Debt Collections Latest Front In Obama's Race Battle
Posted 06:59 PM ET Cordray: Trashing lenders
Racial Politics: No one likes bill collectors, but this administration is framing them as racists to run them out of business. It's even giving deadbeats tips on dodging collections. It does neither lenders nor borrowers any favors.
The Obama administration's powerful new credit watchdog agency, the Consumer Financial Protection Bureau, is in effect criminalizing debt collections by arguing they have a "disparate impact" on black Americans.
In fact, CFPB chief Robert Cordray says he's closing in on new rules to crack down on creditors and third-party debt collectors who "hound" black borrowers more frequently than white ones.
He's already sued a couple of companies on trumped-up charges. Some 175 others are in his cross hairs.
"We will not tolerate companies harassing consumers in the debt collection market," Cordray warned.
The leftist crusader recently promised black church leaders gathered in Charlotte, N.C., that he would seek "economic justice" for blacks who have fallen into debt and come under the thumb of bill collectors and other "financial predators."
"People deserve to be treated with dignity," he said, adding, "We are taking bad actors out of the industry."
To that end, his agency just announced that it has solicited more than 30,000 complaints that allegedly prove creditors are abusing debtors. Only, CFPB made no effort to determine if the complaints were valid and simply took borrowers' word that they don't owe what they owe. A recent federal study shows more than 96% of such complaints are "frivolous."
Cordray might want to check out the Federal Trade Commission's 2013 study finding that only 3.2% of consumer debt is legitimately disputed. That tiny fraction hardly justifies an industrywide crackdown that threatens to drive up the cost of collections.
Still, Cordray says his error-riddled and woefully unreliable complaint database is driving CFPB's actions against creditors. Meanwhile, the agency is helping deadbeats get out of paying their debts by posting samples of letters they can send creditors telling them to bug off. The templates are almost identical to the letters posted on the website of the consumer advocacy group where a top CFPB official worked.
The NAACP and Demos, a leftist think tank, recently poured fuel on the fire by releasing a survey showing 71% of blacks get calls from bill collectors vs. just 50% of whites. The report suggests collectors are discriminating against blacks. But debt collectors don't get into the ethnic information of the debtors they pursue. The industry is color blind.
So why are blacks hassled more than whites? Because "they are more likely to have blemishes on their credit history that would send debts to collection agencies," one of the Demos report's authors admitted.
Of course, Cordray and his diversity police ignore such simple logic. They're gearing up to "reform" what they view as a racist industry.
If the government overregulates this multibillion dollar industry based on false assumptions — essentially playing fast and loose with numbers to build a social case — it will make it harder to collect on bad debt and make credit less affordable for all consumers, particularly the vast majority who pay their debts on time.
What's more, billions in bad-debt collections are at risk if these activists-turned-regulators succeed in simultaneously protecting deadbeats while criminalizing collections. For the consumer lending industry and its customers, its a lose-lose proposition.