One-in-four consumers are the subject of at least one third-party debt collection effort, the Consumer Financial Protection Bureau (CFPB) said in a report compiled using a nationally representative sample of 5 million de-identified credit records maintained by one of the three nationwide credit reporting companies from 2004 to 2018.
The report comes two months after the CFPB announced a notice of proposed rulemaking for debt collection, focusing on technology innovations and regulations around communications between third-party debt collectors and consumers.
The bureau’s Consumer Credit Panel (CCP) tapped 900 third-party debt collectors to furnish collection tradelines – information about a consumer account that is submitted to a credit reporting company – to analyze for the report. Tradelines generally include data regarding account balances, payment histories, account statuses and more.
The CFPB previously discovered that consumers, invoking their rights under the Fair Credit Reporting Act (FCRA), tend to dispute third-party collections tradelines more often than other types of tradelines.
“For example, in 2011 disputes were filed with respect to over 1 percent of third-party collections tradelines compared to 0.29 percent for student loans, the next highest category,” the report states. “This in part reflects the fact that third-party collections tradelines are inherently negative so that consumers have a larger incentive to dispute these tradelines, but it may also reflect differences in the underlying accuracy of the data.”
Consumers are able to dispute information in their credit files indirectly with a consumer reporting agency, directly with the furnisher, or both, the report notes.
If a consumer disputes the information with a reporting agency and does not like the outcome, the consumer may file a brief statement explaining the nature of the dispute which the credit reporting agency in question, generally, must acknowledge in future statements pertaining to the dispute.
In cases where a consumer files a dispute with a furnisher, the furnisher is barred from furnishing the information to any other consumer reporting agency without notifying the agency the information is being disputed by the consumer. In such cases, the consumer reporting agency must indicate that fact in each consumer report that includes the disputed information.
“While some credit scoring models ignore certain information from tradelines indicating an active dispute, these models may factor in information from accounts where a dispute is considered resolved, even if the consumer disagrees with the results of the investigation,” the report states.
The findings reflect possible consolidation in the collections industry, indicating an increase in the concentration of third-party collections tradelines among larger furnishers, especially non-buyer furnishers, coupled with the decline in the number of unique buyer and non-buyer furnishers.
The panel found that more than one-fourth of consumer credit reports examined (28 percent) contained at least one third-party collections tradeline in 2018. The findings also indicate that more than 75 percent of third-party collections tradelines pertain to non-financial debt. More than half (58 percent) of the tradelines represented medical debt and another 20 percent accounted for telecommunications or utilities debt. Banking debt accounted for only 5 percent of tradelines examined by the panel and financial utilities debt made up only 6 percent. Positive payment information generally is not furnished for medical or telecommunications debt, the report noted.
Banks and other original creditors may collect their own debts or hire third-party debt collectors. In some instances, the original creditors may sell the debts to debt buyers. The buyers may try to collect on these debts, or hire other third-party debt collectors. There are 9,330 debt collectors and debt buyers in the United States.