Re: CFPB , Advanced Notice of Proposed Rule Making Debt Collection (Regulation F)

Transcription

1 February 28, 2014 Consumer Financial Protection Bureau Attention: Monica Jackson Office of the Executive Secretary 1700 G Street NW Washington, DC Re: CFPB , Advanced Notice of Proposed Rule Making Debt Collection (Regulation F) Dear Ms. Jackson: Young Invincibles (YI) appreciates the opportunity to comment on the Consumer Financial Protection Bureau s (CFPB) Advanced Notice of Proposed Rulemaking (ANPR) on debt collection (Regulation F). We are a non-profit advocacy organization working to advance economic opportunities for young adults 18 to 34 in the areas of higher education, jobs, and health care. Recently, a young woman named Cara from Florida wrote to us about her challenges with debt collection. She graduated from the University of Miami with a degree in electrical engineering. Several unforeseen events led her to default on her student loans. For eighteen months, Cara tried everything she could to rehabilitate them. She wrote to debt collection agency after agency to no avail. Agencies sold her loans back and forth several times, and when she tried to contact them to sort things out, she told us that the debt collectors refused to respond to her requests or give her any information. When Cara was six months pregnant with her first child, a collection agency started garnishing her paychecks. When Cara contacted YI, she barely had any money to support her family or feed her baby. The collection agency still refused to return her calls or letters. She tried to buy a home for her new family but the mortgage company denied her mortgage because of her credit. She feels powerless because she cannot take care of her aging parents or even open a simple checking account. Cara feels like a prisoner to her loans. This is one borrower s story, but it illustrates how debt collection practices can make a trying situation for a young borrower much worse. And Cara is not alone. Currently, thirty-seven million student loan borrowers have outstanding balances that total over $1 trillion. 1 Over five million borrowers have at least one past due student loan account, with a whopping $85 billion past due. 2 Student loan collection is a hefty portion of the debt collection industry: in 2011, a national trade association of collectors reported 1 Young Invincibles, College Affordability Facts, (last visited February 28, 2014). 2 Ibid.

2 that student loan debts were among the most frequent debts on which collectors seek to recover from. 3 Young Invincibles conducted a survey of private loan borrowers in 2013 that shared information with us about their education, their debt, and their experiences repaying their loans. In this comment, we convey borrowers interactions with debt collection companies in detail. While we do not have systematic data on debt collection in the student loan market at this time, we feel that amplifying the anecdotal debt collection experiences of student loan borrowers sheds light on several harmful practices that require greater consumer protections and oversight. We found four main challenges that borrowers face with their servicers and debt collectors: 1. Student loan borrowers who try to rehabilitate their loans often experience stonewalling from debt collectors. 2. Student loan borrowers struggled with inconsistent debt collection policies, leading to lengthier repayment and excess fees. 3. Debt collectors harassed some student loan borrowers. 4. Some debt collectors sometimes used deceptive tactics on student loan borrowers and employed overly harsh consumer policies. 1. Student loan borrowers who try to rehabilitate their loans experience stonewalling from debt collectors. Borrowers generally want to be in good standing with debt collectors and student loan servicers, and they usually try their best to address problems with their student loans, like late payments. However, we noticed that many borrowers who tried diligently to reach out to speak to someone about their situation experienced outright stonewalling from debt collectors. Borrowers told us that when they tried to return debt collectors calls to learn more about their options, they received automated messages instead of a person on the call. Other times, when borrowers were able to reach an actual person, the representative was not in a position to help them, nor could they transfer them to a manager or representative who could help. Other debt collectors told borrowers that their policies required borrowers to send correspondence in writing. But borrowers told us that debt collectors never acknowledged or responded to their written requests. Many debt collectors completely ignored letters and phone calls from borrowers, but continued to make harassing phone calls at all hours of the day. Moreover, many borrowers felt that debt collection staff were poorly trained, and several borrowers also told us that they felt disrespected. 3 ACA International, 2011 Top Collection Markets Survey: For Period: Jan.1, 2010-Dec. 31, 2010 at 9 (2011), available at

3 One borrower, Michael D., received degrees in environmental science and psychology from NYU and University of Hawaii. He wrote to us that when his payments became too high for him to handle, he tried several times to address this problem to keep current. He said, They basically refused to do anything, despite my earnest attempts to try and negotiate. They simply have no incentive to help me, since they ve threatened to garnish my wages if they don t receive my payments. There is no protection for me. Stonewalling struggling borrowers will not help them get back into good standing on their loans. Debt collectors unwillingness to meaningfully communicate with borrowers who were only trying their best to get back into good standing exacerbated the situation, leading to even higher debt levels and frustration. Borrowers like Michael, who reached out to debt collectors numerous times to keep current, may only end up feeling as if their situation is hopeless while their debt piles up. 2. Student loan borrowers struggled with inconsistent debt collection policies, leading to lengthier repayment and excess fees. Among the array of unprofessional conduct that we learned of, borrowers informed us that debt collectors would also go back on agreed-upon deals. They shared that some debt collectors would firmly agree to deduct a certain amount per month, only to end up taking far more. One borrower wrote that he and his debt collector agreed that he would pay them $50 per month. The next month, the debt collector tried to collect $600 from his checking account without permission. Borrowers also shared that debt collection policies varied drastically, and that information coming from the debt collector changed day to day, depending on who was working. Jill E., a biomedical engineer, said that her debt collector gave her the choice to either go through a debt management program or have her wages garnished. Once she signed up for the debt management program, the debt collector told her that they would forward her account to the bank so that she could set up payments. The debt management program never forwarded Jill s loan to the bank, and ultimately, debt collectors added a $27,000 collection fee to her loan. Jill had to move in with her parents and has tried to borrow money from her relatives to pay down her debt. Rob S. attended SUNY Geneseo and Duke Law School. His payments were causing him financial distress and his debt ended up with a debt collection company. Rob shared his experience with added fees and being bounced around with us: It seems like every time I call, my debt has been passed on to a new debt collector, which has applied a 25 percent collection fee to the amount of my loan. As a result, Rob took on credit card debt, does not save for the future, has put off buying a car, cannot buy a home, and he also has delayed starting a family because of his student debt. The problem with debts constantly changing hands, inconsistent polices, harsh penalties, and going back on agreed-upon deals is this: borrowers shoulder the entire burden in the form of lengthier repayment and added fees. For young adults at the outset of their careers like Rob, these practices have the potential to destroy borrowers credit, and much more.

4 3. Debt collectors harassed some student loan borrowers. Many borrowers told us that they experienced an array of harassing behavior from debt collectors. A common theme from survey respondents was that debt collectors called far too many times per day, often outside normal working hours. One borrower received calls as early as six in the morning. Many debt collectors called borrowers five to six times per day. Another borrower wrote that debt collection phone calls were the first call she woke up to and the last call she received every night before going to bed. Borrowers shared that the repeat calls were often automated, so even when the borrower answered, their only option was to speak with a machine, which was unable to transfer them to an actual person. We even learned that some borrowers even received harassing phone calls while they were still enrolled in school, when loans are supposed to be deferred. Chloe B. shared that her debt collectors would call her five to six times a day, and that they would also call her father several times a day at his place of employment and in their home. She wrote that during one interaction, They said if they can t get the money from me, they will try to get it from my parents, my siblings, my relatives. They said if nothing works, they will lien me and wait until I die and collect from my estate. [The calls are] at work, home, nights, weekends, holidays. Borrowers also shared many stories of debt collectors behaving unprofessionally and unreasonably. One borrower said that debt collectors harassed him over loan amounts as low as $0.40. Another borrower began receiving several harassing phone calls on her due date, when she still had time to pay. A third borrower experienced something even odder: his debt collector would call and leave messages, asking for other family members in the household, only to reply much later, after tricking the family into answering the phone, that they were actually looking for the borrower. Alarmingly, some borrowers took out other debts to repay their student loans just so the harassment that they and their families experienced could stop for a while. Dishearteningly, we also learned of harassment against both borrowers with disabilities and loan cosigners who have disabilities. Sometimes, debt collectors would refuse to accept disability determination as proof of having a disability. Jennifer W. s loan servicer sent her student loans to a debt collection agency after she survived a serious car accident. She tried to submit a doctor s verification to her the debt collection agency but they refused to accept her doctor s verification. Unfortunately, Jennifer now owes double of what she originally owed due to the delay. Excessive phone calls and shady tactics do not lead to real, meaningful solutions for borrowers or debt collectors. This behavior adds a huge burden for many people as they try to dig themselves out of an already stressful situation. 4. Some debt collectors sometimes used deceptive tactics on student loan borrowers and employed overly harsh consumer policies. Among the most egregious behaviors that we heard some debt collectors use on borrowers is deception. From giving borrowers contradictory information to condescending and unprofessional conduct, borrowers experiences ran the gamut. We heard numerous accounts of debt collectors who used scare tactics on borrowers, at times

5 coercing them into agreeing to pay what they knew and admitted that they could not afford. One borrower, Kemba H., wrote that debt collectors routinely refusing to acknowledge payments that she already made, and that debt collectors failed to account for these payments entirely. Another borrower, Lea S., was receiving several debt collection calls per day. Lea shared that the calls eventually slowed, but she realized that debt collectors gave her only one option, which prevented her from making payments on any of her other loans. Debt collectors were also often unhelpful when borrowers asked questions about how their payments would apply. We learned from several borrowers that debt collectors refused to clarify whether their payments were going to their loan principal or to their interest. Borrowers also felt that debt collectors would refuse to post their payments even after they received them so that they could collect even more interest by prolonging the delay. Frank G. is a communications project manager with degrees from West Virginia University and Cleveland State University. He shared that he felt his debt collector company broke the law and violated his privacy. He said, Debt collectors are unprofessional. They frequently breach collection laws. They disclosed my loan information to a third party. As a result of his debt, Frank shared that he has had trouble putting aside enough to save for his future. Frank may later also have to deal with this breach of his personal information Sadly, we also heard from several borrowers that debt collectors refused to take serious circumstances out of the borrower s control into account. For example, many borrowers explained that debt collectors ignored their pleas to consider periods of unemployment or serious health issues when negotiating payments. One survey respondent, a cancer survivor, wrote that doctors diagnosed him with the illness, which prevented him from working for a period of time. His debt collection agency refused to take his cancer diagnosis and unemployment into account and provided no relief. Stories like these are not only astonishing, but relatively easy to find. Too many young adults attempting to repay their debts and move on with their lives must deal with anxiety, stress, and unfair costs from debt collectors. Many of the borrowers we heard from had done all of the right things: borrowed money to get the degree they knew they would need to open doors to opportunities, only to drown in debt and be held down further by debt collection practices. As you consider much needed consumer protections for these borrowers, we hope that our stories of some of the worst practices that we note above--stonewalling, harassment, unprofessional behavior, unforgiving policies, and deception--give CFPB a more in-depth portrayal of what it is like for many young adults just looking to get out from under their debt. We also hope these stories lead to stronger consumer protections that prevent unfair and outrageous debt collection practices on student loans. Thank you for the opportunity to comment on debt collection as you prepare for rulemaking. We hope that that the CFPB finds our input valuable and we look forward to continuing to work with you all. For more information, please contact Jennifer Wang, Policy and Advocacy Manager for Young Invincibles, at jennifer.wang@younginvincibles.org.