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The Debt Collection Market and Selected Policy Issues

CRS report via LC – The Debt Collection Market and Selected Policy Issues, October 15, 2020: “When a consumer defaults on a debt,a third-party debt collector often collects the debt obligation rather than the lender to whom the debt is originally owed. The debt collection market helps lenders recoup their losses when a consumer defaults, generally making consumer credit and other related markets more efficient.When lenders can effectively recoup their losses, they may be more willing to lend to consumers at lower initial loan costs, leading to more access to credit for consumers. The U.S. debt collection market is large, and the debt collection process impacts many American consumers. As of 2019, there are over 7,000 collection agencies in the United States, and the industry’s annual revenue is about$12.7 billion. According to a Consumer Financial Protection Bureau (CFPB) survey, approximately one-third of consumers with a credit bureau file reported being contacted by at least one creditor or debt collector trying to collect on one or more debts in the previous year. Lenders make contracts with debt collectors to collect their debts, and consumers may not choose the debt collector with whom they engage. Therefore, consumers cannot take their business elsewhere if abuses occur. For this reason, consumer protection laws and regulations may be particularly consequential.According to the CFPB, debt collection is the consumer finance market with the second most complaints, accounting for 21% of the total complaints the agency received in 2019.Consumers’ most common debt collector complaints assert that a debt collector attempted to collect a debt the consumer did not believe was owed (45%),or a consumer received insufficient written notification about a debt (18%).

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