For the first time in nearly 40 years, federal regulators are preparing to significantly strengthen the rules that govern debt collection in an effort to clamp down on collectors who hound consumers for debts they may not even owe.Under the proposed regulations, which will undergo a lengthy review process, debt collection companies will have to more fully document the debt they are trying to collect, make it clear how a consumer can dispute the debt, and observe state statutes of limitations that bar them from legally pursuing older debts — all safeguards that are frequently flouted, according to the Consumer Financial Protection Bureau, the federal agency that plans to put forth the new rules on Thursday.The regulations also take aim at the stereotype of the harassing debt agency: Collectors would be barred from trying to contact people more than six times in a week. And, after a debtor dies, the collectors would have to wait 30 days before contacting family members about paying up.
Some 77 million people — roughly one in three adults with a credit report — have a delinquent debt in collections, according to an estimate by the Urban Institute.The bureau receives far more complaints about debt collection than any other issue — more than 7,000 a month, on average — and 40 percent of them are about collection attempts on debts the customers say they do not owe.Susan Macharia, 39, an administrative worker who lives in Buena Park, Calif., said she was blindsided in January when she got a call from a collector saying that her wages would be garnished unless she paid off a $10,000 credit card debt that she allegedly ran up in 2003.A debt so old would normally be beyond the statute of limitations, and legally uncollectable, but the company had a copy of a 2006 default judgment that was entered against her when she failed to respond to a collection lawsuit.But Ms. Macharia, who opened her first credit card account just three years ago, had no recollection of being notified of a lawsuit, and she was living in Atlanta when the papers were said to have been served on her in California. Fraudulent service is a problem so common it has a name — “sewer service” — derived from the way process servers metaphorically toss the papers they are supposed to deliver into a sewer instead.Just as with mortgages at the height of the financial crisis, delinquent consumer debt is often resold, sometimes multiple times, and in the chain of custody, things can go awry. The nation’s courtrooms have been glutted with millions of collection lawsuits, many of which are backed by thin documentation. And tales of abuses — like robo-signed affidavits filed in bulk, or aggressive collection efforts on erroneous debts — are rife.