Testimony: Preserve & Strengthen Colorado Fair Debt Collection Practices Act

Rich Jones, the Bell’s director of policy and research, offered his testimony on SB17-216. 

The Bell strongly supports continuing the Colorado Fair Debt Collection Practices Act. The provisions of this statute and its effective implementation by the Colorado Attorney General’s Office provides needed consumer protections for all Coloradans.

We understand several changes to the statute are being proposed in SB17-216. We are restricting our testimony today to the provisions related to improving the regulation of debt buyers found in Section 7 on pages 4 and 5 of SB17-216.

While we support the need for more complete and accurate information on all debts as they are bought and sold in the market, we urge the committee to go further.

The most effective way to ensure Coloradans are not hounded for debts they do not owe, have contested, or paid off is to require debt collectors meet a “proof of debt” standard before attempting any collection action, including filing lawsuits against consumers. Among the items that should be presented to the court to establish proof of debt include a copy of the contract or evidence of the consumer’s agreement to the original debt, most recent monthly statement recording a purchase transaction, payment or balance for a credit card debt, or a copy of records created when an electronic transaction occurs showing the consumer agreed to the debt and its terms.

Debt buyers should also present a copy of the assignment or other writing showing the debt buyer is the owner of the debt. Before entry of a default judgement or summary judgement against a consumer, the plaintiff should be required to file evidence that satisfies the requirements of Rules 803(6) and 902(11) of the Colorado Rules of Evidence showing the amount and nature of the debt. Several other states including North Carolina have taken similar actions in recent years which have been found to reduce abuses imposed on consumers by debt buyers.

The business of buying and selling consumer debts written off by the original collector with the aim of collecting what is owed has expanded considerably in recent years. Debt buyers purchase the original debt for cents on the dollar and attempt to collect the full amount. In many cases, they purchase spreadsheets that contain limited information on the name of the creditor, the amount of the debt and the person’s last known address. The Federal Trade Commission found often information on whether a consumer disputed the debt is not included and sellers do not guarantee the accuracy of the information sold.

In its 2016 Sunset Review: Colorado Fair Debt Collection Practices Act, the Department of Regulatory Agencies found buyers often repackage the debts they cannot collect and sell them to another debt buyer. However, as the debts are bought and sold information about the underlying transaction that lead to the debt is often lost or garbled. As a result, consumers are being hounded for debts that are either not theirs, they have paid off already or disputed. As the DORA report explained, “If a consumer is contacted by a debt collector claiming money is owed when the bill has been paid, that consumer may feel harassed… If a consumer feels hassled by debt collectors, he or she may ignore a legitimate attempt to collect money owed.

It is no wonder complaints about debt collectors top the list for Colorado consumers. DORA cites a Denver Post article that reports complaints against debt collectors outnumbered all other consumer protection complaints received by the Colorado Attorney General’s Office in 2015. Data from the Attorney General’s Office reported by DORA shows CFDCPA complaints involving “amount not due” have doubled between FY10-11 and FY14-15. DORA determined that this increase, “may be due to the proliferation of debt buyers.”

Analysis of Coloradans’ complaints to the federal Consumer Financial Protection Bureau by the Center for Responsible Lending (CRL) found the most common complaint about debt collection is “continued attempt to collect debt not owed.” These represent almost 40 percent of all debt collection complaints and was Coloradans largest debt collection related complaint to the CFPB.

Providing more information about the debt when it is bought and sold could reduce the instances in which consumers are pursued for debts that are not theirs, they have paid off or contested. However, it is more important to have more thorough and accurate information when debt buyers and debt collectors bring legal action to collect the debt. The CFPB determined that two of the nation’s largest debt buyers filed tens of thousands of cases without having the documentation to prove the debts and counted on consumers not hiring lawyers to represent them in court so they could win the lawsuit by default. A CRL review of 375 randomly selected Colorado cases filed by the nation’s four largest debt buyers turned up NONE in which the consumer had a lawyer. Not surprisingly, 71 percent of the cases resulted in default judgements with 38 percent of consumers having their wages garnished.

Several states have acted to require debt buyers to provide the court with more thorough documentation from the original creditor to support the debt.

We urge the committee to strengthen the regulations of debt buyers in Section 7 of the bill by requiring  debt buyers and collectors to present materials to the court that includes:

  • A copy of the contract or other writing evidence of the original debt;
  • A copy of the assignment establishing that the debt buyer is the owner of the debt;
  • Evidence that satisfies the requirements of Rules 803(6) and 902(11) of the Colorado Rules of Evidence that establishes the amount and nature of the debt, prior to the entry of a default judgement or summary judgement against a consumer.

We thank Senator Gardner for bringing this bill to you and thank the committee for the opportunity to share our thoughts with you.