Consumers filed 84,500 complaints about debt collection with the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) in 2017, according to a joint annual report released to Congress.
That is down from the approximately 88,000 debt collection complaints the FTC and CFPB handled in 2016. Consumers also viewed or downloaded information on how to negotiate a settlement with a debt collector 838,255 times from the CFPB's website in 2017.
Top Debt Collection Complaints
The #1 reason for debt collection complaints among Americans was being contacted for debts they said they did not owe. That was 39% of all debt collection complaints.
Receiving written notification about debt ranked was the number two complaint at 23%. Communication tactics ranked third at 13% of all complaints.
Debt Collection Affects Millions of Americans
Debt collection is a $10.9 billion dollar industry that employs nearly 120,000 people across 8,000 collection agencies in the US.
About 26% of consumers with a credit file have a third-party collection tradeline listed on one or more of their credit reports, according to the CFPB's Consumer Credit Panel. On average, these consumers have about 3.4 collection tradelines listed on their credit reports.
26% of consumers with a credit file have debt that is being collected by a third party
Debt collection efforts can include calls, letters, filing lawsuits, and other methods to collect alleged debts from consumers. Mick Mulvaney, the acting CFPB director, said debt collection will be a top priority for the CFPB as both agencies share enforcement responsibilities under the Fair Debt Collection Practices Act—a law which regulates how debts are collected.
The CFPB recovered $577,000 in consumer relief through enforcement actions last year while the FTC said in the report that it had obtained more than $64 million in judgments.
Is Debt Collections a Dirty Business?
The CFPB-FTC report showed that 38% of complaints were either about communication tactics, threats of legal action, false statements or additional threats made to the consumer. These types of complaints can be considered abusive or aggressive and these are common complaints that you hear about the debt collection business.
"Lenders always need to make their customers the priority, even when they are past due," said Steve Platt, Experian group president of decision analytics and data quality. "The trade-off between getting the money or saving the customer experience has long been a debate within the financial industry. For obvious reasons, the collections discussion is driven by delinquencies and card losses—banks often lose sight of the broader customer conversation. But getting money owed should be just one element of a collection strategy."
"Lenders always need to make their customers the priority, even when they are past due"
Americans behaviors have changed drastically over the years with technology, personalization, the demand for immediate answers. The debt collection industry has to adhere to a variety of laws and regulations when attempting to collect debts.
3% of 30-day delinquencies in credit card portfolios closed their accounts after paying their balance in full and 75% of the closures happened shortly after they paid off their account according to Experian. However, as Americans behaviors change so should the industry to understand those changes in order to progress towards a better collection experience.
Helping Consumers Control the Debt Process
Debt collections processes have remained static over the years but recent changes could indicate that collection agencies are focusing more on the person than the money. Sometimes a person has simply forgotten to make a payment or is dealing with a financial hardship.
Understanding the difference is important so collection agencies can provide the right response. Consumers want control over how they manage accounts and settle debt as 1 in every 3 people prefer to deal with debt online according to an Experian
1 in every 3 people prefer to deal with debt online
Some debt collection agencies and others are finally catching up as debt collection has gone digital. Experian, for example, launched eResolve, a digital platform available to lenders in which consumers can negotiate and pay their past-due accounts online.
Other companies like TrueAccord and Collectly offer platforms for consumers to use an automated system to negotiate and resolve debts.
Experian data also found that young, urban, affluent populations were 4X more likely to close their delinquent accounts than other areas of the country. Perhaps moving debt collections into the modern age can be the best way to improve the experience and simplify debt management.
Here are some additional articles to help you navigate the debt collection process:
- Can a Collection Agency Sell Your Medical Debt
- Can a Collection Agency Charge More Than the Original Debt?
- How Can I Tell If a Debt Collector Is Legitimate?
- What Is a Debt Validation Letter? How Do I Know If I Need One?
- The Impact of Paying a Collection Account on Credit Scores
- Collection Agency Can Try to Recover Old Debt
- Time Limits for Collection Agencies to Collect a Debt
Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.
This article was originally published on March 26, 2018, and has been updated.