Now in the CFPB's Sights: Collectors Hired by State & Local Government Agencies

The unfair treatment of consumers is a primary driving force behind the creation and the ongoing activity of the CFPB.  Since its inception the agency has made significant progress in protecting the rights of consumers.  However, there are still loopholes in the oversight originally permitted by the CFPB which appear to be creating an environment of potential abuse and high risk activity by some private debt collectors.

One of these loopholes was closed last week with the announcement of the CFPB rule allowing the supervision of larger nonbank auto finance companies.  insideARM took a look at this development in an article published on June 11, 2015.

However, currently the protections given to consumers under federal law and by the CFPB are not provided to consumers dealing with debt collectors hired by state and local government agencies.  These collectors operate outside the purview of the CFPB and with the full authority of those government agencies.  These collectors frequently charge exorbitant fees and often hold the ability to effect wage garnishments, arrest, and even foreclosure against consumers.  The consumers most vulnerable economically, are often caught in this cycle compounding the possibility of mistreatment.

The American Civil Liberties Union (ACLU) is reported to be looking into whether practices currently in use violate the U.S. Constitution.  The ACLU has filed suit on behalf of a DeKalb County, Georgia man arrested and jailed for the inability to pay fines and penalties of over $800.00 due within 30 days of sentencing, stemming from a traffic ticket.  “The U.S. Supreme Court ruled more than three decades ago that it is a violation of the 14th Amendment of the U.S. Constitution to lock people up for failure to pay court fines without considering ability to pay, efforts to get money and alternatives to incarceration” quoting Nusrat Choudhury, lead attorney on the case for the ACLU in an Associated Press article.

In an article in CCNMoney in March of 2015, several lawmakers expressed to CNNMoney their concern and believe that something needed to be done for the protection of consumers caught in this cycle.  In that article, Congressman Gregory Meeks of New York (a senior member of the House Financial Services Committee) said he is “extremely concerned about the findings in the CNN report”.  He went on the state that “Private debt collectors often have a financial incentive to draw blood from stones, pressuring individuals to make financial commitments they cannot truly afford.”

Although the use of these debt collectors by government agencies can be cost effective and have significant benefit to the states, the practices in use currently appear to offer little to no consequence to the debt collectors.  Greater oversight at the federal level and use of protections currently in place by federal regulators seems to be viewed as the minimum required to ensure the rights of consumers are not violated.