A Culture of Unaccountability Regarding Consumer Debt

Joann Needleman

The recent report issued by the Urban Institute and the Consumer Credit Research Institute titled Delinquent Debt in America (July 2014) made a stunning statement about the American consumer’s financial health: over 35 percent of the U.S. population has at least one debt account in third-party collections.

The major media outlets reported only that one-third of Americans are in debt. The blogosphere and viral comments were equally bland: no commentary, no analysis, just “it is what it is.” The lead article in one online publication stated, “Americans Are Really Terrible at Paying Their Bills.” Nonetheless, despite a great title, the only conclusion drawn by the author was that more regulation was needed.

Welcome to the Culture of Unaccountability. There are approximately 318 million people in the United States and 75 to 100 million of them have completely refused to communicate with their original lender or to the entity to which they may owe money. This Urban Institute Report was not about whether the debts were legitimate or not, but rather that 35 percent of the U.S. population is not doing anything about the debts they owe.

The intent of the report was certainly not to criticize those who happen to get into debt in the first place. Nor did it offer solutions to foster financial responsibility. However, whether intentional or not, what this report does show is that burying one’s head in the sand has become socially acceptable.

A Need for Communication

Turning over an account to a third-party debt collector or even to a collection attorney is not the preferable choice of any originator, lender or creditor; quite the opposite. The decision to depart with an account where money is owed, and outsource it to another third party to collect, rests in no small part on the fact that the consumer refuses to communicate in order to resolve the account. The creditor is now resigned to the fact that it will not recover what the debtor promised to pay.

The level of communication between debtor and creditor certainly does not increase once the delinquent debt is handed over to a third party. The National Association of Retail Collection Attorneys reports that continued failure to communicate as well as increased barriers to communication make it 81 percent more likely that a consumer ultimately will be sued for the debt.

This Urban Institute data really comes as no surprise. The advent of enhanced debt collection regulation and with more federal rules coming soon, federal regulators have vowed to protect, and impliedly encourage, this growing trend of financial “moral hazard.”

Last year the CFPB issued “action letters,” providing consumers with a plan to shut down communications with creditors, regardless of whether the debt was valid. Last month a New York state judge suggested it might be OK not to come to court if served with a summons on a debt collection case. Fostering a culture that encourages and rewards broken financial promises may be among the reasons we have experienced a weakened economy, feeble growth in employment and restrictive access to credit for many Americans.

Encourage Resolving Delinquent Debt

Creditors, collection agencies and collection attorneys are ready, willing and able to work with consumers to resolve their debts. But doing so requires dialogue between creditors and debtors. Shutting down communication and avoiding difficult, but solvable financial problems is not a solution. Recent comments by the ACA International found that as much as 99 percent of all debt in collection is not disputed by consumers, a fact the Urban Institute and the Consumer Credit Research Institute report did not point out. The overwhelming majority of delinquent debts are ripe for resolution.

Addressing the problem of delinquent debt can be difficult. But resolving poor finances benefits consumers, creditors and the nation’s well-being. Encouraging 35 percent of the population to stick their heads in the sand when it comes to their credit future is not consumer protection – it is a recipe for financial distress. Fostering this culture of unaccountability will likely leave consumers with a weakened, if not irreparable financial future. An America where thirty-five percent of our neighbors suffer long-term financial distress is a far greater harm than the alleged problems posed by the debt collection industry.

This post originally appeared on the Consumer Financial Services Blog, run by ARM defense firm Maurice & Needleman.

Joann Needleman is Vice President of Maurice & Needleman, P.C., where she is the Managing Attorney of the firm’s Pennsylvania office. Joann has extensive litigation experience in state and federal courts, successfully defending creditors against claims brought under the Fair Debt Collection Practices Act, Fair Credit Reporting Act and, in Pennsylvania, under the Fair Credit Extension Uniformity Act. She provides counsel, consultation and litigation services to financial institutions, law firms and debt buyers throughout the country. Needleman also currently serves as the elected President of the National Association of Retail Collection Attorneys (NARCA).