Sen. Chuck Schumer Calls out Feds for Charging High Interest on Debt

According to an article in Newsday yesterday, New York Sen. Chuck Schumer sent a letter to FEMA Administrator W. Craig Fugate earlier this week asking the agency to stop sending Hurricane Sandy-specific debt collection cases to Treasury.

It seems that some Hurricane victims received compensation (totaling $14 million) that FEMA now views as awarded in error, and they want their money back. They send letters to consumers requesting the return of funds within 30 days. If the funds are not returned, interest as high as 30 percent may be charged. After 120 days, cases are referred to Treasury, where they may be sent to a private debt collection firm.

insideARM Perspective

I don’t have an informed opinion about whether the FEMA awards should or shouldn’t have to be returned; I simply don’t have access to the specifics of any case. My comments are related to a bigger picture:

This is another interesting example of government taking similar actions for which they would penalize private companies. For example, charging high interest rates to vulnerable consumers, or even trying to collect debt in the first place. To the extent funds were not awarded as a result of fraud (as suggested in the Newsday article), one might compare this type of debt to medical debt. In other words, debts that the consumer didn’t willingly or frivolously seek out. The CFPB has signaled its intent to insert itself into the medical debt collection process, for instance, dictating when/how it can be credit reported.

Another example we’ve seen of government playing by different rules is federal student loan debt. Private student loans – and most other debts – are expunged in bankruptcy. Not federal student loan debt. That follows you forever. No statute of limitations. The CFPB is all over efforts to collect debt that has passed the relevant statute of limitations.

A third example is the continued use of social security numbers by the Internal Revenue Service. As this is a big identity theft risk, private companies, such as healthcare insurance providers, moved away from this practice years ago. Is the CFPB going to send a team over to the IRS to evaluate their processes and issue an enforcement order… and a fine?