The US government has thrown a slew of laws on collection agencies, making bad-debt recovery harder and costlier. Lower recoveries mean, low recoveries and extensive loss for businesses and doctors. Our government’s intention behind these laws is not wrong, but the ground reality is different.
Extra costs to comply with these laws would be passed on to businesses /creditors, who are already unwilling to pay the current costs associated with hiring a professional debt collector.
There are thousands of collection agencies in the USA, but most are small. They have less than ten people and work from small offices. The following changes can result in many collection agencies shutting their businesses.
New Regulations
- As per FTC, starting June 9, 2023, all collection agencies will be treated as financial institutions. This means all collection agencies must secure consumer data nearly the same way as banks.
Read: Impact of the GLBA on Collection Agencies
- As of Nov 2021, The new debt validation notice format recommended by CFPB makes it easier for debtors to dispute the authenticity of debt. Debtors who would have usually paid quickly are now disputing the collection notices more than ever. All these delays and extra paperwork means higher cost, lower recovery, and more time to recover debts.
Read this: https://nexacollect.com/debt-recovery/validation-letter/
- In another CFPB order, all collection agencies must provide the balance as of a specific date and itemize all interest, fees, payments and adjustments from that date. Not all clients have this information handy. Many clients would simply take the loss upfront rather than wasting time digging into all the detailed documentation required to submit an account for collections.
- Not just the government, but even credit bureaus are creating roadblocks for hospitals, doctors and dentists, who rely on collection agencies and credit bureau reporting for medical debt recovery. Credit bureaus will soon stop reporting medical debts lower than $500, remove medical line items that have been fully paid, and collection agencies now have to wait one year before medical debts can be reported. Suppressing how medical reports are reported to the credit bureaus will surely increase the cost of healthcare, more defaults, more legal mess, and higher risk for future creditors.
Read: Making Medical Credit Reporting Harder is a Disaster in the Making
These laws are on top of all the existing Federal and State laws. These include FDCPA, TCPA, HIPAA, FCRA, and many more.
These laws can have a positive perception of people on lawmakers, but as usual, it is making doing business harder than ever.