The Consumer Finance Protection Bureau has made noises about developing stronger consumer protection regulations or laws to protect consumers against debt collection attorneys continued abusive practices. In particular, I wish new regulations would curb the two main unfair advantages that they constantly use, namely:
- Issuing credit card debt court summonses with insufficient paperwork while knowing that debtors statistically do not defend themselves against and lose by default.
- As a result of winning these default judgments, they then exploit loopholes in each state’s consumer protection laws to garnish debtors wages and seize bank accounts and property.
State of Illinois Sets an Example with Its New Law
The combination of too many cases with too few lawyers accessible to consumers, appears to have created the perfect storm of debt collection lawsuits becoming judgments, many by default. A default judgment means that the consumer debtor failed to settle or file in court a formal response to the lawsuit. Often the consumer was not properly served and had no knowledge that they had been sued. After years of reviewing consumer files, many debt collection lawsuits are not properly delivered to the debtor, leaving them vulnerable to an invalid default judgment being enforced (without warning) on the debtor’s bank accounts, wages, and residence. Debt buyers often target consumers even though they can’t prove that the debts are legitimate. In January of this year, the Federal Trade Commission (“FTC”) issued a report that found debt buyers didn’t verify alleged debts in half of the cases studied by the agency. The FTC found that consumers disputed an estimated one million debts each year but that debt buyers only verified 500,000 of those disputed debts.
Recent laws, such as state of Illinois’ Consumer Fraud and Deceptive Business Practices Act CFDBPA are the response by state legislatures to help consumers and the courts deal with this deluge of debt-buyer lawsuits. New rules in the CFDBPA include prohibiting a debt buyer from collecting a debt, unless the debt buyer has access to the signed contract or other written proof of the debt with the consumer. Also, the debt buyer must explain to the consumer in writing the debt’s balance, including the original balance and how the charges were incurred.
Consumer Protection Needs A Drastic Overhaul
The next article by Charlene Crowell, a syndicated newspaper columnist, equates the current consumer protection to old fashion “horse and buggy” laws. I agree wholeheartedly in her assessment.
Depending upon a given state’s exemption laws, garnished wages are not the only option available to creditors. Many state laws have left loopholes that allow bank accounts, autos, or even household goods to be seized. Now a new research report by the National Consumer Law Center (NCLC) urges states to protect consumer wages and property from aggressive debt collection by creditors and debt buyers. The research comes at a time when many consumers’ finances remain fragile.
The report, No Fresh Start: How States Let Debt Collectors Push Families into Poverty, reveals how these outdated state laws have failed to keep pace with the nation’s economy and its technology. Laws that remain a relic of yesteryear include a Delaware exemption that protects a sewing machine owned and used by a seamstress; or a Vermont law that exempts one cow, two goats and three swarms of bees from being taken to satisfy a judgment. Other exemption laws that protect wages or other personal property have not changed to reflect inflation, protecting less than $500 in personal property in some states.
You may be interested in these posts about how the non-payment of credit card can debt can actually work for consumers who cannot afford to pay.