Atlanta — Congress' efforts to streamline debt collection aim to balance consumer protection with higher re-payment rates.
Atlanta — Debt-collection standards might not be the highest priority for student housing companies, but new laws could affect some of the industry's operations, possibly for the better.
When late rent, damages fees or other costs go unpaid, these debts are often forwarded to collections companies who rely on open lines of communication with tenants to obtain money owed to their clients. But collection companies are struggling to operate their businesses. Several leaders in the field say debt-collection laws are contradictory and outdated. And that a few bad apples - companies who use harassment and threats - are impeding compliant companies from making their own bottom lines.
The Fair Debt Collection Practices Act (FDCPA), which regulates debt collectors' conduct, became law in 1978. And many consumers have won legal battles interpreting the dated laws, especially with rules about cell phones and auto-dialing. But with the national student loan debt surpassing the $1 trillion mark, Congress is starting to take another look at how it can participate in improving collection returns on these outstanding balances, which have exceeded national credit card and auto loan debt.
"I can tell you with certainty that regulation in our industry needs reform," says Joel Lackey, president of National Credit Systems, an Atlanta-based agency that specializes in student housing and multifamily collections. "Think about the world in 1978 when these regulations went into practice: People didn't have answering machines, so leaving a message wasn't contemplated in the law, not to mention cell phones, e-mail and texting."
In January 2013, the Consumer Financial Protection Bureau (CFPB), which was established in 2010 under President Obama's Dodd-Frank Wall Street Reform and Consumer Protection Act, will begin monitoring debt collection companies that bring in $10 million or more per year in order to scrutinize and potentially reform the way collectors go about communicating with consumers who owe.
The CFPB will evaluate how, for instance, financial companies identify themselves. With caller ID, consumers can tell who is calling them and often choose not to answer. However, collection companies are often at an impasse regarding leaving messages, which leads to multiple calls, and that in turn can lead to a harassment-fueled lawsuit. Reps are required to identify that they are calling from a collection agency when they leave a message, and they are also prohibited to release the knowledge of a debt to a third party.
"If you owe a debt, and I call and leave a message for you, but your roommate checks your voicemail before you do, and I've identified myself as I am supposed to, then I've just violated the Fair Debt Collection Practices Act," says Mark Schiffman, vice president of public affairs for the Association of Credit and Collection Professionals. "There's no safe harbor language, so we've introduced a bill that allows collectors to leave a voice mail."
The bill is H.R. 5794, an amendment to the FDCPA that was introduced in May. It is intended to exempt a debt collector from liability when leaving certain voice mail messages for a consumer.
"The idea [behind most of these efforts] is to establish one central body and one central location for how the rules are administered and managed," says Raymond Stein, vice president of operations at BYL, a collections firm that specializes in property management, financial and healthcare industries, among others.
"There are a lot of attorneys and regulatory bodies nailing agencies over what really isn't out-of-bounds kind of practices. If a company gets sued because one of their reps harasses or hurts somebody, that by all means is out-of-bounds. But there are agencies that get sued for the kind of font they use in their letters. For the industry to get bogged down in all these vague and outdated rules isn't right."
Lackey says industry associations have gone so far as to advise collections reps to leave messages that provide a warning, asking that if whoever is listening is not the debtor to cease the message, or even walk out of earshot, so that the collections rep may then continue the call and identify him or herself without third party disclosure.
"Will tighter regulations help? That remains to be seen," Stein says. "If Congress updates these laws and continues to investigate what's fair and what is not, then that will be the right thing. If we continue to be up against groups that go out and blow guys away with crazy fines over vague and outdated laws, that's going to be a big problem."
— Lynn Peisner