Closing the Cracks and the Courts: A Comparative Analysis of Debt Collection Regulation in the United Kingdom and the United States.

• Author: Harris, Tasia S.

TABLE OF CONTENTS I. INTRODUCTION 212 II. THE REGULATION OF DEBT COLLECTION IN THE UNITED 217 STATES AND IN THE UNITED KINGDOM A. Overview 217 B. Debt Collection in the United States 217 1. The Federal Debt Collection Practices Act 217 2. The Meaning of Debt Collector under the FDCPA 219 3. Legal Action under the FDCPA 221 4. Regulation F 221 C. Debt Collection in the United Kingdom 222 1. The Consumer Credit Act of 1974 222 2. The Meaning of Debt Collector under the CCA 224 3. Legal Action under the CCA & the Debt Respite Scheme (Breathing Space) 225 III. COMPARATIVE ANALYSIS AND POLICY IMPLICATIONS 227 A. What's in a Name? How Differences in Scope Affect 227 Outcomes in the United States and the United Kingdom B. Differences in Restrictions on Legal Action by Debt Collectors: Comparing the Venue Provision to the Debt Respite Scheme 232 IV. IMPROVING DEBT COLLECTION REGULATION IN THE UNITED STATES AND THE UNITED KINGDOM 236 A. Adjusting Scope in the United States: Redefining the FDCPA's Debt Collector in the Image of the United Kingdom's CONC 7 237 B. Judicial Enforcement in the United States: Reconceptualizing the Role of the Courts 239 C. Considerations for the United Kingdom: Creating a Private Right of Action for Consumers Alleging Unfair Debt Collection Practices 242 V. CONCLUSION 244 I. INTRODUCTION

In 2019, Ronnisha worked three jobs with the hopes of attaining financial stability. (1) When she landed a job working for her local government, she thought she might finally be on her way. (2) That was until she received a notice stating that a court judgment had been entered against her by a debt collector. (3) "I didn't recognize the debt collector, so I thought it was a scam," Ronnisha explained. (4) After further investigation, she found that there were not just one, but several judgments against her, "all from debt collectors [she did not] know." (5) She now fears that her hard-earned wages will be garnished because of these default judgments. (6) Similarly, Robert, a substitute teacher, had his bank accounts frozen by a debt collector he had never heard of in March 2020. (7) "I need that money for urgent necessities like rent [and] food... [t]his situation has put a terrible pressure on me and on my family," Robert explained. (8) Unfortunately, Ronnisha and Robert are not the first--and certainly not the last--American consumers to feel the impact of a debt collection system comprised of many unfamiliar actors and few restraints on these actors' use of judicial enforcement as a collection mechanism. In the United States, it is now standard for consumers with unpaid debt to be contacted by debt collectors they do not recognize, (9) and it is common for those debt collectors to use the courts as a shortcut to collection. (10)

The debt collection system that exists in the United States today traces its roots to a nineteenth-century Massachusetts lending company called the Massachusetts Hospital Life Insurance Company (MHLIC). (11) Although the MHLIC did not create the concept of lending, it is credited with the genesis of a debt collection system that is both impersonal and reliant on legal action as an important enforcement tool. (12) Whereas prior to the MHLIC's arrival to the debt collection industry, borrowers typically knew their lenders and lenders were unlikely to sue when borrowers missed payments, the MHLIC ushered in a new era of debt collection. (13) Lenders of the MHLIC were not familiar with their borrowers and thus exercised no restraint in issuing notices that payment late by even one day would trigger a lawsuit. (14)

It would appear that the more things change, the more they stay the same. Admittedly, the current debt collection system in the United States operates in a much different landscape than existed in 1893 when the MHLIC was founded. With the advent of new types of consumer credit, such as credit cards, and the innovations in technology that allow debt collectors to contact consumers by phone or even social media, (15) debt and debt collection as it exists in the United States today would be unrecognizable to the MHLIC. It would be unrecognizable in almost all respects, that is, except the alienation between borrowers and those collecting debt and the collectors' aggressive use of the judicial process. (16)

Most consumers today, like Ronnisha and Robert, do not recognize the companies contacting them to make payments on their debt. (17) This is largely because of the rapid rate at which the debt collection industry has grown. From 2017 to 2022, the market size of the industry has grown by an average of 0.4 percent per year. (18) Though this number may seem small, with the debt collection market estimated to be worth $17.9 billion dollars, these percentage increases add up. (19) In this market, there are hundreds, if not thousands, of debt buyers who have purchased debts from original creditors and many third-party contractors who either collect debts for debt buyers or original creditors. (20) Moreover, in today's debt collection industry, consumer debts are bought and sold multiple times, often as part of large debt portfolios. (21) Thus, over time, a consumer may be contacted by several different companies seeking payment on debt, and only one of those companies might be the one that the consumer originally borrowed from. (22)

Not only has the detached nature of debt collection originated by the MHLIC persisted, but the brute use of legal action has as well. (23) In a national survey from 2017, the Consumer Financial Protection Bureau (CFPB) found that one in seven consumers who had been contacted about a debt for collection were sued. (24) State courts across the country have also experienced a drastic increase in cases filed by collection attorneys. (25) In 2004 civil suits in state courts were roughly evenly split between debt collectors, financial service companies, and other private plaintiffs, but more recently, debt collectors have clearly taken center stage. (26) By 2020, debt collection suits accounted for a staggering 63 percent of civil suits in state courts. (27) Moreover, in these cases, debt collectors often obtain default judgments without presenting sufficient evidence that the debt exists or that the consumer-defendant is the one who owes the debt. (28) The prevalence of default judgments suggests that today's debt collectors, like their MHLIC predecessors, are turning to the courts for quick and cheap collection. (29)

Although the United States' regulatory framework for debt collection started to take shape more than forty years ago with the enactment of the Federal Debt Collection Practices Act (FDCPA), the US framework as it currently exists has a significant accountability gap for many actors in the debt collection industry and their use, or rather misuse, of the judicial process. The FDCPA suffers from an overly restrictive definition of what it means to be a debt collector, thus allowing debt buyers, who are newcomers to the industry, to escape legal action by consumers adversely impacted by their abusive debt collection practices. Conversely, when these non-traditional debt collectors turn to the courts to collect payments from consumers, the only limitation on their legal action is a venue requirement. Between the FDCPA's limited scope and sparse guardrails on judicial enforcement as a debt collection tool, consumers--especially poor consumers and consumers of color--are left with little legal remedy or defense.

Fortunately, debt and debt collection are not unique to the United States, and countries across the world take different approaches to preventing abusive debt collection. While consumers like Ronnisha and Robert were dealing with the consequences of debt collectors acting outside the scope of regulation in the United States, across the Atlantic, the United Kingdom's Financial Conduct Authority (FCA) sent a letter to debt buyers, debt collectors, and debt administrators alike warning them that the FCA intended to hold them all to the same standard. (30) The FCA stated that it expected debt buyers to seek to mitigate harm to vulnerable consumers as much as possible, just like other debt collectors in the United Kingdom. (31) Citing to the law governing all debt collection firms, the FCA expected debt buying firms to "consider how fair it is to pursue litigation [against consumers] without fully exploring other more proportionate options." (32)

Concerned with the future of debt collection in the United States and the protection of consumers, this Note conducts a comparative analysis of the regulatory frameworks for debt collection in the United States and the United Kingdom. Focusing on how each country defines "debt collector" and the extent to which judicial enforcement by debt collectors is restricted, this Note seeks to understand how the gaps allowing for abusive debt collection in the United States might be closed. There are important similarities and differences that make this comparison particularly instructive. Both countries have a fairly established framework for regulating debt collection, and the framework in both countries was instituted with a lean towards consumer protection. Additionally, and perhaps most importantly, the regulations in each country and the methods of enforcement differ in ways that are relevant to the loopholes in the United States framework. For example, while the United States combines a private right of action with a narrow definition of "debt collector," the United Kingdom trades a private right of action for an expansive take on what it means to be a debt collector.

Part II of this Note provides background information on the regulatory framework for debt collection and important developments in the framework over time in each country. Part III conducts a comparative analysis of each framework and discusses policy implications. Part IV proposes: (1) redefining "debt collector" under the FDCPA...