House Passes Debt Collection Bill that CU Trades Oppose

The House on Thursday passed legislation that would prohibit the Consumer Financial Protection Bureau from finalizing its most recent debt collection rule and would place other restrictions on the collection industry—legislation that credit union and banking trade groups oppose.

The House passed H.R. 2547 on a vote of 215-207; it now goes to the Senate, where its future is unclear.

The bill is a combination of several debt collection measures sponsored by House Democrats. It would keep the CFPB from implementing a new rule that the agency, when run by the Trump Administration, said would update collection rules that had been adopted before such technological advances as cell phones. The Biden Administration has delayed implementation of the rule.

If implemented, the new rule would not directly affect credit unions, since it does not cover first-party collectors. However, the trade groups have said that some credit unions hire third-party debt collection companies, and they would be affected by the rule.

Consumer groups have argued that the new rule would allow debt collectors to call debtors once a day, while also using emails, text messages and social media to harass the debtor several times a day without consent. H.R. 2547 stops implementation of the new rule and would prohibit a debt collector from contacting a consumer by email or text message without the consumer’s consent. It also would require the CFPB to annually report on the impact of electronic communications used by debt collectors.

In speaking in favor of the legislation Thursday, House Financial Services Chairwoman Maxine Waters (D-Calif.) noted that Congress has not made major changes to debt collection rules since 1978. “It’s long overdue for Congress to act to provide stronger protections from abusive debt collectors for consumers,” she said, adding, “This bill, H.R. 2547, brings new accountability to the debt collection industry and stronger protections for consumers from harassment and abuse.”

House Financial Services Committee ranking Republican Patrick McHenry of North Carolina disagreed. “We all agree, consumers who owe a debt should be treated with respect and dignity and not be subjected to abusive or harassing behavior,” he said. “The law already upholds this.”  He added, “This bill is a big government, anti-consumer, and anti-small business solution in search of a problem.”  

Credit union trade groups noted several issues in their opposition to the bill.

In a May 13 letter to House leaders, Credit Union National Association President/CEO Jim Nussle said that the legislation would prohibit credit scoring models from using certain medical debt information on consumer credit reports as a negative factor.

“Lenders rely on complete and accurate credit reports when underwriting loans,” he wrote. “Restrictions on the reporting or consideration of certain debt prevents lenders from seeing borrowers’ complete debt circumstances and clouds lenders’ ability to fairly assess borrowers’ creditworthiness.” He wrote that he was concerned that such a provision sets a precedent that could lead to a prohibition of other types of debts being considered.

When the committee marked up the bill earlier this year, Nussle wrote that the legislation would “undermine consumers’ financial well-being and jeopardize lenders’ ability to make safe and sound underwriting decisions.”

Several trade groups, including CUNA, the National Association of Federally-Insured Credit Unions and banking trade groups said that lenders must be allowed to continue the practice of using non-judicial foreclosures to seize property. The bill would restrict such foreclosures. “By allowing lenders to take possession of collateral through foreclosure when a borrower defaults, the law reduces the risk to lenders – which in turn allows them to make credit available to more home buyers at a much lower interest rate than available for unsecured credit,” the groups wrote.

Consumer groups support the legislation. April Kuehnoff, an attorney with the National Consumer Law Center, urged the Senate to consider the bill. She said that every year, the CFPB receives tens of thousands of complaints about debt collection attempts. “I urge the Senate to consider the bill soon as possible, as reform is urgently needed, especially for families struggling with massive debt due to the pandemic,” she said.

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