Consumer Financial Protection Bureau Director Richard Cordray testified before a U.S. Senate committee Thursday and was questioned about the bureau’s recent report stating service members complaints are nearly twice as likely to be about debt collection compared with the general population.
Committee members, including Sen. Jack Reed, D-Rhode Island, raised concerns about the CFPB’s practice of regulation by enforcement.
Cordray, presenting the CFPB’s semi-annual report to the committee, defended the CFPB’s past enforcement actions, stating that too many debt collectors contact service members' commanding officers to disclose debts, a practice that could threaten their security clearance and ability to remain in the military. The CFPB has long been concerned that unpaid debts can threaten a military career. Military members complained to the CFPB last year that debt collectors have contacted their commanding officers and even threatened their security clearances over debt issues.
"When people talk about regulation by enforcement, when we take enforcement action against a debt collector for [contacting a service member’s commanding officer], I hope people do take that as regulation by enforcement and every other debt collector out there realizes they are at risk, they are breaking the law and we will come down hard on them. Everyone should be on notice in this marketplace,” Cordray testified.
Cordray also testified that 90% of the monetary relief made available to consumers by CFPB enforcement actions has come from cases where the CFPB believed financial institutions deceived consumers.
"Rulemaking is an entire process that requires a level of transparency, input and cost/benefit analysis," said Sen. Patrick Toomey, R-Pa.. "If we’re using enforcement instead of rulemaking, we’re going to miss those pieces.”
Roughly 44% of complaints about debt collectors involved debts that service members said they believed they did not owe, according to the CFPB. A frequent complaint from veterans concerned collectors trying to collect debts on medical bills that should have been covered through their Veterans Administration health insurance.
The CFPB's annual report highlights complaints and enforcement actions that returned more than $5 million to service members and their families in 2015.
Last year, the CFPB received more than 19,000 complaints from members of the military community. The top three most complained about products or services were debt collection, mortgages and credit reporting.
The CFPB is currently working on proposing rules for collectors that would require them to help consumer better understand the costs and risks associated with certain products and services.
Besides debt collection complaints, other specific financial issues service members complained about last year include:
- Mortgages: Service members submitted roughly 2,800 complaints related to mortgages. The most common type involved challenges faced when they were unable to make payments, including problems with loan modifications, collections and foreclosures. In particular, service members continued to experience servicing issues when they had to relocate following a permanent change of station order sending them from one base to another.
- Credit Reporting: Approximately 2,200 credit reporting complaints were submitted in 2015. The majority - 72% - involved wrong information on credit reports. Complaints about incorrect information often came after service members returned home from deployment or temporary duty stations to find fraudulent activity on their credit reports. When service members tried to fix the problem, they often had difficulty seeking a successful resolution with creditors.