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U.S. Seeks to Up Oversight on Debt-Collection Industry

The last five years have been hard on the economy from every side. By the very nature of the capital market, surviving economic hardship often means making the hardship greater for someone else. Transactions, agreements, dealings all involve at least two parties and in the United States, those two parties are often creditors/banks and their consumers. Unfortunately, the urge to survive this economy often times drives creditors and collection agencies to use abusive methods to compel payment. This rising trend has caught the attention of federal entities and there are plans for increasing regulation of collection methods in order to protect consumer rights.

The regulations are being made and enforced by the Consumer Financial Protection Bureau, which was created by the Dodd-Frank Act of 2010. A recent statement by the bureau's director communicated plans of creating new rules, in addition to the existing Dodd-Frank Act and the Fair Debt Collection Practices Act of 1977, as well as enforcing the old rules. These changes would apply to any type of debt collection, whether credit cards, credit extensions and even purchase of charged-off debt by various companies.

The reason for this increased activity within the debt-collection industry is multifaceted. First of all, prior to 2010, federal legislative regulations of the industry had virtually been untouched since the passing of the Fair Debt Collection Practices Act in 1977. Even then, Congress neglected to provide the Federal Trade Commission with the authority necessary to stay updated with the changing economy and technology. It is undisputable the nature of transactions has changed significantly since the late 1970's. Furthermore, the frequency of various types of credit, and therefore the collection of those debts, has exponentially multiplied since the passing of the FDCPA. Rules must be added and updated not only to keep up with the advancements of the industry but also the basic growth that has taken place as well.

Consumer Financial Protection Bureau director Richard Cordray voiced a concern over the increased amount of litigation in the debt-collection industry. Reducing the dependency and utilization on litigation for the collection of debts may be one of the focuses of new legislature so that creditors have a way to seek repayment without having to bog both parties down with litigation fees and clog the court systems. Leaders in the creditor industry have also voiced their opinion on the prospect of new/updated rules for the industry and they are not necessarily opposed to it. In fact, they are looking forward to clearer cut instructions on how to follow the rules of the industry.