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As Debt Collection Complaints Rise, Greater Regulatory Scrutiny Follows

It is no secret that debt collection practices are under increasing regulatory scrutiny. And with three recent reports revealing a rise in consumer complaints related to debt management, it's a safe bet that state and federal regulators will continue to keep a close eye on the collections industry.

In 2013, according to the Federal Trade Commission (FTC), debt collection had the second-highest number of all consumer complaints reported. Each year, the FTC releases a summary report detailing the complaints reported to its Consumer Sentinel Network (CSN), an online database available only to law enforcement. Last year, the CSN received more than 2 million consumer complaints from numerous federal and state agencies, US and Canadian Better Business Bureaus, and consumer organizations. 

The FTC report also revealed that the number of debt collection complaints (10%) was the second highest, behind only identity theft (14%). However, identity theft complaints had declined a significant 20% from 2012, while debt complaints rose by 2.5%. In addition, the report’s state-by-state breakdown shows that in nearly every state, debt collection complaints were either the highest or second-most reported category.

A recent study by US PIRG Education of consumer complaints to the Consumer Financial Protection Bureau (CFPB) also reinforced the growing frequency of debt collection complaints from consumers. Looking at July 2013—when the Bureau began receiving debt collection complaints—through January 16, 2014, PIRG noted that debt collection represented the second-highest volume of complaints behind those related to mortgage. During that timeframe, the CFPB received an average of 2,000 debt collection complaints per month.

In a third debt collection-related report, released several weeks ago by the CFPB, the Bureau confirmed that debt collection concerns now comprise the largest monthly source of complaints it receives.

While the CSN and CFPB complaints represent a relatively small percentage of the approximately 30 million Americans with debt in collections, the increase in complaints cannot be ignored. Keep in mind that the complaints inform regulators of problem areas that need to be addressed. In a recent post, I discussed the CFPB taking the first step towards drafting new debt collection rules by inviting public input on a wide range of issues. I stressed the importance of those involved in debt management to share their insights with the Bureau. In February, FICO submitted its comments along with more than 20,000 other responses.

Besides engaging in the rulemaking process, it’s equally important to manage and resolve customer concerns internally before consumers take further action. FICO is working with our clients to implement analytics and automation that help address various regulatory challenges, both here in the US, as well as abroad where conduct risk has become a central regulatory focus. (For more on conduct risk, read my colleague David Molyneaux’s recent blog post.) The stakes are increasing, and proactively addressing customer frustration is not only a best practice, it can also keep your organization in good standing with the regulators.

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