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Why New Federal Rules for Debt Collectors Don’t Go Far Enough

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From credit cards to mortgages to student loans, the average American consumer is loaded with debt. Roughly 30 million people have debt collection agencies coming after them to repay an average of $1,500 in unpaid loans.

For the first time ever, Americans will be somewhat more protected from the sometimes aggressive practices of debt collectors.

Related: Obama's Student Loan Program Is a Windfall for the Rich Study Says

The Consumer Financial Protection Bureau announced Wednesday that it will supervise debt collection agencies with more than $10 million in annual receipts and release a field guide that will be used by its examiners.

"Millions of consumers are affected by debt collection, and we want to make sure they are treated fairly," said CFPB Director Richard Cordray in a press release. "We want all companies to realize that the better business choice is to follow the law — not break it."

According the The New York Times, The Federal Trade Commission, which collects and enforces abusive practices by credit agencies, collected 180,000 consumer complaints about debt collection agencies in 2011, up from about 14,000 in 2000.

The new CFPB rules are set to take effect on Jan. 2, 2013 and will impact about 175 of the 4,500 debt collection agencies in the country. While that number may seem small, the newly regulated debt collectors account for more than 60% of the industry's $12 billion in annual collections.

Next year the consumer watchdog will make sure that debt collectors are following the proper practices and procedures when contacting consumers. Collection agencies must adequately identify themselves and then indicate the amount to which they are seeking collection. Additionally, there must be a sound method for settling disputes "civilly and honestly" with consumers.

"Examiners will be assessing whether debt collectors have harassed or deceived consumers in pursuit of debt," said the CFPB in a statement. "For example, debt collectors should not be using obscene or profane language with consumers. Nor should they be engaging the consumer in telephone conversations repeatedly or continuously with intent to annoy, abuse, or harass. Debt collectors cannot threaten to imprison consumers who do not pay their debt or threaten to tell the consumer's employer about the debt."

Roughly one-third of states allow delinquent borrowers to be thrown in jail, according to The Wall Street Journal.

Related: THE RETURN OF DEBTORS PRISONS: Collection Agencies Now Want Deadbeats Arrested

"As the CFPB is a work in progress so are these rules. The Fair Debt Collection Practices Act is antiquated and needs a refresh to bring it into the 21st Century," says Adam Levin, chairman and co-Founder of Credit.com in an e-mail to The Daily Ticker. In that same vein,Aaron Task and Henry Blodget discuss in the accompanying video why there should be one set of bankruptcy laws for people and corporations.

"I think the $10 million threshold is too high, I agree with many consumer advocates that the zone of regulation should be expanded and the regulatory entry point should be lowered to $7 million as it is proposed for credit reporting agencies. That will cover many smaller collectors who are more problematic than many of the larger collectors," says Levin. "With the evolution of technology from robo-calling, smart phones, texts and social networking, the little shop can now play in the bigger debt collection leagues and harass and intimidate consumers which equal effectiveness and even less regard for consumer protection. We need to put the spotlight on the entire community to ensure that consumers and legitimate collectors are protected from bad actors."

The CFPB is set to hold a public field hearing today at 1 pm ET to release the new rules. The hearing will be webcast on the watchdog's website.

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