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Bills
| 3.23.22

Expanding Consumer Protections for People With Debt Owed to Government Agencies (H.R. 4403)

Do you support or oppose this bill?

What is H.R. 4403?

(Updated December 16, 2020)

This bill, known as the Stop Debt Collection Abuse Act of 2019, would apply certain consumer protections regarding debt collection to debt owed to a federal agency and to debt buyers by making debt collectors hired by state or federal government agencies subject to the Fair Debt Collection Practices Act (FDCPA).

It would prohibit federal agencies that are creditors from selling or transferring a debt to a debt collector until 90 days after the obligation becomes delinquent or defaults. Additionally, it would require that specified notice be given to the consumer of such a sale or transfer.

Additionally, this bill would prohibit a collector of debt owed to a federal agency from collecting any interest, fee, charge, or expense that is: 1) unreasonable in relation to actual costs, 2) not authorized by a contract between the debt collector and the federal agency, and 3) greater than 10% of the amount collected.

Finally, this bill would require the Government Accountability Office (GAO) to report on the use of debt collectors by federal, state and local government agencies.

Argument in favor

Debt collectors acting on behalf of local, state, and federal government agencies should be subject to the same laws that apply to debt collectors acting on behalf of private entities. This would help ensure that these collectors don’t abuse debtors simply because the government — rather than a private business — happens to hold their debt. Given the government’s police power, it’s especially important to ensure that debt collectors acting on its behalf do not use the government’s power to harass or intimidate borrowers.

Argument opposed

Debts owed to the federal government can be unique and require debt collectors acting on the government’s behalf to make every possible effort to contact borrowers in order to help them avoid penalties or other negative consequences, such as inability to obtain a federal government job, due to outstanding government-held debt. If passed, this legislation would hamstring federal government debt collectors’ abilities to contact borrowers without fear of violating applicable regulations. This could have the unintended consequence of making debt collectors less communicative with borrowers, to borrowers’ detriment.

Impact

Individuals who owe debts to local, state, or federal government agencies; debt held by local, state, or federal governments; collectors of debt held by local, state, or federal governments; and the Fair Debt Collection Practices Act (FDCPA).

Cost of H.R. 4403

A CBO estimate is unavailable.

Additional Info

In-Depth: Sponsoring Rep. Emanuel Cleaver (D-MO) introduced this bill to protect American consumers from predatory debt collection abuses by closing federal loopholes and bolstering consumer protections:

“No American should have to deal with abusive and predatory practices from debt collectors, especially when those debt collectors have been hired by the federal government. This bipartisan bill strengthens consumer protections by rectifying loopholes in existing federal law that enable private companies hired by the federal government to unnecessarily harass individuals. It’s a common sense change, and it ought to be passed in a bipartisan fashion.”

After this bill’s passage in the House Financial Services Committee, Rep. Cleaver said:

“There is no justification for some of the harassment that Americans are forced to deal with from federally-hired debt collectors, and this bill will help to close the loopholes that have allowed that behavior to take place. I’m hopeful we can get a vote on the House floor with similar bipartisan support.”

Original Republican cosponsor Rep. French Hill (R-AR) said:

“There is no justifiable reason for government-hired debt collectors to have extra authority to inflict aggressive debt collection practices. This bipartisan legislation will put government-hired debt collectors on a level playing field with private debt collectors. Additionally, studying debt collection practices can help identify the right balance between protecting consumers and ensuring that access to credit is not restricted.”

After this bill’s passage in the House Financial Services Committee, Rep. Hill added:

“If Congress is going to set up fair debt collection practices to hold the private sector accountable, a federal agency collecting a debt from consumers should be held to the same standard. This bipartisan legislation will protect Arkansas consumers by putting government-hired debt collectors on a level playing field with private debt collectors. Additionally, studying debt collection practices can help identify the right balance between protecting consumers and ensuring that access to credit is not restricted.”

A coalition of consumer, civil rights, labor, and community organizations wrote a joint letter in favor of this bill, along with a number of other bills comprising a package of debt collection bills, in November 2019. The signatory organizations, which included Americans for Financial Reform, Consumer Action, and the NAACP, wrote:

“Increasingly, state and local governments are hiring third-party debt collectors to collect on alleged debts such as toll fees, traffic tickets, utility bills, and court debts. Collection on behalf of the government is unusually coercive as a result of the government’s police power, which makes the need for robust protections against abusive and unfair debt collection practices all the more important. Yet many courts have interpreted the FDCPA’s definition of debt narrowly in a way that too often excludes government debts, meaning that consumers are frequently deprived of FDCPA protections and remedies. This bill would close this loophole.”

ACA International, a lobbying organization for the credit and collection industry, opposes this legislation and has lobbied against it in multiple sessions of Congress. In November 2019, ACA CEO Max Neeb said:

“ACA has several concerns about this bill. Under the Obama administration, Congress has previously recognized the need for certain exemptions for debts owed to or guaranteed by the federal government in the Bipartisan Budget Act of 2015. Communicating about debt owed to the government is unique, for example, providing information about outstanding student loans may help borrowers avoid penalties or other negative consequences such as the ability to obtain a federal government job.”

ACA International does, however, support this bill’s requirement that the GAO study local, state, and federal agencies’ use of debt collectors. In his November 2019 statement, Neeb said:

“We support this aspect of the bill and are confident that this study will be in line with other research in this area, which shows both consumer and economic benefits from debt collection efforts for the government.”

This legislation passed the House Financial Services Committee by a 54-0 vote with the support of one Republican House cosponsor, Rep. French Hill (R-AR). Its Senate companion, sponsored by Sen. Cory Booker (D-NJ), has one Republican Senate cosponsor, Sen. Mike Lee (R-UT), and has not yet received a committee vote.

In the 115th Congress, Rep. Mia Love (R-UT) introduced this legislation in the House with the support of three bipartisan House cosponsors, including two Democrats and one Republican. Sen. Booker introduced a Senate companion with Sen. Lee. Neither bill received a committee vote in the 115th Congress, although the House Financial Services Subcommittee on Financial Institutions and Consumer Credit did hold hearings for the House bill.

Numerous consumer protection and public advocacy groups support this legislation. These organizations include Americans for Financial Reform, Consumer Action, NAACP, National Consumer Law Center, Public Citizen, and others.


Of Note: The Fair Debt Collection Practices Act (FDCPA) currently makes it illegal for debt collectors to use abusive, unfair, or deceptive practices when collecting debts from consumers. However, debt collectors hired by state or federal government entities are currently exempted from the FDCPA. Therefore, if a government fine or fee, such as municipal utility bill, traffic ticket, or court debt creates a debt that is transferred to a debt collector, that collector may not be required to comply with the FDCPA.

According to a Congressional Research Service (CRS) report, the increased outsourcing of government debt collection to debt collectors has led to more reports of aggressive debt collection practices for government debt. Additionally, the CRS report noted that the flexible repayment terms for some types of federal government programs, such as income-driven repayment plans, can be lost when those types of debt go into default and are transferred to debt collectors.

Those who support making debt collectors working on behalf of government entities subject to the FDCPA contend that collection on behalf of the government is “unusually coercive” due to the government’s police power, which makes the need for robust protections against abusive and unfair debt collection processes even more important in this context. 


Media:

Summary by Lorelei Yang

(Photo Credit: iStockphoto.com / Olivier Le Moal)