Passage of debt collection bill could be a ‘slippery slope’ for lenders
Despite objections from CUNA and NAFCU, the House of Representatives on Thursday passed the Debt Collection Improvement Act.
The bill, HR 2547, was sponsored by House Financial Services Committee Chair Maxine Waters (D-California) and passed the House with a 215-207 vote.
While consumer groups praised the bill for its recourse for consumers harassed by debt collectors, CUNA and NAFCU saw that the bill complicated the legal relationship between consumers, members and lenders. .
In one letter sent to House and Senate leadersJim Nussle, CEO of CUNA, voiced his objections to section 403 of the bill, which would amend the Fair Credit Reporting Act to prohibit credit scoring models from processing certain debt information medical on the consumer credit report as a negative factor.
In the letter, Nussle said: “Lenders rely on complete and accurate credit reports when taking out loans. Restrictions on reporting or reviewing certain debts prevent lenders from seeing the full indebtedness situation of borrowers and obscure the ability of lenders to fairly assess the creditworthiness of borrowers. An incomplete view of borrowers ‘credit history reduces lenders’ confidence in credit reports and scores, which impacts pricing decisions and credit availability. The borrowers most affected by the consequences of this provision will be low- and middle-income borrowers whose financial well-being could benefit the most from access to affordable credit from a credit union.
In a separate letter to lawmakers, NAFCU, CUNA, and other banking industry organizations, including the American Bankers Association and the Independent Community Bankers of America, have written similar objections to the bill. Specifically, the organizations opposed Title VIII of HR 2547, the Non-Judicial Foreclosure Debt Collection Clarification Act, which would overturn the unanimous decision made by the United States Supreme Court (SCOTUS) in 2019.
In March 2019, SCOTUS unanimously held Obduskey V. McCarthy and Holthus LLP that a company engaged in non-judicial foreclosure proceedings is not a “debt collector” under the Fair Debt Collection Practices Act (FDCPA).
“Our country’s mortgage system continues to rely on enforceable collateral on real estate. By allowing lenders to take possession of collateral by foreclosure in the event of a borrower defaulting, the law reduces the risk to lenders – which in turn allows them to make credit available to more homebuyers than one. much lower interest rate than that available for unsecured credit. More than half of states have designed their legal systems to provide for non-judicial foreclosures, which maintain important state and federal procedural protections for borrowers while streamlining the foreclosure process. One of the goals of non-judicial foreclosure is to avoid the costs and prolonged delays in litigation, which inevitably result from judicial involvement in the foreclosure process. These states felt that this process also appropriately balances the needs of individuals through strong procedural protections and the benefits for communities of limiting the scourge or opening up new homeownership opportunities, ”the letter said. .
The non-profit association for consumer justice National Center for Consumer Law (NCLC) welcomed the passage of the bill, saying it would bring the following reforms to consumers:
- Prohibit the use of admissions of judgment as an unfair credit practice that eliminates advice and the right to be heard.
- Prohibit certain abusive collection practices directed against service members, including threats of downgrading or revocation of security clearance.
- Require discharge of private student loans due to total and permanent disability.
- Prohibit the collection of medical debts for the first two years and the credit report of debts arising from any medically necessary procedure.
- Require collection agents to obtain their consent before using electronic communications and provide written validation notices.
- Modify the FDCPA to expand and clarify coverage, including extending coverage for all federal, state, and local debts collected by collection agents.
- Adjust the statutory damages in the FDCPA for inflation and indexing them to the inflation index going forward.
- Clarify FDCPA coverage for non-judicial foreclosures.
Continuing his objections to the bill, Nussle wrote: “Today it’s a medical debt; tomorrow it could be student debt; in a decade, will Congress ban the reporting of mortgage debt? This could represent the first step on a slippery slope that could fundamentally hurt underwriting credit, making it more difficult for lenders to make safe and sound credit decisions.
Both borrowers and lenders benefit from a credit scoring system that produces an accurate and complete record of a borrower’s credit situation. This provision undermines the financial well-being of consumers and compromises the ability of lenders to make safe and sound underwriting decisions. “