Debt Collection Plays An Important Role in the Economy
The trade association I represent, DBA International and its 575 member companies, play a critical role in keeping America’s economy moving forward. We purchase and collect defaulted receivables. It’s important to note that only a small fraction of consumers wind up defaulting on debt and an even smaller percentage wind up in court. While efforts to collect this defaulted debt may be an unpleasant topic of conversation, attempts to do so are nevertheless important to all of us.
America’s economy has been chugging along and the recent improvement in the unemployment rate is certainly welcome news. When America’s economy works efficiently, consumers are able to access and use credit to purchase goods and services. America has a credit-based economy and, when used responsibly, it works well for families, farmers and small businesses. Whether it’s a family taking out a loan to buy a home, a farmer borrowing money to purchase equipment, or a small business using a credit card to acquire a new printer, access to affordable credit is what makes America’s economic engine hum.
It is also important that consumers, farmers and small businesses repay their debts. The system falters when consumers default on loans. We all suffer when those who use credit fail to live up to their obligations. When this occurs, the costs to borrow increase and prices rise because businesses that provided goods and services have to recoup money lost due to default. Access to credit is then greatly reduced.
As typically occurs, actions by unscrupulous debt collectors make headlines – unfortunately there are “bad apples” in every profession. Reacting to these stories, legislators often look for a “quick fix” and reporters attempt to target the entire debt collection industry and paint it with broad, unflattering brush-strokes.
One recent example of a “quick fix” in the California State Legislature is the Economic Equity and Financial Stability Initiative, a three-bill package introduced by a former bankruptcy attorney, purporting to reform California’s bankruptcy and debt collection laws to help low-income families get back on their feet. These bills would have unintended and negative consequences for California consumers.
While SB 641 claims to provide low-income consumers with legal recourse to set aside a default judgment, what it effectively does is require companies who successfully obtained a judgment in court to reproduce evidence already provided for up to six years from the date of judgment—well beyond any legal requirements for document retention. The issue the bill attempts to address is ensuring the debtor receives proper notification of a lawsuit filed against them—which represents only one percent of all complaints received by the Consumer Financial Protection Bureau. The stated problem involves the process serving profession, yet the bill focuses only on judgments obtained by debt purchasers.
By raising the homestead exemption, SB 308 would allow wealthy donors to shield assets prior to filing for bankruptcy and then walk away with hundreds of thousands of dollars of unrestricted cash. Likewise, the wage garnishment restrictions outlined in SB 501 favor higher income debtors and may unduly penalize low-income wage-earners with assessment fees multiplied by the extension of repayment terms. The imbalance these bills create will be detrimental to the vast majority of consumers who are fiscally responsible.
Equally true, various columnists and reporters writing for publications in California and nationwide frequently paint inaccurate, misleading pictures of the debt collection industry. Efforts to scapegoat an entire industry by focusing on the unfortunate actions of one entity usually ring hollow. It is often forgotten or conveniently ignored that the debt buying industry is already heavily regulated by multiple government entities at the federal and state level – with more regulations being proposed all the time. Equally true, DBA International member companies have instituted an industry-leading Receivables Management Certification Program that exceeds state and federal regulation.
The responsible use of credit is an integral part of a fully functioning economic system. While the collection of debt is an unpleasant subject, it is nevertheless critical in a credit-based economy. On behalf of DBA International’s member companies – who collect debt professionally and ethically, comply with a bevy of federal and state regulations and interact with consumers in a transparent manner – we understand the desire for the legislative “quick fix” and the desire by some to create “bad guys.” Hopefully cooler heads will prevail. Decision-makers will realize that such “easy solutions” usually have unintended consequences and efforts to demonize an entire industry don’t pass the sniff test.
Jan Stieger is the executive director of Sacramento-based DBA International.