They
are trying to live. And including those who are starting a
business, because it is a dream, it is a way to provide for
their children and provide a better future for their family.
So, I want to thank you again for your testimony.
In my district, the 13th District of Michigan, I was really
taken aback by a story of a gentleman who served our country.
After graduating from college, he joined the military and
served our country for a number of years. And upon returning,
he faced harassment, literally harassment, from debt collectors
that many Americans know all too very well--countless calls,
threats. And even more shocking, he was taken to court to
settle his student loan debt and so forth. Just dragged into
court without any kind of agreements or discussions beforehand.
And so, Commissioner Chopra, I see CFPB as kind of a line
to draw that balance, to figure out who are the ones getting
abused and who are really scammed into predatory lending,
probably what is illegal.
Not all of us can afford to go to court, folks. We can't
afford to find a lawyer. Do you know how distressing that is?
And I know my colleague from Massachusetts is going to talk
about the trauma of that, because it is a trauma. It is
something that for my residents, it paralyzes their lives
immediately.
I want to talk to you, Commissioner. What do you think the
CFPB can do better right now in regulating debt-collection
practices around not only student loans but even around the
other kind of predatory lending? Where is that balance? Remind
us why we even created the CFPB in the first place?
Mr. Chopra. I agree with you. The conversation is not about
an auto mechanic who couldn't get a bill paid. The reality is
that people who owe debt, many of them simply cannot pay or
they don't even owe it in the first place.
And that is what is missing about what the original concept
of a better debt-collection rule is about. Not just third-party
debt collectors; what about the first parties? And what about
substantiating the fact that the debt was even owed in the
first place?
I have seen it firsthand. Many of these collectors don't
even have basic information to show that it is actually owed.
And you know what many Americans do? They just pay it, because
they are scared about what will happen to their credit, to
their employment, and other things.
Ms. Tlaib. Yes, it is bullying. And they are really
dismayed because they are like, ``Well, this is how much I
borrowed. Why is it triple the amount?'' You know? They just
want somebody to advocate and believe them.
Third-party debt collectors are huge corporations that
profit off of intimidation, harassment, and threats to
borrowers, even though the 1977 Fair Debt Collection Practices
Act prohibits this type of abuse.
Ms. Kuehnhoff, what are some of the predatory practices of
loan servicers that you have seen personally? If you can talk
specifically about a story that is more shocking that you
have--that people need to realize what the human impact of
doing nothing--and this sense that this is politicized, and by
having the CFPB as the front line of protecting our residents.
Can you talk about a specific case that you think would
maybe shed some light on why we need this kind of advocacy
within the Federal Government?
Ms. Kuehnhoff. Sure. Thank you very much for that question,
and I think it is important to keep these consumer stories at
the forefront of our thinking about this issue.
I am going to really briefly try to recount the story of
Ms. H., who had a payday loan that was 7 years outside of the
statute of limitations, and was getting harassing calls from
debt collectors for months, multiple times a day, back-to-back
calls. And even though she was suffering from illness, she
continued to be harassed until she finally made an agreement
for a payment, which brought that whole debt back within the
statute of limitations and subjected her to liability.
And I am going to stop there because my time is up, but
thank you for your question.
Ms. Tlaib. Yes. Madam Chairwoman always keeps us on time.
Thank you so much. I yield back.
Chairwoman Waters. Thank you very much.
The gentleman from Georgia, Mr. Loudermilk, is recognized
for 5 minutes.
Mr. Loudermilk. Thank you, Madam Chairwoman.
And I want to thank the panel for being here today.
This is a very important subject, from someone who has been
on both sides of the debt-collection issue. When I was in the
military, I experienced some debt-collection calls. Some were
just because I didn't get paid very much. And then, there were
those where it wasn't me, and they are calling. Ninety percent
of the time, though, I said, ``It is not me. You have the wrong
person.'' Eventually, they stopped. Then, there are those that
are continually harassing. We know that that happens.
On the other side of the coin, as a small-business owner
with a struggling business, just getting started, I got a
business opportunity with a doctor. We went in and provided him
with computer systems, the network, we got his office up and
running, and he didn't pay. I didn't want to go to a debt
collector, because it is a close-knit community, and we were
doing work with other doctors, and you don't want to get a
reputation that you are turning it over to a debt collector, et
cetera, et cetera.
I changed my mind when I found that the doctor was
expanding his office and bought a new car. I went to a debt
collector, and they were able to recover the debt. I was the
one hurting because I have a small business. I am trying to
keep people employed, right?
There are bad players out there. Debt collectors do provide
a service. So, what we are trying to do is find a balance,
strike a balance. It isn't always that they are the bad guy out
there. Somebody borrowed money, somebody owes money, and they
are not paying for whatever reason. So, we have to find the
right balance.
Ms. Auchterlonie, can you explain what the consequences for
lenders and borrowers would be if they did not have appropriate
debt-collection practices in place? If we didn't have any type
of debt-collection practice, would that not have a negative
effect on every borrower, especially those in a lower-income
level?
Ms. Auchterlonie. Oh, certainly. I am having images of the
movie ``Deadwood,'' actually. No, the FDCPA has put us
tremendously far ahead and has been really helpful in the field
of regulating debt collection for a very long time. I am
looking forward to actual thoughtful regulation that brings it
up to date.
Mr. Loudermilk. Okay. Because my experience is, when the
doctor doesn't pay my office, I have to make up that
difference. So I can't pay my employees as much, or I have to
charge more to other customers. And we see this.
There is a difference between the first party, the second
party, and the third party in debt collection. A lot of times,
it is that contractor that just gets a bulk of especially
medical expenses. I have experienced that recently from
hospital bills from an auto accident, that we didn't even
receive the bill, and all of a sudden we are getting the calls.
Right? So we know that there are some issues out there.
But aren't the first-party debt collectors already subject
to a series of laws governing their debt-collection practices?
I am talking about the first party.
Ms. Auchterlonie. Third-party debt collectors have a much
stronger regulatory scheme under the FDCPA. The first-party
creditors would be subject to what we call the UDAP (unfair or
deceptive acts or practices) which have been interpreted very
similarly, in many respects, to the FDCPA.
Mr. Loudermilk. Okay.
Ms. Auchterlonie. The big difference is that first-party
collectors don't need to give them any Miranda notice, they
don't have to do the debt validation and some of the more
formulaic aspects of the FDCPA.
Mr. Loudermilk. Is there a reason that there is a different
set of regulations for first-party and third-party collectors?
Ms. Auchterlonie. Many times--and I see this a lot--a
first-party creditor wants to maintain the relationship.
Mr. Loudermilk. Right.
Ms. Auchterlonie. And, also, if you were subject to the
FDCPA and you were making a call that had to say, ``This call
is from a debt collector; anything you say can and will be
used,'' that wouldn't necessarily be accurate. That mandatory
language itself might be deceptive.
So having those really prescriptive terms that are in the
FDCPA aren't always appropriate for first-party creditors.
Mr. Loudermilk. In the scenario I gave with my business, I
would be the first party. I am trying to be conscientious, keep
that relationship going too. Hopefully, the guy just forgot.
Ms. Auchterlonie. Right.
Mr. Loudermilk. Maybe he is still trying to get things
established, would make some payments a long time. So, that
makes sense.
Mr. Bedard, is it important for Congress not to establish
new policies for first-party debt collectors that conflict with
those already-existing requirements?
Mr. Bedard. Yes, it is important that those rules do not
conflict. I think there is universal agreement that both
creditors and debt collectors, together, have a regulatory
scheme that makes the process from origination to collection as
smooth, as efficient, and as kind as possible to consumers. And
the avoidance of conflict between creditor rules and debt
collector rules, I think, is a necessary ingredient to achieve
that.
Mr. Loudermilk. Okay.
I see my time has expired. I yield back.
Thank you all.
Chairwoman Waters. Thank you.
The gentlewoman from Massachusetts, Ms. Pressley, is
recognized for 5 minutes.
Ms. Pressley. Thank you, Madam Chairwoman, for continuing
to center those issues of concern to the American people on
this committee.
A ringing phone is a childhood trauma trigger for me. It is
one of the reasons I don't have a landline today. Raised by a
single parent who was rarely home, I spent a great deal of time
alone at an early age, so early that my mother feared, if
authorities knew, they would take me away from her. But as a
single mom, unable to afford childcare, she had no other
choice. She was gone a lot, working. And we only had each other
to rely upon. She was gone, working, to pay the rent on time,
to keep groceries and food on the table, to pay for
transportation, and, because the school in our community was
underperforming, to send me to a tuition-based school.
My mother was a beautiful, bright, prideful woman with a
strong work ethic who took pride in paying her bills, and
paying them on time. So you can imagine how distressing it was
and the shame she felt when she could no longer do that.
There were many disruptive life events, but there are two
that immediately come to mind. The first is a major surgery she
had, and the second is the death of her mother, who died
suddenly and without life insurance.
Consequently, my mother worked and worked, and yet we still
owed everybody. We owed the utility company. We owed the
landlord. We owed the bank for our car. She owed the school
tuition. But the ends simply wouldn't meet, and, consequently,
we were faced with eviction notices and the repossession of our
car.
Like many children growing up under similar circumstances
and stressors, I adulted early. I managed heavy-handed knocks
at our apartment door, and I managed debt-collector calls with
great skill and sometimes, out of childhood desperation,
emotional pleading. I also managed what my mother, without
meaning to, projected onto me and what I felt: feelings of
fear, vulnerability, judgment, and shame.
My mother often said, ``Ayanna, don't worry. God will
provide.'' And provide He did, through her labor, multiple
jobs, and late nights spent away from her only child and baby
girl. It is my belief and observation that my mother, in fact,
worked her way to a premature death.
Our story is the story of millions of families. And that is
why I am introducing H.R. 4664, the Monitoring and Curbing
Abusive Debt Collection Practices Act, legislation that would
require the Director of the CFPB to issue quarterly reports to
Congress analyzing consumer complaints about abusive debt-
collection practices.
We know that debt collectors are quick to employ aggressive
tactics. That is why my bill would prohibit the Director from
issuing rules allowing collectors to bombard consumers with
unlimited text messages and emails--psychological harassment by
any other name.
Research has shown that some student-loan borrowers are
finding themselves physically ill as a result of the stress and
anxiety associated with their loans, and we have seen an
increase in suicide attributed to debt despair.
But there is not only the psychological toll and impact; it
is threatening people's very professional livelihoods. In some
States, including the Commonwealth of Massachusetts, there are
laws on the books allowing a State to suspend and even revoke a
professional license due to a defaulted student loan.
Commissioner Chopra, can you speak more to this practice,
please?
Mr. Chopra. Yes. In 1990, the Department of Education
started pushing States to pass these laws, because the
assumption was that people could pay. And now we are seeing
teachers, nurses, and so many other professions losing out on
being able to actually earn an income to pay their debt.
This is a completely antiquated and backwards way of
thinking that assumes that debtors are villains and, instead,
wants to punish them, rather than actually helping them get on
their feet.
Ms. Pressley. Thank you, Commissioner.
Now, not only are these debts literally forcing people out
of jobs and making you ineligible to work in your field, the
collections industry can wield the criminal justice system to
go after consumers as well. Representative Tlaib was speaking
to some of this.
So, Professor Jimenez, there seems to be an increase in the
industry's reliance on small claims court, particularly in
States that do not have strong consumer protections. Yes or no,
are criminal charges a possibility in cases of debt
nonrepayment?
Ms. Jimenez. A form of--jail is possible.
Ms. Pressley. How can a charge like contempt of court hurt
a consumer's ability to secure future jobs or financing?
Ms. Jimenez. They can actually be sitting in court, like
Mr. Okoroafor was, until somebody bails them out by paying
whatever the debt is, regardless of whether they had defenses
against that debt. And it can be in a criminal record.
Ms. Pressley. Ms. Kuehnhoff, in more recent years, the U.S.
Treasury has been seizing the--okay.
All right. Thank you, Madam Chairwoman.
Chairwoman Waters. The gentlewoman from New York, Ms.
Ocasio-Cortez, is recognized for 5 minutes.
Ms. Ocasio-Cortez. Thank you, Madam Chairwoman.
And I would like to thank all of our witnesses here today.
This is an extremely important issue, and I think, as my
colleague from Massachusetts just described, this is a matter
of life and death. And it has been a matter of life and death
for our communities back home in New York, for my constituents
in particular, especially when it comes to a very specific
issue that Ms. Bhairavi Desai articulated earlier in her
opening statement.
And I want to thank you for drawing attention to this issue
and for being here representing New York taxi workers.
I sent a letter, along with several of my colleagues from
New York, on August 1st, expressing my concern over the role of
regulators supervising banks and credit unions involved in
predatory lending and collection practices that has led many
taxi drivers, including some of my constituents, to suicide.
This, I think, is a matter of financial malpractice and
predatory behavior that I think, in many ways, should be a
national scandal. It is literally killing people. To date, we
have only received two responses from those agencies.
Ms. Desai, in order for a person to own a cab, a taxi cab,
in New York City, you need to own a taxi medallion, correct?
Ms. Desai. In order to operate the car for service, you
need a medallion.
Ms. Ocasio-Cortez. Correct. And these medallions are sold
on the open market through auctions where New York City usually
sets the opening bid, right?
Ms. Desai. That is right.
Ms. Ocasio-Cortez. At the last auction in 2014, the City of
New York set the opening bid at $800,000 for a taxi driver,
correct?
Ms. Desai. That is right.
Ms. Ocasio-Cortez. And the price in 2002 was $200,000. It
skyrocketed to $800,000 just 12 years later. How did that
happen?
Ms. Desai. There was really a concerted effort between the
lenders and the middlemen, called taxi brokers, and several
government agencies. The City of New York, from 2004 to 2014,
made $850 million from these auctions. I remember after 9/11,
when the economy started to crash, the Bloomberg
administration, at the time, had said they would auction off
medallions in order to balance that budget.
Ms. Ocasio-Cortez. Thank you, Ms. Desai.
I think one of the things that is so important for people
to realize is that these are everyday people, most of them
immigrants, in New York City, trying to start their lives and
live up to our country's promise.
And loans of almost a million dollars were given to drivers
who are only making, sometimes, $30,000 a year. Is that
correct?
Ms. Desai. That is correct.
Ms. Ocasio-Cortez. I have three documents, three reports,
from The New York Times on this scandal, and I would like to
seek unanimous consent to submit them for the record.
Chairwoman Waters. Without objection, it is so ordered.
Ms. Ocasio-Cortez. I would also like to submit for the
record a document that was provided to us by one of our
drivers, Mr. Mohammed Hoque.
Chairwoman Waters. Without objection, it is so ordered.
Ms. Ocasio-Cortez. It shows his actual statement of a
million-dollar loan given to him. And his tax records show that
in 2012, he was only making $22,392 a year; and in 2013,
$23,269 a year.
He was given a million-dollar loan while making $20,000 a
year, and we are supposed to act as though this is his fault?
This is criminal behavior.
And it has not just happened to Mr. Hoque; it has happened
to immigrant taxi drivers all over the City of New York.
Regulatory agencies knew. The City knew. And these suicides are
not just an indirect side effect, they are a direct consequence
of the neglect of a vulnerable community in New York City.
In fact, we have accounts right here reported by The New
York Times. One of the drivers drove in front of City Hall
himself, wrote a note on Facebook saying he could not continue
to live, and killed himself right in front of City Hall. And we
are ignoring this crisis.
These taxi drivers need a bailout, because this is not just
about predatory collection practices, as I was discussing with
my colleague here. This is manufactured financial indentured
servitude. And it is wrong. We need to bail out these drivers.
And I would like to invite my colleagues here on the
Federal level and our partners on the city level to make sure
they get the justice they deserve.
Thank you very much.
Chairwoman Waters. The gentlewoman from California, Ms.
Porter, is recognized for 5 minutes.
Ms. Porter. Ms. Auchterlonie, I want to read you a few
statements about debt-collection rules and see if you would
agree that they are consistent with your testimony.
``I believe that everyone--this is a quote--in this room
shares the same ultimate goal: to end abusive debt collection
in the market. Debt-collection abuse is a stain on an industry
that has served consumers extraordinarily well.''
Ms. Auchterlonie. Agreed.
Ms. Porter. ``Debt-collection laws create a tremendous
compliance burden for companies. In the best-case scenario,
these burdens increase the cost of lending for consumers. In
the worst case, they chase legitimate debt collectors out of
the jurisdiction altogether.''
Ms. Auchterlonie. I don't necessarily agree with that.
Ms. Porter. Why not?
Ms. Auchterlonie. I think the debt-collection rules are
essential in order to even out the marketplace.
Ms. Porter. You do not think they create a compliance
burden?
Ms. Auchterlonie. Certain compliance is necessary.
Ms. Porter. Okay. Thank you.
``While unintended, the proliferation of diverse laws has
created enormous compliance burdens for debt collectors, the
costs of which are necessarily passed on to borrowers,
increasing the cost of credit.''
Ms. Auchterlonie. I think that yes, it can happen.
Ms. Porter. Thank you.
What if I told you that the quotes I just gave were about
mortgage lending, and I substituted the words, ``debt
collection,'' for ``mortgage lending,'' and that the quotes I
just read to you were from testimony provided by mortgage
bankers in 2005, a few years before the crisis. They sat where
you are sitting, before this very committee, convincing
lawmakers to block legislation to rein in predatory consumer
practices.
At the same time those mortgage bankers were here trying to
get legislators off their scent, I was also testifying before
this committee, trying to get the mortgage abuses and the robo-
signings stopped.
Your firm represented a lot of those mortgage lenders, and
you are here today on behalf of the debt-collection industry.
Why should this committee find your arguments and positions on
abusive debt collection credible when you are just recycling
the same, tired arguments that we hear from industry over and
over again?
And I illustrate--
Mr. Zeldin. Madam Chairwoman, I raise a point of order.
Ms. Porter. Please pause my time.
Chairwoman Waters. A point of order has been raised.
Please do not raise your board. We have talked about this
before.
Thank you. Please continue with your testimony.
Ms. Auchterlonie. So one of the things--
Ms. Porter. Excuse me.
Ms. Auchterlonie. --that we talked about--
Ms. Porter. Excuse me.
Ms. Auchterlonie. --is that--
Ms. Porter. Reclaiming my time.
Ms. Auchterlonie. Oh, sure.
Ms. Porter. Parliamentary inquiry. What is the point of
order being made?
Mr. Zeldin. Madam Chairwoman, Clause 6 of House Rule XVII
prohibits the use of dynamic displays as exhibits. Members are
authorized for 5 minutes in hearings to hear from and question
witnesses. If the committee allows whiteboards and other
dynamic displays, Members can more easily manipulate the data
or information in an exhibit to obtain a response that all but
eliminates the witness' objective point of view and replaces it
with their own. These displays are prohibited on the House
Floor and should not be allowed in committee.
Ms. Porter. Madam Chairwoman, may I respond?
Chairwoman Waters. The gentleman is correct. Dynamic
displays are not permitted.
Ms. Porter. Madam Chairwoman, that is a rule that pertains
to the House Floor, not a rule that pertains to this committee.
Are we adding additional committee rules at this time?
Chairwoman Waters. The House rules do apply.
Will the gentlelady continue with her--
Ms. Porter. Yes, Madam Chairwoman.
I realize it is difficult for you to see, but if you could
direct your attention over to that ``financial services bingo''
board, these are all arguments that I have heard over and over
and over again in my career: frivolous lawsuits; balance costs
and benefits; these are just inconsequential violations; we are
going to reduce the supply of credit; there are going to be
unintended consequences if we regulate.
And these are all terms that came out of your very
testimony before this committee today.
You said that the debt-collection industry was--in your
testimony, that it is a caring profession.
Ms. Auchterlonie. Yes.
Ms. Porter. A caring profession.
[Video shown.]
Mr. Zeldin. Point of order, Madam Chairwoman. Point of
order.
Chairwoman Waters. The gentleman raises a point of order.
What is your point of order?
Mr. Zeldin. What was just getting played?
Chairwoman Waters. I have no idea. The Chair was not
advised of any attempt to present in any shape, form, or
fashion statements, testimony, or questions by something other
than her voice.
Will the gentlelady please refrain from disrupting this
committee? Please continue with--
Ms. Porter. Madam Chairwoman, I would like to lodge my own
point of order.
I am not required to provide my testimony in advance to
this committee. I am making an oral statement. Others have used
the same technique in other committees.
Chairwoman Waters. The gentlelady is out of order.
Would you please continue with your testimony?
Ms. Porter. If you are not familiar, that was a clip from
the movie, ``Maxed Out,'' in which the debt collector talks
about walking consumers out to the end of the plank, just like
a pirate.
I had another clip that I am unable to play because of the
chairwoman's objection, that describes the way in which debt
collectors identify neighbors and family members and seek them
out, and that that is the most effective technique they have to
collect debts, which is legal under the current law, because it
humiliates and shames debtors into paying.
Ms. Auchterlonie, does that sound caring to you?
Ms. Auchterlonie. I was--
Mr. Zeldin. Madam Chairwoman, point of order.
That question started with an audio that I did not--we
can't assume that all of the witnesses understood what the
audio said at the beginning of that question. We can't assume
that all members of the committee understood what the audio
said at the beginning of that question. It was a faint audio. I
didn't hear the words, myself.
Point of order.
Chairwoman Waters. The gentleman has raised a point of
order relative to the origin of the question.
The gentlelady has 1 minute and 14 seconds left. I would
ask the gentleman to disregard--or to not put forward his point
of order, and allow the gentlelady to finish with the question.
I think that would save us time and energy.
Ms. Auchterlonie. I would take issue with the fact that
those types of tactics are legal. They are certainly illegal.
And I think everyone on this panel agrees that illegal conduct
and that, sort of, cowboy debt collection needs to stop and
needs to be vigorously enforced. I have done it myself,
personally, when I was at the CFPB, and I continue to believe
that that is the CFPB's role.
Ms. Porter. Reclaiming my time for one second, Ms.
Auchterlonie, are you suggesting that it is unlawful under
current law to contact someone's neighbors or families, for a
debt collector to do that?
Ms. Auchterlonie. It is only lawful under specific
circumstances of acquiring location, and it is very specific
about what they can say. It is not to be for harassment.
Ms. Porter. Okay. So you don't believe that practice, as
currently permitted by law, is abusive?
Ms. Auchterlonie. The FDCPA specifically says how you are
supposed to do it, and if agencies are following those
instructions, then it is not abusive.
Ms. Porter. Thank you.
With that, I yield back.
Chairwoman Waters. The gentlewoman from North Carolina, Ms.
Adams, is recognized for 5 minutes.
Ms. Adams. Thank you, Madam Chairwoman. Thank you for
convening this hearing.
And to all of our witnesses, thank you very much for being
here, and for your testimony.
Reverend Dr. Gould, can you talk about how communities of
color are disproportionately affected by excessive
communication and harassment from debt collectors?
Rev. Gould. Absolutely. Serving a Historically Black Church
in an African-American community, and often being a person who
is contacted to help people, but it is not just my own
experiences. There is credible research.
In my opening, I talked about the National Consumer Law
Center that reports in the State of Missouri, a State that has
83 percent white residents, 65 percent of the 31 percent of
people in debt collection are people of color.
And so part of the issue is this wealth gap that we have,
and communities of colors by and large are victim to
divestment. People are not investing in our communities. They
are continuing to extract wealth and bar people from actually
being able to have access to the same earnings that their white
counterparts have.
Ms. Adams. Okay. So what initiatives have churches and
community organizations undertaken that can help break these
debt trap cycles for the most vulnerable communities that you
make reference to?
Rev. Gould. There is an organization, RIP (Rest in Peace),
in New York. Since 2018, they have had 18 churches that have
actually eliminated $34.4 million of debt from people who live
at or below the poverty level. I mentioned the Samuel DeWitt
Proctor Conference, which is an organization that is a social
justice conference of the African-American churches, and it is
also positioning itself to be able to buy debt to alleviate the
burden.
In my own State, a beloved sister and colleague, Reverend
Traci Blackmon, is currently in a project with other United
Churches of Christ to actually eliminate debt and buy the debt
in her ZIP Code of people who live below the poverty level.
So faith communities are certainly doing our part, but it
is also not our part to eliminate bad policies that actually
burden consumers.
Ms. Adams. Yes, ma'am. Thank you very much.
The leading cause of bankruptcy in the U.S. isn't credit
card debt, motor vehicle loans, or student loans; it is unpaid
medical bills.
So, Ms. Kuehnhoff, which financial assistance policies do
you recommend that Congress create, modify, or enforce to
assisty the 43 million Americans who are struggling under
medical debt?
Ms. Kuehnhoff. Thank you for this important question,
Representative.
I think that, first, I am primarily speaking from the debt
collection side, but I do want to say that obviously solutions
to expanding and improving health insurance are critical for
addressing this problem, but I am going to give some solutions
on the debt side of things, once medical debts exist: dealing
with surprise medical bills in a way that holds consumers
harmless for these disputes between insurers and providers;
improving the financial assistance policies that are already
provided for under the ACA (Affordable Care Act); there is a
provision that requires nonprofit hospitals to provide
financial assistance policies, but that provision doesn't give
any specifics.
There is no minimum amount of financial assistance, no
guidance as to who should be eligible. There are no
requirements on for-profit hospitals. There are no private
remedies under those provisions to enforce these rules. And
there is no statement that underinsured people should be
covered.
So, all of these improvements.
Ms. Adams. Thank you very much.
I want to ask a question about the student debt.
Commissioner Chopra, how can existing law protect students
of color from being disproportionately targeted by debt
collection lawsuits? We have 20 seconds.
Mr. Chopra. There are too many lawsuits that are being
filed by the Department of Justice against defaulted student
loan borrowers, and data shows that overwhelmingly is targeting
those who live in ZIP Codes that are disproportionately
minority. And I think we need to fix that.
Ms. Adams. Great. Thank you very much.
Madam Chairwoman, I yield back.
Chairwoman Waters. The gentleman from Tennessee, Mr. Rose,
is recognized for 5 minutes.
Mr. Rose. Thank you, Chairwoman Waters.
I think it is important that, when possible, people fulfill
their financial obligations, because when that doesn't happen,
those costs are borne by someone else, by a small business in a
local community or by a taxpayer who did meet his or her own
credit obligations.
That said, as many of my colleagues have rightfully pointed
out today, our regulations are outdated and no longer
adequately serve those who need our help.
Technology exists today that did not exist in 1977 or 2006
or 2010. And in 10 years, there will be technology, no doubt,
that will exist that does not exist today.
So while I believe some work remains in the CFPB's proposed
rule, the longer we wait to act, the worse the problem will
get.
I support the CFPB's efforts, but I do believe some
important concerns have been raised about flaws with this rule,
concerns I hope will be addressed.
Last week, the Small Business Administration's Office of
Advocacy submitted its comments on the proposed rulemaking, and
one of the concerns mentioned was with the validation notice.
The office is concerned that, given the amount of medical debts
collected, itemization could not only be difficult and
unworkable, but it could also violate HIPAA (the Health
Insurance Portability and Accountability Act).
Mr. Bedard and Ms. Auchterlonie, as attorneys who have
operated in this space for some time, might this be a concern
the CFPB would have to address to move forward?
Ms. Auchterlonie, if you would go first?
Ms. Auchterlonie. Yes, we believe so. And in the comments
that I helped write, directed towards the Bureau on their rule,
we spent quite a bit of time educating them on the HIPAA
applications, specifically because medical debt that is in
collection is estimated to be between 47 and 58 percent of the
outstanding third-party debts in the country. So, there are
certainly HIPAA issues.
Mr. Rose. Mr. Bedard?
Mr. Bedard. I agree with those statements and with the
comments that were provided.
Mr. Rose. Are there ways to address wanting a more detailed
itemized validation notice without having to amend HIPAA-
permissive disclosures to include the information requested by
the CFPB?
Ms. Auchterlonie. One of our suggestions was that
collectors have a little bit more flexibility to provide the
names of creditors. And this would apply not just in the
medical categories, but also financial services and other
categories, because the proliferation of debt purchasing means
that the institution that owns your account may be this third-
party debt buyer that, when you get the letter, you don't
recognize their name.
But it would be really helpful for consumers in
understanding that they are actually being asked to pay for a
debt that was originated by some bank or some dentist office or
some creditor that they actually recognize.
So we ask for the flexibility for debt collection agencies
to provide more of a description of the chain of title of the
debt, which I think would also reduce a lot of the complaints
that, ``this debt is not mine,'' or ``they are collecting an
account that I don't own,'' which is really a confusion
complaint and not necessarily a malfeasance complaint.
Mr. Rose. Mr. Bedard?
Mr. Bedard. Those specific things that Sarah just mentioned
help consumers understand better who is contacting them, why
they are being contacted, and the debt for which they are being
contacted.
Mr. Rose. Thank you.
Another concern raised by both the Independent Community
Bankers of America (ICBA) and the Community Financial Services
Association of America (CFSA) is regarding the call
limitations. As ICBA notes in their comments, activities should
not presumptively be deemed harassment if a debt collector
wants to follow up with a consumer.
Mr. Bedard, Ms. Auchterlonie, is there a scenario where a
consumer who has fallen into collections could benefit from a
phone call or an email communication from a debt collector?
Mr. Bedard. The answer is yes, especially for those
consumers who may not even know that they have an account that
has fallen delinquent or in default. A text message, an email,
or a phone call is welcome to those consumers who are concerned
about their accounts and they are interested in keeping abreast
of what is happening on their credit. So the answer is, yes, it
is very helpful for consumers to receive those kind of
communications.
Ms. Auchterlonie. And I would also add that when you are in
the process of negotiating some sort of long-term payment
arrangement, that often takes a couple of different calls,
particularly if you are going to get bank account statements or
need to talk to a spouse and whatnot.
Mr. Rose. Okay. Thank you.
I yield back.
Chairwoman Waters. Thank you.
The gentlewoman from Pennsylvania, Ms. Dean, is recognized
for 5 minutes.
Ms. Dean. Thank you, Madam Chairwoman, and I thank you for
convening this important hearing on debt collection practices.
As I am sitting here, I am reminded of a constituent of
mine, whom I believe is 100- or 101-years-old, a friend and a
constituent, but he is a wonderful man, and he has talked to me
for the last 10 years about something he would like to talk
about. He said we name all kinds of ills in our society. We
name the ill of racism. We name the ill of sexism and many
other ``isms.'' He said it is time we named ``poorism,''
because how we treat the poor reflects how we treat the most
vulnerable among us.
So, I try to use the word, ``poorism.'' I am hoping it will
catch on, on behalf of my friend, because he is darn smart.
I want to talk about something that you have talked about,
Commissioner, and as most of the witnesses have talked about.
With student loan debt at the rate of $1.5 trillion in this
country, it is saddling our young people, it is stymieing our
economy. And, of course, so many young people falling into
default, delinquency. And, as you say, they look like they are
the bad guy, and they are not the bad guy.
Commissioner Chopra, given your experience as the former
CFPB Student Loan Ombudsman, I am wondering if you could tell
me what you saw in that capacity, and if you could reflect on
the fact that that space was left empty by this Administration,
for I think as much as a year. What impact might that have had
on protecting our student loan debt holders, that may be
connected to this proposed rule.
Mr. Chopra. I appreciate the question.
One of the things that was terrific about what the CFPB did
is we not only looked at facts and figures, but we listened to
voices very clearly. And to hear about student loan borrowers
who were ashamed to go back home for Thanksgiving, who felt
that there was a specter over their future because of how they
were being treated, I think that it hits us in the gut about
what is going to happen to that person's future and, frankly,
how does that affect all of us?
One of the things we are going to need the CFPB to do--it
is the primary regulator of the student loan industry, so if it
turns a blind eye or if it helps cover up wrongdoing, that is
not just a disservice to borrowers, it is really a disservice
to our American brand and our American Dream.
If people can't go to college and get ahead and instead
they are worse off, if we see that minorities and women have to
borrow more and then in the workforce earn less, that is just a
road to disaster for all of us.
And I hope that every regulator, State and Federal, can be
aggressive in cracking down on abuses.
Ms. Dean. I thank you so much for your work in this area,
and for your testimony today.
And then I wanted to turn to you, Reverend. You offered in
your opening statement that you would be happy to tell some of
the authentic stories that you have had to listen to, pastor
to, in both of your careers, in all of your careers. And I
think of the beatitudes and blessed are the poor.
Would you mind sharing with us some of those stories? I am
thinking maybe whether it has to do with minority debt, whether
it has to do with payday lending, or any other kinds of
predatory practices.
Rev. Gould. Certainly. And thank you for the questioning
and this framework of ``poorism.''
I have heard testimony of people talking about--it was the
doctor who bought a new car. That is not the people that I talk
to, and not the people that other faith leaders encounter on a
daily basis.
I'm thinking about a young woman by the name of Jennifer
who lives in Springfield, Missouri. Jennifer has multiple
medical problems, and receives disability. Her husband works a
low-wage job at KFC. They have five children, which includes a
couple of her sister's children. I think her sister passed.
Jennifer took out a payday loan to fix her car. Springfield
is approximately 4 hours from St. Louis, and she was having a
medical procedure and they needed reliable transportation so
that she could get to St. Louis, and her family would be able
to get back and forth while she was there. It was a payday loan
of $500. They paid it back the best they could for 2 years and
still had not finished paying it back.
And one of our programs, a program that was spurred out of
Missouri Faith Voices, University Hope, a couple of churches
who put some money together, ended up buying that debt. And
Jennifer, the shame that she suffered and actually still
suffers, and they paid it off in 2017, she went before the CFPB
to share her story and was very proud of her ability to do
that, but she still calls me, and inboxes me about the struggle
of just being poor.
Her son turned 16 on the 25th, and because they have more
car issues, she was not able to buy him a card or a cake or
anything. So, some pastors helped her with that.
But that is the reality of people who are struggling
because of the extraction of wealth and income out of the
poorest communities.
Ms. Dean. Thank you for sharing Jennifer's story, and tell
Jennifer we are thinking of her.
Chairwoman Waters. The gentleman from Wisconsin, Mr. Steil,
is recognized for 5 minutes.
Mr. Steil. Thank you, Madam Chairwoman, and thank you for
holding today's hearing.
Ms. Desai, I appreciate you coming in and sharing your
story today. In your testimony you noted that between 2004 and
2014, with the sale of medallions in New York City, that New
York City made $850 million. Is that accurate?
Ms. Desai. Yes, that is right.
Mr. Steil. And at the last auction, they were being sold
for $800,000 each?
Ms. Desai. The opening bid.
Mr. Steil. The opening bid. So in some instances, they are
selling them beyond $800,000. The opening bid was $800,000. I
appreciate you clarifying that for me.
In other words, the elected officials in New York City
created a really expensive barrier to enter the market,
generating enormous profits for City Hall on the backs of
average American workers who are looking to enter the taxicab
industry.
To me, it didn't have to be this way. If the medallions
were sold to drivers who met reasonable certifications
standards, we wouldn't have seen this cost drive all the way
up. But effectively, in New York City, elected government
officials made this decision, to the detriment of many of your
members.
I am sympathetic to the hardship that many of your members
are experiencing today. I appreciate you highlighting this. I
know my colleague from New York had comments on this earlier,
the significance of this issue.
I think, when I walk away from this, watching what New York
City did in creating, in effect, a legal monopoly, driving the
costs up well outside of what market rates would have been if
the government didn't get involved and create a legal monopoly,
is a real lesson to be learned for other government
jurisdictions to not get themselves involved in the private
sector in creating government monopolies and driving costs up,
which would have avoided a lot of the problems that we are
seeing here today.
So, I appreciate you coming and sharing that part of the
story today.
I want to shift gears just a little bit to Ms.
Auchterlonie.
One of the proposals discussed today would classify small
business loans as personal loans for the purpose of the Fair
Debt Collection Practices Act. Could you provide a little
detail as to the effect that that would have on credit for
small businesses?
Ms. Auchterlonie. I think there is a lot of nuance to it,
and, in fact, there are a lot of small businesses that end up
getting personal loans in any case because they don't have
enough credit or enough history as a business, so they have to
rely on the personal wherewithal of the borrower. So, there is
a little bit of that happening already out there in the
marketplace.
In some sense, it may make some of the small business
borrowing more transparent and straightforward. I do think that
you would have to really parse through the Truth in Lending Act
to determine which provisions of it apply to small businesses
and which provisions are specifically consumer-oriented.
It is a long Act. It is very complicated. I would not
recommend doing this in a couple of days. And I would also say,
consult with as many experts as you can in doing so.
Mr. Steil. Thank you very much.
Mr. Bedard, any additional comments on that topic?
Mr. Bedard. No more, other than to emphasize the importance
of the consistency between Truth in Lending and all of the
other regulations that we know industry needs to comply with,
including the Fair Debt Collection Practices Act, and others.
Consistency among them is not an overnight proposition, as she
just mentioned.
Mr. Steil. Thank you very much. Thank you for your
testimony today.
I yield back.
Chairwoman Waters. Thank you.
The gentleman from Illinois, Mr. Garcia, is recognized for
5 minutes.
Mr. Garcia of Illinois. Thank you, Madam Chairwoman, and,
of course, thank you to all of the witnesses who are here today
to further enlighten us about this pressing issue.
I would like to ask a question about zombie debt. Under the
CFPB's proposed rule, debt collectors can trick consumers into
initiating a debt payment on debt that previously sat outside
the statute of limitations.
This is in contravention of many State protections. For
example, in my home State of Illinois, the statute of
limitations on most credit card and medical debt is 5 years.
What's worse, under the proposal, debt collectors are
prohibited from filing or threatening a lawsuit if the
collector knows or should know that the legal time limit to sue
has expired.
So, I have a few questions.
Ms. Kuehnhoff, under what types of circumstances should the
CFPB find a debt collector should have known that a debt was so
old that it could not be pursued in court?
Ms. Kuehnhoff. Thank you so much for your question. This is
an important issue.
I want to first say that I would strongly argue that the
CFPB should have a strict liability standard for being held
responsible instead of a ``should know,'' whether you knew or
should have known.
However, if the CFPB does move forward with a ``know or
should have known'' standard, then I would argue strenuously
that if there is, for example, documentation that the debt
collector didn't bother to obtain about the debt that would
have shown that the debt was time-barred before they sued, they
should be held responsible, because they should have known
because they should have obtained that documentation.
I think this gets back partly to the substantiation issue
as well that we have been talking about.
Mr. Garcia of Illinois. As a follow-up, what sorts of
evidence would show that a debt collector knew that a debt was
so old it could not be pursued in court?
Ms. Kuehnhoff. I think that this would get to the records
that the debt collector has about the account, whether or not
they have documentation. They would certainly have information
that was transferred through a database or some other
mechanism, that would talk about things like, typically, the
date of last payment, and potentially other dates, if those are
known.
Mr. Garcia of Illinois. Commissioner Chopra, any insights
as a former member of that board?
Mr. Chopra. One of the things I will add is we also need to
think about Wall Street and debt buyers and the rising set of
hedge funds that are purchasing a lot of this old debt,
creating instruments and also assigning them to create value,
as they say. You can buy some of this stuff for a half a penny
on the dollar, and you make a 100 percent return if you can get
one cent on the dollar.
So, we really have to track where is all of this debt
flowing around and what are the incentives that we have to
attack in order to make sure that people aren't being abused by
some of the concerns you are raising?
Mr. Garcia of Illinois. Thank you for getting the macro
problem of indebtedness out there.
Last question, Ms. Kuehnhoff, many debt collectors work on
a contingency basis under which fees increase with the age of
the debt. In light of this fact, do you agree that this makes
zombie debt more lucrative to debt collectors than newer debts?
Ms. Kuehnhoff. I think that the rate of return would also
depend on how many people pay. So if you are getting paid more
per debt that is older, you would still need to convince people
to pay them.
But certainly there can be problems with incentive
structures, and we have called for a prohibition on the
collection of time-barred debt because we think that there are
a lot of concerns about not having information and
documentation to prove that this amount is owed, and to make
sure that you are collecting from the right person, and
collecting the right amount.
So, I would be concerned about aligning incentives to
encourage collection of potential accounts for which you don't
have documentation.
Mr. Garcia of Illinois. Does the proposed rule create an
incentive for creditors to pursue old debt?
Ms. Kuehnhoff. I think that by deviating from the strict
liability standard, it creates an incentive to attempt to not
know what the--whether or not an account is time-barred. Again,
we would argue for a strict interpretation.
Mr. Garcia of Illinois. Thank you.
I yield back, Madam Chairwoman.
Chairwoman Waters. Thank you.
The gentleman from New York, Mr. Zeldin, is recognized for
5 minutes.
Mr. Zeldin. Thank to you all of the witnesses who are here.
And thank you to the chairwoman and the ranking member for
holding today's hearing.
Before I get into some of my remarks with regards to this
issue, the primary issue at hand with the list of bills being
considered, rules being considered here under the committee, I
just wanted to specifically touch on the issue with regards to
the medallions.
I want to lend my support and concern for those who are
weighing in, the lessons to be learned with regards to the rise
of value and then the fall in the value of the medallions, the
people who are hurt drastically in that process because of
decisions made by people inside of government and out of
government.
I was in the State Senate before I came here. I saw some of
the decisions made up in Albany, artificially increasing and
ultimately leading to the collapse that we saw of the medallion
pricing.
So it is an issue that I am pleased to see in front of the
committee today. I lend my support to any of my colleagues on
the other side of the aisle who would be interested in working
together on whatever would be appropriate here in Congress.
While no industry is immune from bad actors, debt
collection agencies can provide practical options to help
consumers pay off their debt. On Long Island, many of the debts
being serviced by debt collectors are held by small,
independent businesses that do not have the means to collect on
their own debt. To have a financial system that works, both
businesses and customers need to hold up their end of the
bargain.
Businesses will not be able to extend credit to or provide
goods and services for our nation's job creators and consumers
without being repaid. However, borrowers should not be harassed
or treated with harm in any debt collection practices. That is
why it is important that the CFPB proposed its rule on debt
collection under the Fair Debt Collection Practices Act
(FDCPA).
Modernization of the FDCPA is long overdue; and this is a
step in the right direction, helping to protect consumers from
harmful debt collection practices.
Open communications between borrowers and debt collectors
is key to a fully functioning credit system. The existing data
collection rules are outdated and fail to take into account
advances in communication technology.
When the FDCPA was passed in 1977, email and text messages
were not even in existence. I haven't met many millennials who
prefer to communicate via letters in the mail or a phone call
over receiving an email or text. It is absurd that the
guidelines for this industry are stuck in the 1970s.
Rules of the road for clear, modern communication are good
for both consumers and businesses. Overly burdensome
restrictions on debt collection practices can ultimately hinder
consumers' ability to access credit products and make them more
costly for everyone.
Ms. Auchterlonie, there have been many who argue that the
CFPB's proposed rule will open the floodgates to abusive emails
and text messages from the debt collection industry. Is that a
valid concern? And are there any compliance steps that have to
be completed to send emails and texts?
Ms. Auchterlonie. Right. The text of the FDCPA itself
prohibits abusive communications, all communications, and that
is not just telephone but all communications. So, we have that
inherently built into the statute.
But in addition to that, we also have the specific rules
that the CFPB implemented that require opt-out mechanisms, and
it is the same sort of opt-out mechanisms you get with
commercial or store emails and so on. So, there is an
opportunity for consumers to choose the medium in which they
communicate with their collection agency.
Mr. Zeldin. And I concur with a comment that was made a
little bit earlier by my colleague from Kentucky, Mr. Barr. He
was sharing his thoughts on, if you incur a debt, you have an
obligation to pay it back.
And as I pointed out, a lot of the debts owed where I am
from in the First Congressional District of New York are owed
to small businesses, and they are desperately relying on being
able to have those obligations fulfilled in order to be able to
pay their bills and to be able to stay in business.
It is an important philosophy, I think, for us to
understand that key part of it, and that there are debt
collectors who, just like every other industry, give their
industry a bad name by abusing the rules of the road, and at
the same time, there are some debt collectors near and around
New York 1, my congressional district, who follow the rules
and, when you change the rules, they will follow the new rules.
They are doing a good job, responsibly representing their
industry, and I think it is also important that we work to have
the right rules for them.
I yield back, and I again thank the Chair for holding
today's hearing.
Chairwoman Waters. Thank you very much.
The gentlewoman from Texas, Ms. Garcia, is recognized for 5
minutes.
Ms. Garcia of Texas. Thank you, Madam Chairwoman, and thank
you for this hearing today.
I want to apologize to all of the witnesses. I did have to
step out for a competing committee hearing on ICE detention
centers that the Judiciary Committee was holding. But what
really strikes me is how the 2 hearings are really kind of
related, because there, we were talking about detention and the
almost incarceration-like facilities for basically poor people
and vulnerable populations and here, we are talking about debt
collection of, as you said, Reverend Gould, the poorest of the
poor.
So I am going to focus on racial disparities in debt
collection as it impacts poor people. And, Ms. Jimenez, I
wanted to start with you.
Can you talk about the relationship between the racial
wealth gap and how it contributes to these debt collection
practices? Because especially when we go to the courts, it
hurts poor people more, doesn't it?
Ms. Jimenez. Absolutely. And I thank you for that question.
The racial wealth gap is something that obviously
transcends debt collection. The financial position of African
Americans, in particular, in this country is a product of
obviously a lengthy history, beginning with slavery, exclusion
from holding property and government land grants,
discrimination in housing, and a litany of exclusionary
policies that hindered access to home ownership and wealth
building.
And so we have a situation where the median wealth of white
households is 13 times the median wealth of Black households,
and people of color, African Americans in particular, face
basically a perfect storm of events that lead them ultimately
to be collected upon, called, sued, and have judgments against
them far more than their white counterparts.
Ms. Garcia of Texas. Wages garnished.
Ms. Jimenez. Yes, all of that.
Ms. Garcia of Texas. Do you have numbers for what the
impact is on the Latino population?
Ms. Jimenez. I'm sorry?
Ms. Garcia of Texas. Do you have numbers for the Latino
population? Are they similar, or the same?
Ms. Jimenez. The Latino population numbers are similar, not
as stark, I guess I would say.
Ms. Garcia of Texas. Again, in another hearing that we had
earlier--this is like my eighth hearing this week, so I forget
which one it was--but we talked about how long it would take an
African-American woman to kind of catch up with the wealth gap.
And I was just completely blown away. It would take an African-
American woman 100 years, and Latinas 200 years. So, none of us
here will benefit from any of that. In fact, I think it
probably just gets worse.
Reverend Gould, I am going go back to you. Like you, I
don't wear the collar, but I am a woman of faith, and for me it
is about making sure that people don't get poor. I still
remember a consumer advocate commentator in one of the local
broadcast stations in Houston who always used to close his
program with, ``It is hell to be poor.'' Sure is, isn't it?
What can we do to help to lift up those communities,
particularly when it comes to payday lenders?
Rev. Gould. I think we have to take--we have to actually
own all of the history in this country, own what 400 years of
enslavement has done to African Americans and our communities.
I really think the reparations conversation is a part of this
conversation as well.
Ms. Garcia of Texas. We have had a hearing in the Judiciary
Committee.
Rev. Gould. Yes.
And so, it is all connected. I spoke earlier about the
community of Ferguson, outside of St. Louis, a community that
is 67 percent African American, and 23 percent of the income in
2014 came from traffic stops.
So, it is all predatory. It is not just payday lenders, but
there are also big businesses.
One of the things that we--
Ms. Garcia of Texas. I am glad you mentioned traffic stops,
because I know that even for traffic tickets, parking tickets,
ambulance fees, the public sector is not free from any of these
issues either, are they?
Rev. Gould. That is absolutely correct.
Ms. Garcia of Texas. Governments also hire outside debt
collectors to collect fees.
Rev. Gould. Yes. In Missouri, we have had for the last 19
years the attorney general's report that gives us a vehicular
stops report, and it goes up every year, 4 times the number of
African Americans and other people of color being stopped.
Well, you are stopped and you are fined and you are fined more
than your white counterpart. You work a low-wage job. So it is
double, triple, quadruple jeopardy.
Ms. Garcia of Texas. Thank you, Madam Chairwoman. I yield
back.
Chairwoman Waters. Thank you.
The gentleman from Arkansas, Mr. Hill, is recognized for 5
minutes.
Mr. Hill. Thank you, Madam Chairwoman. Thank you for
holding this hearing today.
And I thank the witnesses for this long engagement you have
had here. We appreciate your forbearance.
As a former commercial banker and lender on and off over
the years, I certainly understand the importance of these
issues and how important it is to try to lend money in a fair
way and collect it in a fair way. And I have really appreciated
the points of view that you have brought to the hearing today.
I want to talk about H.R. 4403, the Stop Debt Collection
Abuse Act, which I cosponsored with my friend, Mr. Cleaver from
Missouri. This was a bill that we had in the last Congress that
we worked on with Mr. Ellison and Mrs. Love, and it safeguards
American consumers by strengthening consumer protections
against predatory debt collection practices, but this time by
the government.
It seems to me that we have talked about the Fair Debt
Collection Practices Act at length today, which has been in
effect since 1977, but it has always been intriguing to me that
one of the ambiguities in that law, and also subsequent court
cases and interpretation, has facilitated a situation where
debt collection companies that work on behalf of government
agencies aren't covered.
So this really kind of strikes at the heart of the fairness
issue, claiming that debt with a government entity does not
qualify as consumer debt.
One only has to review the consumer complaints, the
lawsuits, to find records of confusing and troubling stories
around many instances where this has created problems across
the country. And even if you look at that as anecdotal
information generally, in many instances they are hitting a
tack with a sledgehammer.
A sad story that I certainly connected with, because I do
so much work with our veterans, is the veteran in Houston who
had a $1.25 toll debt. Now, I have two kids in college, so I
know about those bills when they come in the mail. It said that
someone was--it is the only way I know that they are on a toll
road or where they were, is by virtue of the unpaid toll tag
response that comes to Dad.
But, $1.25. And this veteran starts getting the calls. He
doesn't know what is going on, and he is confused by it. He is
an older man. And he ends up having to pay $300 to settle a
$1.25 toll.
And that is the kind of thing, we talk about it all day,
this is your world, obviously, but this is where I think Mr.
Cleaver and I are trying to operate. This is the world where we
are trying to simply clarify the debt collection practices for
debt collection agents hired by a Federal Government agency,
that this law applies to them, just like it applies to the
private sector. How could that be complicated or unfair?
So, that is what this Act does. I think it is a good step.
And I appreciate Mr. Cleaver partnering with me on it.
Does anyone disagree that an agent working on behalf of a
government agency should be covered by the same laws that
private debt collectors are?
I am going to do it in reverse. Does anybody disagree with
that?
Ms. Auchterlonie. No, sir.
Mr. Hill. Okay. Thank you for that.
Ms. Auchterlonie, would you speak to the benefits of
clearing up some of those ambiguities? It is 40 years in the
making, but it is clearly a problem. Would you give your views
on that?
Ms. Auchterlonie. When I was at the Bureau, I actually had
an enforcement investigation that was really similar, related
to district attorneys giving a collection agency the power to
collect on bad checks. And we ended up settling with them for a
significant amount of money and asking them to change their
practices.
Because a lot of times, the government agencies are charged
with the responsibility to collect these fines, but they are
public servants. They are not professional bankers. They are
not professional financiers or collectors. They don't
understand the rules of the road. And so, they don't really
have the professional expertise to oversee and ensure that the
collection agencies that they are working with are using best
practices and treating their constituents the way that someone
else would prefer to treat a customer.
So, I can see some advantages to and where you are coming
from on this.
Mr. Hill. Good.
I want to thank all of you for your testimony.
And thank you, Madam Chairwoman. And I yield back the
balance of my time.
Chairwoman Waters. Thank you very much.
Allow me to take a moment to thank all of our distinguished
witnesses for their testimony here today.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
And with that, this hearing is adjourned. Thank you all so
very much.
[Whereupon, at 1:25 p.m., the hearing was adjourned.]
A P P E N D I X
September 26, 2019
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