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Dear DC Council, Please Protect Consumers from Abusive Debt Collection

Thursday, September 11, 2014

In a letter sent today, the Center for Responsible Lending (CRL) along with several other groups - Legal Aid Society of the District of Columbia, District of Columbia Consumer Rights Coalition, Consumers Union, National Association of Consumer Advocates, National Consumers League, and U.S. PIRG - asked Councilmember Vincent Orange, the Chair of the Council's Committee on Business, Consumer and Regulatory Affairs, to schedule a hearing and committee markup on legislation designed to protect consumers from unscrupulous debt buyers' abusive collection tactics. The group also urged other members of the council to take a leading role in ensuring debt collectors are transparent with consumers and accountable for abusive actions.

The Debt Buying Limitation Amendment Act, sponsored by Councilmember Mary Cheh, would protect Washingtonians from unjust lawsuits filed by abusive debt buyers, who often use illegal collection tactics to pressure consumers into making payments on debt they may not owe. The bill would also set clear guidelines for debt collectors to put an end to harassing and deceptive practices used by some industry actors. The bill was co-sponsored by five other councilmembers (Councilmembers Graham, Bonds, Wells, Barry, and Alexander).

Earlier this year, a report in CRL's ongoing "State of Lending" series detailed predatory practices in the debt collection and debt buying industry, their impact on consumers and the need for reforms like those outlined in the Debt Buying Limitation Amendment Act. The report found that abuses have mushroomed as the industry rapidly expanded. The full text of the letter, and additional background on how the bill would protect consumers, is included below. For more information, please contact Andrew High at Andrew.High@responsiblelending.org or 919-605-9854.

Councilmember Vincent Orange

Chair, Committee on Business, Consumer and Regulatory Affairs

Council of the District of Columbia

1350 Pennsylvania Avenue, N.W.

Washington, D.C. 20004

Re: Support and Committee Hearing for the Debt Buying Limitation Act of 2014

September 11, 2014

Councilmember Orange,

We, the undersigned signatories, urge you to support and schedule a committee hearing and mark-up for the Debt Buying Limitation Amendment Act of 2014.

The Debt Buying Limitation Amendment Act will help protect Washingtonians from unjust lawsuits filed by unscrupulous debt collectors, who often use illegal and abusive tactics to pressure consumers into making payments on debt that is too old for the consumer to be sued for or never existed in the first place. This bill will require that purchasers of consumer debt provide basic evidence proving a debt exists to consumers and the court before filing a lawsuit or proceeding with collection efforts. For the past few years, consumers have battled an increasing number of cases of wrongful debt collection and insufficient information is the common denominator in these frivolous lawsuits.

The debt buying industry is relatively new. As a result, the District of Columbia's laws are outdated and do not address current abuses in the industry. The statistics today dwarf the number of lawsuits being brought last time the laws were updated. The Consumer Financial Protection Bureau recently called one debt collector with a team of only 8 attorneys a lawsuit "factory" after it filed 350,000 suits against consumers since 2009, clogging the courts and causing unnecessary financial distress to aggrieved consumers.[1] These cases are frequently filled with inaccurate information about the accounts or just missing information completely. To make matters worse, some reports suggest these tactics disproportionally harm low-income people, communities of color and members of the military.[2] New laws are necessary to protect consumers from predatory practices, harassment and unnecessary court costs.

The Debt Buying Limitation Amendment Act will bar abusive debt collectors from using unfair, harassing and deceptive tactics to collect consumer debt and/or information from consumers. It also requires that debt collectors have detailed information about the consumer, their debt and their liability for the debt before attempting any collection action, and requires that debt collectors provide adequate proof of debt up-front to courts as a part of any lawsuit against a consumer. The system will be more transparent when debt collectors are required to give consumers notice of their right to request proof of the debt, including notice of any time limitation on the debt. The bill would require collection efforts to cease if this proof is not provided within 15 calendar days. As an additional safeguard, the bill establishes monetary penalties for debt collectors who bring frivolous court cases that do not show adequate proof of the debt up-front (including the consumer's name, account number, itemized interest and fees, contract details, and a summary of each entity that owned the debt after the original creditor). With the responsibility on the collector, we hope fewer consumers will be sued based on fraudulent or outdated information.

Simple guidelines created by the Debt Buying Limitation Amendment Act will ensure debt collectors are transparent with consumers and hold debt collectors accountable for initiating unwarranted actions. Washingtonians deserve the right to just lawsuits and fair debt collection system. We hope that you will play a central role in passing the legislation that will institute these needed reforms.

Sincerely,

Center for Responsible Lending

Consumers Union

District of Columbia Consumer Rights Coalition

Legal Aid Society of the District of Columbia

National Association of Consumer Advocates

National Consumers League

U.S. PIRG

CC:

Councilmember Mary Cheh

Councilmember David Grosso

Councilmember Jim Graham

Councilmember Yvette Alexander

The Debt Buying Limitation Amendment Act of 2014

Protecting Consumers by Creating Guidelines for Debt Collectors


Unscrupulous debt collectors sometimes use incorrect data and illegal and abusive tactics to pressure consumers into making payments on debt. The debt may be too old for the consumer to be sued for it, or it may be illegitimate or fraudulent debt the consumer never incurred in the first place. To make matters worse, these debt collectors often refuse to verify debts, and some reports suggest these tactics disproportionally harm low-income people, communities of color and members of the military. New ground rules are necessary to protect consumers from predatory practices, harassment and unnecessary court costs. Simple guidelines created by the Debt Buying Limitation Amendment Act will ensure debt collectors are transparent with consumers and hold debt collectors accountable for initiating unwarranted actions.

How Abusive Debt Collectors Work

1. Buy a consumer's debt from an original lender for pennies on the dollar.

2. Sue the consumer without determining if the amount owed is correct, or even if the consumer still owes the debt.

3. Win a court order against the consumer garnishing their wages or placing a lien on property.

4. Repeat steps 1-3. The debt collector business model is based on getting quick court judgments against consumers. The Consumer Financial Protection Bureau called one debt collector with a team of only 8 attorneys a lawsuit "factory" after it filed 350,000 suits against consumers since 2009.

How Passing the Amendment Will Protect Consumers

The Debt Buying Limitation Amendment would:

· Bar debt collectors from using unfair, abusive, harassing or deceptive practices to collect consumer debt or collect information on consumers.

· Require debt collectors have detailed information about the consumer, their debt and their liability for the debt before attempting any collection. (Ex. name, account number, itemized interest and fees, contract details, and a summary of each entity that owned the debt after the original creditor.)

· Give consumers notice that they have the right to request this detailed information providing proof of debt and require debt collectors cease collection if they cannot provide it within 15 calendar days.

· Give consumers notice of the legal actions that may be taken against them by a collector when the debt is too old to be the subject of a lawsuit.

· Set standards requiring that debt collectors provide adequate proof of debt to courts as a part of any legal action against a consumer and establish monetary penalties for debt collectors who bring cases that do not meet these standards.

· Cap at 5% interest on court judgments in favor of debt collectors.


[1] http://www.huffingtonpost.com/2014/07/15/debt-collection-agency-lawsuit_...

[2] http://www.responsiblelending.org/state-of-lending/debt-collection/

For more information, contact Andrew High at 919-313-8533 or andrew.high@responsiblelending.org.