The documents used to back up consumer debt collection demands are inadequate and unacceptable to regulators, and banks are going to face mounting pressure to produce better records. That was one of the main points to come out of an eight-hour hearing Thursday in Washington hosted by the Federal Trade Commission and Consumer Financial Protection Bureau.
"Information from the creditor is not available to the debt collection agency," said John Tonetti, who joined the CFPB's collections and credit reporting arm after a 30-year career in consumer debt collection, buying and brokering. "It's no wonder that consumers are getting contacted about debts they don't owe or recognize."
Thursday's roundtable comes at a time when banks' debt collection operations have become an increasing source of controversy. The heightened scrutiny comes amid allegations of robo-signing-like documentation practices. Also at issue are banks' regular sale of defaulted customer accounts under agreements that disclaim the reliability of the banks' own records.
What's more, The Office of the Comptroller of the Currency has been probing JPMorgan Chase's (JPM) consumer debt collection practices since 2011, American Banker reported last year. California Attorney General Kamala Harris is also suing JPMorgan Chase over similar matters. Mississippi is leading a group of states investigating banks' debt handling practices, and Iowa officials are working with a separate group of states in an effort that could take on a form similar to that of the national mortgage servicing settlement, sources familiar with the efforts have told American Banker. Separately, Massachusetts has a credit card debt handling probe of its own under way.
Banks, debt collectors, consumer advocates and regulators all offered praise at Thursday's event for the idea of creating industry standards that would guarantee the accuracy of debt-related information and the amounts demanded in communications with consumers.
"Uniform national standards relative to data media [account records], and common definitions related to disputes and complaints will benefit all participants, but most importantly the consumer," said Larry Tewell, senior vice president of Wells Fargo's consumer debt collection operation.
At a time when several state and federal probes of debt-handling practices are under way, regulators and some debt buyers are arguing that it is banks which bear the most fundamental responsibility for ensuring that consumer debt documentation is correct and comprehensive; if the original account records are inaccurate, it is the original creditor who is at fault, they argue. Likewise, critics say that banks should be held at least partially accountable in cases where debt buyers fail to receive key records or disclaim responsibility for faulty records but pursue legal claims against consumers anyway.
"The integrity of the recordkeeping processes and data that are used to collect on a debt is one of the most important focuses of our early supervision and enforcement efforts in this industry," CFPB acting deputy director Steve Antonakes said at Thursday's event.
"There's no disagreement that we could get more information than we're currently getting [from original creditors]," said Richard Munroe, president of Capital Financial Group and the Debt Buyers Association, a trade group for debt purchasers.
At times, the event sounded like a well-played sales pitch for companies that provide creditors with technology to aggregate and electronically transfer disparate account records, logs of prior collection attempts and evidence of consumer disputes.
"We can capture just about any kind of document," said David Pauken, chief executive of Convoke Systems, which produces such programs. "Everything is on the table right now."
Wells Fargo's (WFC) Tewell said that the banking industry was committed to providing sufficient data to its collections agents and debt buyers.
"We're huge proponents of technology, and that equals efficiency. We invest millions and millions of dollars every year to make sure that's the case," he said.
Panels later in the day focused on how debt buyers pursue litigation, how credit reporting agencies handle disputes, the collection of time-barred debts and how debts are resold. Many of these topics ultimately were tie back to records quality, consumer advocates said.
"If you're starting with not perfect information, as you move along the information gets worse and worse," said Ira Rheingold, the head of the National Association of Consumer Advocates. "It's essential that all people who are sending debt out to be collected have real information and have the documents to back that up."
The financial services industry generates only about 33% of the debt handled by the collections industry, said Bob Hunt, director of the Federal Reserve Bank of Philadelphia's payment card center. Yet it played an outsized role in Thursday's roundtable, with credit card debt in the center ring. Over $160 billion in credit card accounts have been charged off since 2008, Hunt said. Much of that debt is expected to remain in active circulation among collectors for years to come.
Though only broadly referenced during the FTC-CFPB roundtable, these probes of alleged failures of existing bank procedures could serve as an impetus for centralized regulatory standards. Some in the collection industry said they'd welcome such a resolution.
"What we don't need is 50 states coming up with their own rules," said Brandon Black, a collection industry consultant and former head of Encore Capital. "If there's any way that we can have the CFPB and FTC create a single set of rules in one place, that'd be great."