Collections Agency Industry Under Attack from State and Federal Legislatures

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Collections Agency Industry Under Attack from State and Federal Legislatures

Collections Agency Law Changed in North Carolina

Governor Bev Perdue of North Carolina recently signed The Consumer Economic Protection Act Of 2009 (CEPA) into law. A statement issued by the governor's office says that under the legislation: "Debt buyers must now prove that they have the right to enforce the debt and be able to verify the amount owed. The new law also prohibits debt buyers from filing or threatening to file suit when barred by the statute of limitations."

New York Senate Plots Collection Agency Hurdles

Speaking of statutes of limitations (SoLs) on debt, the New York Senate is considering a bill that would slash its state's SoL from six years to two. Reread that sentence. Creditors would have just two years from default until filing.

And the bill would bar a collections agency from collecting debts on which the new SoL has expired.

Bill Collection Challenges

But the New York Senate bill doesn't stop there. It would also force a collection agency to provide every debtor with:

• the name of the original creditor


• the last four digits of the original account number


• the date and amount of the last payment


• a chain of title of the account


• a breakdown of the amount that the plaintiff seeks to collect


• a copy of the original contract.

Imagine collating that file for every single case.

The NY bill would also tighten default judgment regulations. If enacted, every consumer credit default judgment application by a collections agency would have to be reviewed by a judge. And it would have to be supported by an affidavit from the original creditor, together with proof of assignment of the debt if the plaintiff is not the original creditor.

That's a lot of extra paperwork, and a lot of extra cost.

Collection Companies: Trouble in D.C.

But it's not just state legislators who have the collections agency industry in their sights. Regular readers of this column already know that the U.S. Congress is looking for ways to change arbitration rules so that they are more friendly toward the consumer, and much more onerous on the collection agency.

Earlier this week, President Obama made a major speech in New York in which he firmed up some of his administration's plans for a new regulator, the Consumer Financial Protection Agency (CFPA). Although it is not yet certain that this body will take over regulation of the collection agency industry, some observers believe that it will.

One thing is sure. Those in the business should expect new and more stringent federal regulation soon: quite probably this year.

Collection Agencies: Double Whammy

The problem facing the collection agency business isn't just that moves such as slashing SoLs, and requiring excessively comprehensive documentation will dramatically reduce the number of legitimate debts that can be collected. Although that is bad enough.

A second, equally impossible challenge will soon become apparent. The additional labor costs involved in compiling documentation will completely change--and possibly undermine--the business model of many a collections agency.

And all of this will happen during a period of increasingly adverse trading conditions, when the industry is struggling to manage a high volume of cases, and at the same time is contending with low collection rates.

Collections Agency Industry: Time For Action

It's time now--before it's too late--for the industry to pose a fundamental question to federal and state legislators, and to the American people as a whole: How can a free enterprise economy continue to function if individuals are allowed to break contracts without any effective consequences?

Sources

• New York Senate


• North Carolina Governor's Office


• U.S. Congress (arbitration paper)


• U.S. Congress (bill draft)


• The White House
  

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