[House Hearing, 116 Congress] [From the U.S. Government Publishing Office] EXAMINING LEGISLATION TO PROTECT CONSUMERS AND SMALL BUSINESS OWNERS FROM ABUSIVE DEBT COLLECTION PRACTICES ======================================================================= HEARING BEFORE THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED SIXTEENTH CONGRESS FIRST SESSION ---------- SEPTEMBER 26, 2019 ---------- Printed for the use of the Committee on Financial Services Serial No. 116-54 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] EXAMINING LEGISLATION TO PROTECT CONSUMERS AND SMALL BUSINESS OWNERS FROM ABUSIVE DEBT COLLECTION PRACTICES EXAMINING LEGISLATION TO PROTECT CONSUMERS AND SMALL BUSINESS OWNERS FROM ABUSIVE DEBT COLLECTION PRACTICES ======================================================================= HEARING BEFORE THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED SIXTEENTH CONGRESS FIRST SESSION __________ SEPTEMBER 26, 2019 __________ Printed for the use of the Committee on Financial Services Serial No. 116-54 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] ______ U.S. GOVERNMENT PUBLISHING OFFICE 42-354 PDF WASHINGTON : 2020 HOUSE COMMITTEE ON FINANCIAL SERVICES MAXINE WATERS, California, Chairwoman CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina, NYDIA M. VELAZQUEZ, New York Ranking Member BRAD SHERMAN, California PETER T. KING, New York GREGORY W. MEEKS, New York FRANK D. LUCAS, Oklahoma WM. LACY CLAY, Missouri BILL POSEY, Florida DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri AL GREEN, Texas BILL HUIZENGA, Michigan EMANUEL CLEAVER, Missouri SEAN P. DUFFY, Wisconsin ED PERLMUTTER, Colorado STEVE STIVERS, Ohio JIM A. HIMES, Connecticut ANN WAGNER, Missouri BILL FOSTER, Illinois ANDY BARR, Kentucky JOYCE BEATTY, Ohio SCOTT TIPTON, Colorado DENNY HECK, Washington ROGER WILLIAMS, Texas JUAN VARGAS, California FRENCH HILL, Arkansas JOSH GOTTHEIMER, New Jersey TOM EMMER, Minnesota VICENTE GONZALEZ, Texas LEE M. ZELDIN, New York AL LAWSON, Florida BARRY LOUDERMILK, Georgia MICHAEL SAN NICOLAS, Guam ALEXANDER X. MOONEY, West Virginia RASHIDA TLAIB, Michigan WARREN DAVIDSON, Ohio KATIE PORTER, California TED BUDD, North Carolina CINDY AXNE, Iowa DAVID KUSTOFF, Tennessee SEAN CASTEN, Illinois TREY HOLLINGSWORTH, Indiana AYANNA PRESSLEY, Massachusetts ANTHONY GONZALEZ, Ohio BEN McADAMS, Utah JOHN ROSE, Tennessee ALEXANDRIA OCASIO-CORTEZ, New York BRYAN STEIL, Wisconsin JENNIFER WEXTON, Virginia LANCE GOODEN, Texas STEPHEN F. LYNCH, Massachusetts DENVER RIGGLEMAN, Virginia TULSI GABBARD, Hawaii ALMA ADAMS, North Carolina MADELEINE DEAN, Pennsylvania JESUS ``CHUY'' GARCIA, Illinois SYLVIA GARCIA, Texas DEAN PHILLIPS, Minnesota Charla Ouertatani, Staff Director C O N T E N T S ---------- Page Hearing held on: September 26, 2019........................................... 1 Appendix: September 26, 2019........................................... 63 WITNESSES Thursday, September 26, 2019 Auchterlonie, Sarah, Shareholder, Brownstein Hyatt Farber Schreck 13 Bedard, John H., Jr., Owner, Bedard Law Group, P.C............... 15 Chopra, Hon. Rohit, Commissioner, Federal Trade Commission....... 5 Desai, Bhairavi, Executive Director, New York Taxi Workers Alliance....................................................... 8 Gould, Rev. Dr. Cassandra, Pastor, Quinn Chapel A.M.E. Church (Jefferson City, MO); and Executive Director, Missouri Faith Voices......................................................... 7 Jimenez, Dalie, Professor of Law, University of California, Irvine School of Law........................................... 11 Kuehnhoff, April, Staff Attorney, National Consumer Law Center... 10 APPENDIX statements: Auchterlonie, Sarah.......................................... 95 Bedard, John H., Jr.......................................... 64 Chopra, Hon. Rohit........................................... 68 Desai, Bhairavi.............................................. 75 Gould, Rev. Dr. Cassandra.................................... 122 Jimenez, Dalie............................................... 126 Kuehnhoff, April............................................. 304 Additional Material Submitted for the Record Waters, Hon. Maxine: Written statement of Main Street Alliance.................... 344 Ocasio-Cortez, Alexandria: Various inserts.............................................. 353 EXAMINING LEGISLATION TO PROTECT CONSUMERS AND SMALL BUSINESS OWNERS FROM ABUSIVE DEBT COLLECTION PRACTICES ---------- Thursday, September 26, 2019 U.S. House of Representatives, Committee on Financial Services, Washington, D.C. The committee met, pursuant to notice, at 10:10 a.m., in room 2128, Rayburn House Office Building, Hon. Maxine Waters [chairwoman of the committee] presiding. Members present: Representatives Waters, Maloney, Velazquez, Meeks, Clay, Scott, Green, Foster, Beatty, Gottheimer, Lawson, Tlaib, Porter, Axne, Pressley, Ocasio- Cortez, Adams, Dean, Garcia of Illinois, Garcia of Texas, Phillips; McHenry, Wagner, Posey, Luetkemeyer, Huizenga, Stivers, Barr, Tipton, Williams, Hill, Emmer, Zeldin, Loudermilk, Davidson, Kustoff, Hollingsworth, Rose, Steil, Gooden, and Riggleman. Chairwoman Waters. The Financial Services Committee will come to order. Without objection, the Chair is authorized to declare a recess of the committee at any time. Today's hearing is entitled, ``Examining Legislation to Protect Consumers and Small Business Owners from Abusive Debt Collection Practices.'' I now recognize myself for 4 minutes to give an opening statement. Today, the committee will examine legislation to curb predatory and abusive debt collection practices. Last year alone, the Consumer Financial Protection Bureau (CFPB) received over 81,000 consumer complaints about debt collection practices. Since the creation of the CFPB's Consumer Complaint Database, the agency has received more complaints about debt collection than any other issue. According to a CFPB survey on debt collection, nearly one in three Americans with a credit record was contacted by at least one creditor or collector trying to collect one or more debts during the previous year. In some instances, consumers are relentlessly pursued by debt collectors regarding debts that they no longer owe or debts that are not theirs. Some consumers are not informed of their rights under the law. Communities of color are disproportionately affected by predatory debt collectors. The CFPB's survey on debt collection found that people of color reported being contacted by debt collectors more frequently than their white peers. Small business owners also face predatory debt collection practices. Unlike consumers, small business owners do not currently have the same protections under the law. For instance, entities pursuing business debts are not covered or bound by the Fair Debt Collection Practices Act. Furthermore, small business owners may also face a predatory clause buried in their debt contract called a ``confession of judgment.'' A confession of judgment is a loan contract that forces the borrower to waive defenses they could lawfully use in court. Predatory debt collectors have used this tactic to force courts to rule against borrowers regardless of the specifics of the case. This has resulted in garnished wages, and seized property, at times without the knowledge and consent of the small business owner. The New York Times highlighted how this problem has impacted New York City. New York City's taxi medallion drivers have needlessly suffered at the hands of predatory debt collectors and contract agreements. Given the impact of predatory debt collection practices on Americans across the country, it is particularly important for the CFPB to stand up for consumers. Unfortunately, the CFPB's proposal to address predatory debt collection, which was released in May of this year by Director Kraninger, fails to protect Americans from harassment by debt collectors. Under the CFPB's proposal, debt collectors would be allowed to send unlimited emails and text messages to consumers, and to call them up to 7 times a week, per debt, to collect debts. The rule fails to address consumer privacy concerns and fails to protect consumers against debt collection attorneys who make misleading statements in court documents. The rule also does not go far enough to create strong guidelines to ensure that consumers receive disclosures or to protect consumers against the collection of time-barred debt. This is an unacceptable failure by our consumer watchdog, which simply must do more for hardworking American consumers. Today, we will hear from a group of expert witnesses, and discuss several legislative proposals that have been put forth by members of the committee in order to better protect consumers and small business owners from predatory debt collection practices. I look forward to the testimony of our witnesses, and to advancing solutions to address this pressing issue. I now recognize the ranking member of the committee, the gentleman from North Carolina, Mr. McHenry, for 5 minutes for an opening statement. Mr. McHenry. Thank you, Madam Chairwoman. And thank you to the witnesses for being here. A CFPB study conducted in 2017 found that 63 percent of consumers said they were contacted too frequently by debt collectors or creditors. In 2018, the Consumer Financial Protection Bureau received more than 81,000 consumer complaints related to debt collection. In some cases, the CFPB and the Federal Trade Commission received complaints from consumers being called anywhere from 7 to 20 times a day. The data proves that consumers aren't happy with debt collectors. So, we can all agree there is a problem. The current regime does not work for the American people. One cause could be the Fair Debt Collection Practices Act (FDCPA), the principal statute governing debt collection activity. The FDCPA was signed into law by President Carter in 1977-- 1977 also is the year that Apple Corporation was incorporated. And so it is fair to say that much has changed in terms of technology and how society interacts since that time. The CFPB recognizes the need to modernize the FDCPA and the rules surrounding debt collection. Despite what you will hear today from my friends on the other side of the aisle, the CFPB is working to fix this problem for the benefit of the American consumer. The proposed rule addresses the use of newer technologies, establishes clear bright-line rules limiting call attempts and telephone conversations, and clarifies consumer protections, disclosure requirements, and communications with consumers. That includes opt-out instructions in every email, text message, or other electronic communication. It also addresses the standard for contact through social media platforms and requires a collector to communicate with a consumer about a debt before furnishing information to a consumer reporting agency. How consumers want to be contacted is different now than what was contemplated in the existing rule, so let's acknowledge that. Text messages, well, if you want to talk to a millennial, text them. Trying to get them to answer the phone, give me a break, it's not possible. So in short, the CFPB's proposed rule offers certainty for consumers and clear rules of the road for debt collectors. Given the discussions we have had in this committee this year, I am surprised that more of my colleagues are not commending the steps taken by Director Kraninger. This modernization isn't just important to consumers. Small businesses in America and healthcare providers across this country depend on third-party collectors to manage receivables and ensure that they are compensated for services that have been provided. Federal, State, and local governments also depend on the collections industry for tax payments. Government-related debts represent 16 percent of all debt collections. So, we need to think about the taxpayers in this term as well, because that means that the vast majority of taxpayers are paying on time, and they would see their taxes go up if there is not a way to collect from those who are not paying. That money, which covers everything from unpaid parking tickets to unpaid taxes, is better spent on things like infrastructure and education rather than just letting those who aren't paying, not pay. Madam Chairwoman, the reality is that prices increase for all when some decline to pay. Methods for debt collection can and should improve. But we must allow for modernization that appropriately accounts for the vast changes in technology and the way that consumers wish to be communicated with. I look forward to a productive hearing, and I thank our witnesses on this vast panel for appearing. Chairwoman Waters. I now recognize the Chair of our Subcommittee on Consumer Protection and Financial Institutions, Mr. Meeks, for 1 minute. Mr. Meeks. Thank you, Chairwoman Waters, for calling this important hearing. In many ways, this hearing is an important capstone to a series of hearings held in the committee and the subcommittee this year. Indeed, in the Full Committee, the chairwoman has held hearings on the student loan crisis, which is straining an entire generation, as well as a hearing exploring a whole host of problems with credit rating agencies and the FICO score. The credit rating agencies have not only divulged data on a large share of the American population, but often report false and inaccurate data on consumers, negatively impacting millions of borrowers. Another hearing was held on the CFPB, which, under the current Administration, is abandoning its core mission to protect vulnerable consumers. In the subcommittee, I have chaired hearings on payday loans, as well as the Community Reinvestment Act, and ongoing discriminatory practices in lending. Across-the-board, we see how consumers and borrowers, particularly in communities of color, are vulnerable to abusive and predatory practices. Consideration of debt collection practices is critical as we consider the circumstances of American families, 40 percent of which struggle to make ends meet on a monthly basis. I yield back. Chairwoman Waters. I now recognize the ranking member of the subcommittee, Mr. Luetkemeyer, for 1 minute. Mr. Luetkemeyer. Thank you, Madam Chairwoman. Before I begin, I would like to welcome my constituent, the Reverend Dr. Cassandra Gould, from the Third Congressional District of Missouri. Thank you for appearing before the committee. I look forward to discussing this important topic with you as we go forward. Millions have forgotten that debt collectors were once the legal businesses targeted by the Obama Administration's harmful Operation Choke Point. However, just yesterday, all of the Majority members of this committee voted in support of the Safe Banking Act, which contains language to end Operation Choke Point and stop villainizing these businesses. I think we can all agree we have a responsibility to ensure that consumers and small businesses are protected from abusive debt collection practices, but we cannot forget the important role debt collectors play in our economy and for American small business owners. The CFPB's recent rule governing debt collection practices outlines small changes that would make a real difference to American consumers, including the ability to opt out of debt collection emails or text messages, and caps on the number of phone calls. I thank the witnesses for appearing, and I look forward to a robust discussion on ways to modernize and responsibly regulate debt collection across the nation. With that, Madam Chairwoman, I yield back. Chairwoman Waters. I want to welcome today's distinguished panel of witnesses: the Honorable Rohit Chopra, Commissioner, Federal Trade Commission; the Reverend Dr. Cassandra Gould, Pastor, Quinn Chapel A.M.E. Church in Jefferson City, Missouri, and executive director, Missouri Faith Voices; Ms. Bhairavi Desai, executive director, New York Taxi Workers Alliance; Ms. April Kuehnhoff, staff attorney, National Consumer Law Center; Professor Dalie Jimenez, professor of law, University of California, Irvine School of Law; Ms. Sarah Auchterlonie, shareholder, Brownstein Hyatt Farber Schreck; and Mr. John H. Bedard, Jr., owner, Bedard Law Group, P.C. Without objection, each of your written statements will be made a part of the record. For purposes of testimony, each of you will have 5 minutes to summarize your testimony. When you have 1 minute remaining, a yellow light will appear. At that time, I would ask you to wrap up your testimony so we can be respectful of both the witnesses' and the committee members' time. Commissioner Chopra, you are now recognized for 5 minutes to present your oral testimony. STATEMENT OF THE HONORABLE ROHIT CHOPRA, COMMISSIONER, FEDERAL TRADE COMMISSION Mr. Chopra. Chairwoman Waters, Ranking Member McHenry, and members of the committee, thank you for holding this hearing, especially as it relates to the $1.6 trillion student loan market. Since the eruption of the financial crisis and its decimation of the U.S. economy a decade ago, unemployment has come down and the stock market is soaring. But the headline statistics obscure the serious cracks in our economy. Stagnant wages and rising costs mean that Americans are walking on an economic tightrope where even a tiny jolt can send them into a free fall. According to multiple estimates, there are more than 70 million Americans with past-due bills in collections. Too often, our system treats these individuals as if they are morally bankrupt or free-riding, and the reality is so much different. Many are battling medical bills that they may not even owe due to a bureaucratic stalemate between their insurance company and their hospital. Others fell behind on utility bills or other household expenses after losing a shift at work. And some are even jailed for not paying fees and fines. Many small businesses, who are looking to weather a slow season, got caught up in lending schemes that ended up destroying them and their business. And many people simply finished school at the wrong time, entering the workforce with a job that barely puts them on a path to pay off their student debt. Prior to serving as a Federal Trade Commissioner, I was proud to be appointed by the Secretary of the Treasury as the Consumer Financial Protection Bureau's first student loan ombudsman, where I led the agency's work on behalf of student loan borrowers. During my time at the CFPB, we published widely cited reports detailing the devastating impact of student loan debt and pursued an aggressive enforcement agenda against law- breaking companies in this industry. Later, I served as a special adviser to the Secretary of Education, where I saw firsthand how much influence and power government contractors have over our student loan system. There are roughly 9 million Americans in default on a Federal student loan, with many more in serious delinquency, and the Federal Government makes sure they know it. The Department of Education student loan arm is one of the largest financial institutions in the world. The government hires a squadron of financial institutions to aggressively pursue borrowers by slamming their credit, levying hefty fees, and humiliating them with their employer. Student loan companies should be helping borrowers get back on their feet by advising them of all of the options for managing their student debt. But instead, I have seen how these companies have steered borrowers in a direction that benefits their bottom line. And here is the irony. When student loan borrowers make a mistake, they pay dearly for it. They may not be able to pass an employment verification check or rent an apartment. But when student loan companies make mistakes and violate the law, the Department of Education often covers for them and continues lavishing them with valuable contracts and subsidies. This is not a recent phenomenon. It has been going on for years under multiple Administrations and multiple parties. These policies are exacerbating the racial wealth gap and undermining the American Dream. The CFPB must act to address these serious problems, too. We must ensure that companies that break the law face real consequences, just as borrowers sometimes do. Congress also needs to clean up the Department of Education's student loan branch so that it puts borrowers, taxpayers, and our economy ahead of contractors' profits. We have to wake up to the realities of our broken student loan debt collection system and fix it. And outside of student lending, I believe the Federal Trade Commission (FTC) also needs to act, especially where the CFPB cannot. Technology has made it easier for lenders and debt collectors to seize cars without warning. Despite receiving authority in 2010 to put common-sense rules into place to combat abuses here, the FTC has not yet made a proposal. The FTC also has unique jurisdiction to attack debt collection and discrimination issues in the small business lending market, and we should look to restrict terms like ``confession of judgment'' that the FTC banned in consumer loans long ago. And the FTC also needs to scrutinize the role of big tech on everything from algorithms to alternative currencies, like Facebook's Libra, and how ad networks can profit from debt collection scams. All of us need to act. Thank you. And I look forward to your questions. [The prepared statement of Commissioner Chopra can be found on page 68 of the appendix.] Chairwoman Waters. Thank you, Commissioner Chopra. Reverend Gould, you are now recognized for 5 minutes to present your oral testimony. STATEMENT OF REVEREND DR. CASSANDRA GOULD, PASTOR, QUINN CHAPEL A.M.E. CHURCH (JEFFERSON CITY, MO); AND EXECUTIVE DIRECTOR, MISSOURI FAITH VOICES Rev. Gould. Good morning, Chairwoman Waters, and members of the committee. I have come to represent the faith community who is doing our part in trying to uplift the burden that many Americans face. I am a member of the Faith and Credit Roundtable Steering Committee of the Center for Responsible Lending, a founding member of Faith for Just Lending, and I come here today as a faith leader who serves on the front line of those fighting against financial predation and as a person who is often entrusted with the painful stories of shame and trauma that is experienced by hardworking individuals who are preyed upon by bad financial actors, and often seem to have their dignity disregarded by the predatory practices of debt collectors. Prior to being called into full-time ministry, I spent approximately 17 years in the financial industry. During this time, I became painfully aware of the increasingly harmful practices of debt collectors as well as the increasingly predatory practices of lenders, especially payday lenders. In my role as pastor, activist, and public theologian, I advocate for economic justice and racial equity. It is through this work that I have been extremely familiar with the work of the Consumer Financial Protection Bureau. On June 2, 2016, I was a panelist at the hearing held in Kansas City to discuss what would become the payday rule. Since that time, I have been in constant communication, and have met with each of the Bureau's Directors--Director Cordray, Director Mulvaney, and now Director Kraninger--multiple times. In each of those conversations, I have admonished them to actually just live up to their name, to be a bureau that actually protected consumers. I am here today to express my concern and represent the faith community in our collective concerns about the current proposed rule and to share stories from families and individuals suffering in Missouri where, according to the National Consumer Law Center, 31 percent of the residents of Missouri are in debt collection. Missouri is a State that is 83 percent white, but 65 percent of the residents who are in debt collection are people of color and African Americans. In the Book of Proverbs 22:22, we are reminded not to oppress or exploit poor people because they are poor. I believe that this proposed rule legalizes the exploitation of some of the most vulnerable members in society. The harassment and abuse hurts all families, but wreaks disproportionate harm on families of color where systemic discrimination in housing, employment, and financial services already persist. Debt collection, collection lawsuits, and judgments and wage garnishments are more common in communities of color. Forty-five percent of borrowers living in areas that are predominantly communities of color had debt in collections versus 27 percent of those living in predominantly white areas, and that information is according to the Urban Institute. In the State of Missouri, where I serve in Jefferson City, we suffered a tornado that damaged and destroyed over 513 residences, and it is evident even now that some people are struggling to get back into housing because of zombie debts that are coming up on their credit report because of debt collectors. And now, some of those people are facing homelessness. And so again, I am here to represent those stories and to hold the CFPB accountable to actually protect consumers. [The prepared statement of the Rev. Dr. Gould can be found on page 122 of the appendix.] Chairwoman Waters. Thank you very much, Reverend Gould. Ms. Desai, you are now recognized for 5 minutes to present your oral testimony. STATEMENT OF MS. BHAIRAVI DESAI, EXECUTIVE DIRECTOR, NEW YORK TAXI WORKERS ALLIANCE Ms. Desai. Thank you, Madam Chairwoman, and good morning, all Honorable Members of Congress. I, myself, and 15 of my brothers drove down this morning at 3 a.m. from New York City to represent the interests of a workforce that is deeply in crisis. Debt is basically a life sentence to poverty. And for drivers, it means that they have been handcuffed to the wheel 7 days a week, for 14-hour shifts. Mr. McHenry. Madam Chairwoman, if the testimony will suspend. Chairwoman Waters. Thank you, Ranking Member McHenry. He is absolutely correct. You may not display your signs in the hearing room. Would you kindly put them down, please? Mr. McHenry. Thank you, Madam Chairwoman. Chairwoman Waters. Thank you. Ms. Desai. As I was saying, debt is a life sentence to poverty. And for drivers, it means that they have been handcuffed to the wheel 7 days a week, for 12- to 14-hour shifts. There have been so many stories of drivers having multiple heart attacks and not being able to take even a day off after they have left that hospital, or going straight from chemo sessions or kidney dialysis back to the wheel, to driving. And even then, what they are facing is lifelong debt. On average, medallion owner-drivers in New York City pay about $3,500 a month today in mortgage payments for that medallion, which is just a license from the City of New York that allows you to operate a yellow cab for commercial purposes, with the exclusive right to street hail. Between 2004 and 2014, through 16 auctions, the City of New York made $850 million from the sale of these medallions. The City counted its money. The banks, the lenders, and the brokers that made fees from these sales from interest-only payments have also been able to count their money. Meanwhile, the men and women who entered into these agreements are all now in lifelong debt. As the market value of the medallions has fallen--at one point, it had been a million dollars a couple of years ago, to now less than $150,000--the only negotiations we are seeing from the lenders is to reduce payments from, let's say, $3,500 a month, to $1,500 a month, with the criteria that that agreement is now extended from 15 years to 50 years. For 50 years, you are left in debt. It is absolutely demoralizing, and you feel the weight of it. There were 9 driver suicides in New York City in 2018. Among the drivers, 3 were owner-drivers, who represent 2 percent of the total workforce, but were among 33 percent of the drivers whose despairs has led to suicide. And they are not alone. The real stories are the tens of thousands of drivers we see today who are really dying a slow death from despair, from stress, and from the crisis of this debt. Confessions of judgment have basically meant that when this market started to fall, drivers were told that they had to pay the total sum of what was owed on that debt; they had to produce $350,000 to $400,000 overnight. There are so many stories of people who went into a panic mode, afraid that if they did not pay up, they may lose their house, or they may not be able to get another loan for their kid's student loan. It is a vicious cycle. And we need to address predatory lending practices where, in our case, brokers and lenders knew that the value was inflated. Some of these lenders were, in fact, plotting to leave the industry at the same moment in time that they were luring individual drivers, a workforce of 90 percent immigrants, into the same industry that they were trying to leave. Banks who were no longer able to loan in the housing market because of the role they played in the mortgage crisis entered into our industry and took advantage of this workforce. We need to address both the predatory practices, and the fact that seven government agencies knew. They made a profit for the City, they watched our people go deep into poverty and lifelong debt, and we have seen heart attacks and suicides, and they did nothing about it. And that is really at the heart of the issue today. This is a debt that itself needs to be addressed by the City of New York. They need to put some money on the table, and buy back these loans, or refinance them at the current market value, so that individual owner-drivers are no longer in debt at an average of $600,000 while they remain in a daily, weekly debt of hundreds of dollars and an annual debt of $25,000 a year just to pay for rent and other cost-of-living expenses. Thank you. [The prepared statement of Ms. Desai can be found on page 75 of the appendix.] Chairwoman Waters. Thank you very much for your testimony. I am going to have to say a word about the signs that are being held behind you. The Chair is responsible under the Rules of the House and the Rules of the Committee to maintain order and preserve decorum. In the committee room, members of the audience are reminded that disruption of congressional business is a violation of Federal law and an offense. We welcome and encourage your presence, but we cannot accept disruptions. So, I thank you. I know that you are anxious to have your message seen by all of the Members, but if you would just keep your signs down. We do want to hear the testimony, and we are very appreciative for your patience. With that, I want to thank you, Ms. Desai. And, Ms. Kuehnhoff, you are now recognized to present your oral testimony. STATEMENT OF APRIL KUEHNHOFF, STAFF ATTORNEY, NATIONAL CONSUMER LAW CENTER Ms. Kuehnhoff. Chairwoman Waters, Ranking Member McHenry, and members of the committee, thank you for inviting me to testify today regarding how to protect consumers and small business owners from abusive debt collection practices. I offer my testimony here on behalf of the low-income clients of the National Consumer Law Center. Across the United States, contact with debt collectors is a common experience for consumers. In 2017, 71 million Americans with a credit report, about one in three, had one or more debts in collection reported on that credit report. In predominantly non-white areas, that number is even higher, with 45 percent, nearly one in two consumers, with one or more debts reported on a credit report. These numbers highlight the disproportionate and sobering role that debt plays in some communities. Indeed, consumer experiences with debt and collection vary based on income, race and ethnicity, ability to speak English, age, and military service, among other factors. For the vast majority of consumers who are in debt, it is not an unwillingness to pay their debts but a host of other factors that leads people into debt collection, including stagnant wages, job loss, divorce, health problems, predatory lending, and a weakening financial safety net. However, no matter how people end up in debt, they should not suffer abuse or harassment from debt collectors. In 1977, Congress enacted the Fair Debt Collection Practices Act (FDCPA) to protect consumers from abusive debt collection practices. Unfortunately, abusive collection practices are still an issue today, despite the passage of the FDCPA, and debt collection is frequently a top source of complaints from consumers to Federal and State agencies. Major categories of debt collection problems that consumers face include collection without adequate information, where debt collectors pursue debts without reviewing the documentation needed to ensure that they are collecting the right amount from the right person; mass filings of collection lawsuits, which frequently lead to default judgments against consumers, regardless of the merits of the case, and often being filed by large collection law mills; collection of time- barred zombie debts, which cannot be collected without mistakes or deception; harassment; threats; privacy violations; and other abuses long prohibited by the FDCPA. The Consumer Financial Protection Bureau has the ability to address many of these problems through its debt collection rulemaking. Unfortunately, the CFPB has proposed a rule that is going to do more to protect debt collectors than consumers. Among other problems, this rule will permit excessive calls to consumers. It will allow electronic delivery of critical written disclosures without even confirming that the consumers can receive these important messages. It will allow collectors to contact consumers by email, text, and other means without their consent. And it will permit violations of consumers' privacy. The proposed rule will allow collection of old debts, leading to abuse, deception, and mistakes, and it will also provide safe harbors for attorneys who make false, deceptive, or misleading representations in court documents. Congress, of course, can also address these abusive debt collection practices and can clarify and improve the FDCPA. These bills that we are going to discuss today are designed to do just that. We support congressional actions on a variety of debt- related reforms. To name a few, updating the penalties under the FDCPA for inflation to deter abusive conduct; clarifying the FDCPA's coverage with respect to what is a debt and who is a debt collector; protecting small business owners from confessions of judgment and other abusive practices; and conducting strong oversight over the CFPB to ensure that it is living up to its mandate to protect consumers. We are happy to work with Congress to address these and other debt collection problems. Thank you for the close attention that you are paying to these issues and for the opportunity to provide testimony. I look forward to your questions. [The prepared statement of Ms. Kuehnhoff can be found on page 304 of the appendix.] Chairwoman Waters. Thank you, Ms. Kuehnhoff. Professor Jimenez, you are now recognized to present your oral testimony. STATEMENT OF DALIE JIMENEZ, PROFESSOR OF LAW, UNIVERSITY OF CALIFORNIA, IRVINE SCHOOL OF LAW Ms. Jimenez. Thank you, Chairwoman Waters, Ranking Member McHenry, and members of the committee. Thank you for holding this hearing and allowing me to present my views on these important topics. I am a law professor at the University of California, Irvine School of Law, but I am here in my personal capacity. I have studied consumer debt and debt collection for over a decade. In my experience, most consumers want to repay their debts. The majority feel deep shame in being unable to do so. Debt collection is an important part of the economy. And I also think most debt collectors want to do the right thing. But the current system penalizes collectors who try to do the right thing. Regulatory compliance has costs, but in the absence of regulation, it is risky to do the right thing if your competitors will do the cheap thing instead. The system is broken in a myriad of ways, but today I want to focus on just two of them: the structural data integrity problems in debt buying; and zombie debts. Once a debt is sold, the integrity of the information needed to collect on it--things like how much is owed, who owes it, at what interest rate, and when the last payment was made-- is always questionable. When debt buyers have to prove that they are the rightful owner of that individual's debt, and that the amount claimed is the exact amount owed, they have a lot of difficulty. This is a classic collective action problem perfectly suited for regulation. I am not alone in saying this. Financial institutions and debt buyers have urged the same in comments to the CFPB. Unfortunately, the CFPB missed the opportunity to fix this in its current rules. My written testimony contains a more complete proposal, but I urge this committee to consider legislation that would clarify that debt buyers are subject to the FDCPA, as you have a bill, H.R. 403, but also add original creditors to the list and require those creditors who sell debt to stand behind the accuracy of the information that they sell, and to provide account documents at the time of sale, and also to prohibit debt collectors from contacting a consumer until they have engaged in due diligence about the sales contract and account documentation. To deter illegal conduct, I also urge this committee to favorably report H.R. 3948 (the Debt Collection Practices Harmonization Act), and adjust FDCPA statutory damages to inflation. The second structural problem I want to urge you to fix is what is colloquially called ``zombie debts.'' Currently, a debt can follow a consumer for way too long, in some cases practically forever, as you have heard. My proposal here expands upon the draft bill entitled, ``Strengthening Legal Protections on Debt Collection Actions.'' That bill prohibits the restart of the statute of limitations clock every time a consumer makes a payment or acknowledges a debt. It is a great start. But I would urge this committee to go further and support a single Federal collection period that extinguishes consumer debts once and for all after a specified period. I suggest 7 years to comport with the Fair Credit Reporting Act. This law would automatically extinguish not simply the legal remedy of collecting through the courts, which is what statutes of limitation do, but any kind of repayment. Judgments would get a separate statute of limitations. I also suggest 7 years, for simplicity. When the applicable period expires, the debtor's obligation to the creditor and the creditor's rights to collect cease to exist. Any judgment obtained on what would be an extinguished debt would be void and consumers would have a private right of action against the collector. Collectors would have 14 years to collect on a consumer debt, and if they are not able to secure repayment in those 14 years, the debt would be extinguished and attempts to collect would expose them to consumer lawsuits with statutory penalties and fees. The law in this area is too complex. I thought I was a pretty savvy consumer when I was 21 years old, and I was bullied by a debt collector into paying a debt I did not owe. I was an authorized user on a credit card debt, but the collector led me to believe that I would be sued over this debt by the end of the week. If wasn't until years later that I learned that authorized users are not responsible for credit card charges, particularly if they never used the card. You might chalk up this incident to the naivete of youth, but I have seen many fall prey to this complexity, and not just consumers. In 2014, I reviewed the case of Mr. Okoroafor in Massachusetts, a 73-year-old retiree who was sent to jail for 30 days for refusing to pay a $500 debt. Mr. Okoroafor had testified that his sole source of income came from a State pension, but neither he nor apparently the district judge who sent him to jail knew that State law exempted that income from collection. Consumers and collectors, and judges, quite frankly, need simplicity. A Federal statutory collection period that cannot be restarted, and that applies to all consumer debts, would be a good start. Thank you for the opportunity to share my thoughts with you today. I look forward to your questions. [The prepared statement of Ms. Jimenez can be found on page 126 of the appendix.] Chairwoman Waters. Thank you, Ms. Jimenez. Ms. Auchterlonie, you are now recognized to present your oral testimony. STATEMENT OF SARAH AUCHTERLONIE, SHAREHOLDER, BROWNSTEIN HYATT FARBER SCHRECK Ms. Auchterlonie. Chairwoman Waters, Ranking Member McHenry, and committee members, thank you for inviting me to discuss accounts collections in the consumer and small business marketplaces. Smart regulation of debt collection is essential. On the one hand, deceptive and harassing conduct must not be tolerated. On the other hand, regulation must ensure that small businesses can provide services when consumers don't have the cash, with the trust that they will later get paid. Without a healthy collections market, consumers will lose affordable access to dentists, healthcare, housing, and traditional credit products. Previously, I was an attorney with the U.S. Treasury's Office of Thrift Supervision, and later was a founding employee and acting Deputy Enforcement Director with the Consumer Financial Protection Bureau. For years, I led a team of enforcement attorneys in investigations and litigations, including FDCPA matters. After moving to Denver, Colorado, I co-authored the legal treatise, ``Consumer Finance Law and Compliance,'' and two Governors of the State of Colorado have appointed me to represent the citizens of the State at large on the Colorado Banking Board, the policy and rulemaking body for Colorado's banking system. Congratulations on the passage of the Safe Banking Act, by the way. At the CFPB, I observed a wide variety of debt collection practices. In private practice, I have helped the ARM (accounts receivable management) industry clients enhance their compliance systems. I have listened to probably thousands of debt collection calls in these efforts. And most recently, I worked with dozens of ARM industry members to help draft a 154- page comment to the CFPB's Regulation F to implement the FDCPA. From these experiences, I have learned that debt collection has become increasingly a profession that provides consumers with flexible options for resolving debts. Empathy and problem- solving are key tactics. And the collections industry is one of the most diverse in financial services: 32 percent of collection agencies are woman-owned, and over 70 percent of the workforce is female. Significantly, valid disputes are rare, and early contacts pay off for consumers. Thirty percent of all debt is early-out debt, meaning that as soon as the customer is contacted, he or she pays it. In most cases, this avoids credit reporting and collection lawsuits. It is a customer service call more than a collection call. When those early contacts can't happen due to call blocking, call avoiding, call caps, or other impediments, consumers lose the chance for a quick, harmless fix. Limiting meaningful communication about accounts ultimately harms consumers. Congress enacted the FDCPA in 1977, and the statute's text still refers to telegrams. Forget email and text. As you can guess, agencies struggle to meet consumer preferences for contact methods, like email or text, because the law surrounding their use is unclear. Electronic messaging is efficient, reduces third-party exposure, and is more likely to be opened and actually provide consumers information about their important statutory rights. Email is a superior tool, but without straightforward regulations, it can't be used. Personal telephone contacts are also important. Over the phone, agents can tell consumers about how to verify coverage with health insurance companies, to apply for creditor hardship programs, or enter into an affordable payment plan. The key here is protecting consumer choice. Consumers must participate in conversations about how to resolve their debt. And consumers should keep the choice to select the methods they want to use to talk about it: email; text; or telephone. Fortunately, under both the CAN-SPAM Act (Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003), and the FDCPA, consumers retain their rights, respectively, to opt out of the communication method, just as they would with any other commercial message, or choose to completely cease and desist contacts from collectors. Further regulations that make consumer choice harder to implement should be discouraged. As a former government enforcement attorney, and someone who now represents consumers pro bono, I urge everyone in this body to view with skepticism arguments from organizations against adding clarity and uniformity to the FDCPA. We need model forms, safe harbor voicemails, and uniform agreements about language where the FDCPA is ambiguous. When the legal regime governing the ARM industry is clear, reflects consumer preferences, and is designed to give consumers control over how their debts are resolved, it benefits consumers, collectors, and creditors alike. Thank you. [The prepared statement of Ms. Auchterlonie can be found on page 95 of the appendix.] Chairwoman Waters. Thank you very much, Ms. Auchterlonie. Mr. Bedard, you are now recognized to present your oral testimony. STATEMENT OF JOHN H. BEDARD, JR., OWNER, BEDARD LAW GROUP, P.C. Mr. Bedard. Chairwoman Waters, Ranking Member McHenry, and House Financial Services Committee members, my name is John Bedard. Thank you for inviting me to testify about the work of the credit and collection industry. This is a very important time for consumers and debt collectors in the wake of the Bureau's landmark release of the first-ever proposal for rules implementing the Fair Debt Collection Practices Act (FDCPA). The credit and collection industry has been seeking clear regulatory guidance on the FDCPA since its enactment in 1977. The industry supported regulation in 1977, and the industry supports clear, fair regulation today. The Federal Trade Commission, the previous primary agency with jurisdiction over the debt collection industry, did not have rulemaking authority under the FDCPA. As a result, this lack of regulatory guidance, in conjunction with Congress' failure to update the statute, has resulted in outdated requirements and a patchwork of interpretations of the FDCPA by courts throughout the country. The absence of clear regulation has also given birth to a cottage industry of consumer attorneys who have done little to protect consumers. The Dodd-Frank Wall Street Reform and Consumer Protection Act gave the CFPB rulemaking authority. The Bureau's proposal for implementing the FDCPA, although imperfect in many respects, is an important step forward in providing much-needed clarity to the financial services marketplace, including consumers. I have been practicing law in Georgia for over 20 years. My practice focuses on representing debt collectors, asset buyers, creditors, and attorneys. I help clients stay in compliance with the myriad of Federal and State laws regulating their business. I also defend civil litigation and investigations brought by consumers and by government. In my role as managing attorney at Bedard Law Group, I am a recognized authority on the FDCPA and the Fair Credit Reporting Act. I am also a former member of the board of directors of the industry's leading professional trade association, ACA International, the Association of Credit and Collection Professionals. I serve as the State of Georgia compliance chairperson for ACA International, and I am a former chairperson and Program Designation Award recipient of ACA International's Members Attorney Program. I travel the country auditing the compliance practices of debt collectors and educating them on the requirements of consumer financial laws. Debt collectors play a critical role in ensuring that consumers can continue to access credit and services. A healthy connection between debt collectors and consumers increases access to credit. It encourages the local appliance store to sell that washing machine on terms, it encourages the local dentist to provide those braces on the promise of future payment, and it gives comfort to the auto mechanic that they will be paid tomorrow for their repairs today. I have seen firsthand the problems a lack of clear regulatory guidance can create for both consumers and industry, and the CFPB has at times exacerbated these problems through unfair, agenda-driven enforcement actions. Regulation by enforcement is wrong, it is unlawful, it is happening today, and it needs to stop. To fulfill its statutory mission and obligations properly, the Bureau must first articulate rules and then strictly adhere to fair, clear, and transparent enforcement practices. I have represented clients and personally observed the Bureau's actions fall short of these standards. Many targets of Bureau enforcement actions have experienced one-sided Bureau interpretations of the law and are often pressured into onerous settlement terms, which impose obligations well beyond legal requirements, just to avoid the extreme cost associated with disrupting business operations and defending allegations. The conveniences of modern technology can no longer be ignored. The Bureau's proposal appropriately acknowledges the need to bridge the communication gap between consumers and debt collectors. There can be little dispute that clear, fair regulation of the industry helps consumers and industry. The Bureau's proposal gives unconditional control to consumers over the communication methods used by debt collectors. This control gives consumers unprecedented power over the debt collection process while at the same time building a stronger technology bridge between consumers and debt collectors. Thank you again for the opportunity to appear before this committee. I look forward to answering your questions. [The prepared statement of Mr. Bedard can be found on page 64 of the appendix.] Chairwoman Waters. Thank you very much. I now recognize myself for 5 minutes for questions. And I am going to start with you, Mr. Chopra. You heard what Mr. Bedard just said about the Consumer Financial Protection Bureau, an important step forward. You heard what Mr. McHenry said about the Bureau. As I understand it, you did work there. You were employed at the Consumer Financial Protection Bureau? Mr. Chopra. Yes, for approximately 5 years. Chairwoman Waters. In what capacity? Mr. Chopra. I oversaw all of the student lending and financial services work. I was also student loan ombudsman during that time. Chairwoman Waters. So, you know something about debt collection? Mr. Chopra. Yes. Chairwoman Waters. All right. In your opinion, are agencies like the CFPB and the FTC taking appropriate measures and enforcing policies that can guide consumers in addressing their complaints or harassment? Mr. Chopra. I think recently, enforcement has been pretty tepid, and all that does is benefit bad actors and harm those who follow the law. Chairwoman Waters. Ms. Desai, you were very passionate about what is going on in New York, and I think we all heard you. We have a number of New Yorkers here on the panel of members. So, I am going to skip over that and let them address what you shared with us. But let me go to Ms. Jimenez. You talked about having been involved in researching and working in debt collection for years. Ms. Jimenez. Yes. Chairwoman Waters. What do you think can be done to absolutely recognize that there is debt, and debt owed by individuals that oftentimes, they can't pay because they don't have the money? What do you think can be done to stop the harassment, to stop the continuous calls and emails, et cetera, and at the same time, credibly try and get your debt repaid? Ms. Jimenez. I think the difficulty is in determining who can pay but doesn't want to, and who cannot pay. And I think there are a lot more ``cannots'' than the industry would hope. A lot of people really simply--they may have a little money left, but it is a question of, do you use that for food or for your kids' activities or do you use that to pay off a credit card? Chairwoman Waters. You gave an example of the $500 of the 70-something-year-old gentleman who is excluded, who cannot be forced to pay, given his income. Are there other instances of that? Ms. Jimenez. Yes, exemption laws or statutes of limitations, if they work better than they do now, would basically cut off the right and give us a specified period for only specified types of income, nonexempt income for debt collectors to seize. The problem with many of these things is that they require the consumer to show up and to actually assert their rights. Anything that requires that, in my experience, is going to harm the consumer because they are unlikely to do it. Chairwoman Waters. So, there is no such thing as an ombudsman in the court to represent those who can't very well represent themselves, is that right? Ms. Jimenez. This is throughout the 50 States, et cetera, and so some courts have lawyer-for-the-day or clerk's offices that try to help people. But the vast majority of people are disheartened by their debts. They know that they have not repaid someone. The question is, is the person who is suing them the right party to pay? And that is a real question that, because they are unable to show up, they never actually get to ask. Chairwoman Waters. Reverend Gould, you are here from Jefferson City, Missouri, is that right? Rev. Gould. Yes, Chairwoman Waters. Chairwoman Waters. We have a Member here who represents that area. And you talked about minorities disproportionately being harassed. Is this true in Jefferson City, and how do you know this? Rev. Gould. It is absolutely true. I pastor the oldest African-American entity in Jefferson City. My church is 169 years old. And we are situated down the street from an Historically Black College, Lincoln University. And so, I am the pastor of the community. And oftentimes, my parishioners, students and others find their way to the church to share burdens and to ask for relief. Oftentimes, benevolence is extended, sometimes to help people avoid going to court. In the aftermath of the tornado that we just had, I am thinking of a young woman by the name of Lakaisha McCaleb. She is an AfricanAmerican woman who owned the only 24-hour daycare center in Jefferson City, and took care of approximately 75 children, most of them African American and children of color. And she found herself--she did not own the building, she owned the business, and cannot get another building because of past credit issues that are in collections. Chairwoman Waters. Thank you very much. I now recognize the gentleman from North Carolina, Ranking Member, McHenry, who is recognized for 5 minutes. Mr. McHenry. Thank you, Madam Chairwoman. I just have a question, leaving a voicemail, should that be a safe thing for a debt collector to do? Commissioner Chopra? Mr. Chopra. I think it depends on the specific circumstances. Mr. McHenry. What do you mean? Let's say, I leave you one voicemail, once a week. Let's just try that concept. Is that acceptable? Mr. Chopra. I think the challenge is that-- Mr. McHenry. How about a text? Mr. Chopra. --if you leave the voicemail for someone who is not the actual person with the debt-- Mr. McHenry. Okay. So, let me give you the scenario--let's say I have your cell phone number, the cell phone number you gave me in order to get the loan, and I call you on your cell phone at the number that you gave me. Can I leave a voicemail? Should I be legally able to leave a voicemail on your cell phone that you provided me? Mr. Chopra. If you provided that cell phone number--you collected it and you have validated that you got it from the right person? This is the question. The details matter. Mr. McHenry. Okay. Then, let's say that in this scenario, I have communicated with you previously on this. Can I leave you a voicemail? Mr. Chopra. If you have communicated previously, and you have absolute accuracy about that-- Mr. McHenry. Okay. The absurdity of ``absolute accuracy.'' How about a text, can I text you? Mr. Chopra. Has the consumer opted into that? Mr. McHenry. I have previously texted you, and you have paid. Can I then follow up and do that? Mr. Chopra. If the consumer has opted in to what their preferences are on being communicated. Mr. McHenry. Okay. So what I am saying here is under previous regimes--let's go to you, Ms. Auchterlonie. Where did you previously work? Ms. Auchterlonie. Prior to private practice, I was at the CFPB. Mr. McHenry. Okay. Doing what? Ms. Auchterlonie. I was an acting Deputy Enforcement Director. I led a team of 25 enforcement attorneys in the investigation of-- Mr. McHenry. Prior to the proposed rule, how many times could debt collectors call someone? Ms. Auchterlonie. I would assume it is about the same as what it is now, which is-- Mr. McHenry. Under the old rule, there was no cap on the number of times that a consumer could be contacted. Ms. Auchterlonie. No, no. It is very much court-driven. The FDCPA has-- Mr. McHenry. But under the rules that are written, so we are modifying the existing rules, is texting an innately bad thing? Ms. Auchterlonie. No, texting is not an innately bad thing. We have studies showing that younger generations prefer to be communicated to by text messages. Mr. McHenry. Did the previous rule contemplate text messaging or using a social media platform in order to communicate with a consumer? Ms. Auchterlonie. Not at all. There were no real previous rules. It is just the FDCPA text, which was enacted in 1977. Mr. McHenry. Okay. So what does the proposed rule do then? How does that benefit the marketplace and the consumer? Ms. Auchterlonie. The proposed rule takes a lot of the uncertainty in the current legal scheme, which for the last 40 years has been really interpreted by the courts on a court-by- court and then circuit-by-circuit basis, and pulls all of that information and consideration together to try to create one uniform national rule. Mr. McHenry. And what value does that provide? Ms. Auchterlonie. It provides consistency across the United States so that particularly, the national debt collectors can do the same thing in every jurisdiction. It also has given us, the participants in the debt collection industry, as well as you, yourself, the opportunity to evaluate, as a whole and collectively, whether or not what the Bureau is doing is a rational way to balance competing priorities in the voicemail conundrum. Mr. McHenry. Okay. So, that certainty provides clarity in terms of lending then, so you are better able to consistently collect debts. Ms. Auchterlonie. It would. I would also say it is very likely to reduce the number of telephone calls that a person is likely to get because-- Mr. McHenry. Explain that. How is that the case? Because we hear the doom and gloom that if I text you, that may be a bad thing, or if I leave you a voicemail, that may be a bad thing. Ms. Auchterlonie. Yes. Currently, because of the legal concerns about leaving voicemails, when a collector gets a voicemail message or an answering machine, they often just hang up and say nothing, because that is safer from a legal perspective. We are all accustomed to getting those types of telephone calls, and they are very annoying. Mr. McHenry. Right. I think I just got one during this testimony. So, I understand. I would have preferred a text, to say what the heck they were going to ask me, so I can deal with it. So with that, I think it is important that we modernize the rule, and give clarity to the marketplace and to consumers. And I yield back. Ms. Auchterlonie. Thank you. Chairwoman Waters. Thank you. I now recognize the gentlewoman from New York, Mrs. Maloney, who is also the Chair of our Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets, for 5 minutes. Mrs. Maloney. Thank you, Madam Chairwoman, for holding this very, very important hearing. Ms. Desai, after years of predatory lending and inflated medallion prices, the Yellow Cabs of New York really turned into financial traps for thousands of mostly immigrant drivers. I think it is a New York City scandal, really. And after several years of the worst lenders failed, the NCUA and the FDIC took over their portfolios of taxi medallion loans, so the government is now the owner of a lot of these loans, is that correct? Ms. Desai. That is my understanding. Mrs. Maloney. Yes. Because a lot of these loans were predatory to begin with, I personally think the NCUA and the FDIC should put an immediate moratorium on medallion foreclosures. That would be the decent, moral, right thing to do. But we should also look at the factors that enabled this to occur. So could you tell us more about some of the predatory lending practices--what were they, how did they occur, and the history of how this disaster happened? Ms. Desai. Sure. In the New York Times investigation, it had outlined that a number of the lenders knew that the value of the medallion was inflated, and, as I said earlier, there were seven government agencies that knew the value was inflated. There were reports at the State level from the Department of Financial Services for a number of years. There were reports by the NCUA itself, which oversaw the credits unions, and reports by the Taxi and Limousine Commission, which directly regulates the local industry. They knew the price was inflated, and yet they continued to auction off more medallions. In fact, in 2014, the Taxi and Limousine Commission (TLL), which sets the opening bid at an auction, set it at $800,000. Now, mind you, the same agency officials, many of them who were involved in setting it at that rate were the same individuals who then allowed companies like Uber and Lyft to come in, completely unregulated. And, in fact, once they left their jobs at the TLC, many of them then went to work directly for those same companies. So, that really has been what has felt like the trap. From 2002 to 2014, we also learned, primarily through the Times investigation, that many of the lenders were actually behind the scenes, plotting to leave the industry. Meanwhile, they would pick up the phone, call individual lease drivers--so drivers who had been leasing from garages, and were working 6, 7 days a week, 12-hour shifts--and would promise them the American Dream. You invest in a medallion, and within 3 or 4 or 5 years, you will be able to refinance your medallion loan and purchase a house, pay your kids' tuition for college, and so on and so forth. And so, those lenders really actively sold this dream. And, meanwhile, the government agencies, particularly the TLC, was taking out ads on an inflated value. Some of the government ads actually showed that--the claims that the ads made were 13 percent higher in value than the actual value of the medallion. And imagine you are a working-class person, someone just really mainly trying to get out of poverty, and you are getting a phone call from somebody that you worked for, for years, and you see ads being displayed by your very own government, you are thinking this is a safe venture for you to enter into. Meanwhile, as the market started to crash, the lenders were not asking for credit histories. At the time that they would sign you up, they would not ask you for guaranties. But once the loans started to go underwater, when there would be a balloon payment--within 3 to 5 years, there is a balloon payment, and at that time, you are able to refinance your loan. During that period, the lenders would then ask you to put down a guaranty. They would ask you about the assets of yourself but also of other family members. And so, mid-loan, you are now finding out that everything else you own is also at risk. It was also mid-loan that the confessions of judgment were then put on the table-- Chairwoman Waters. The gentlewoman from Missouri, Mrs. Wagner, is recognized for 5 minutes. Mrs. Maloney. Thank you. Mrs. Wagner. Thank you, Madam Chairwoman. Ms. Auchterlonie, following up on Ranking Member McHenry's line of questioning, are you familiar with the legislation that Barney Frank introduced in 2012 directing the CFPB to provide clarity on how debt collectors can, in fact, leave voicemails? The bill's purpose, as officially stated, was to ``amend the Fair Debt Collection Practices Act to exempt a debt collector from liability when leaving certain voicemail messages for a consumer with respect to a debt as long as the debt collector follows regulations as prescribed by the Bureau of Consumer Financial Protection on the appropriate manner in which to leave such a message, and for other purposes.'' How does that differ from what the CFPB proposed for voicemails under Director Kathy Kraninger's, which many of my Democrat colleagues have opposed? I am trying to understand the difference here. Ms. Auchterlonie. Yes. Thank you. I am aware of that. And I appreciate you reading back the text. It is really, the Bureau is following the spirit of what that bill said. They made an effort to create what is called the limited content message, which, in their view, was a statement that is spelled out with great specificity in the rule that collectors would be able to leave on voicemail machines in order to identify themselves without doing what is called third-party disclosure because the FDCPA prevents debt collectors from disclosing to third parties the existence of the debt. The other part of the conundrum on voicemail messages is that the FDCPA also requires debt collectors to give what is called the mini-Miranda notice, which is, ``This message is from a debt collector.'' And I think the same may be used in connection with the collection of-- Mrs. Wagner. So Kathy Kraninger, Director of the CFPB right now, is really trying to implement the same type of legislation that Barney Frank offered in 2012, if I understand it properly, is that correct? Ms. Auchterlonie. Yes. Mrs. Wagner. Is there is a scenario where a consumer who has fallen into collections could benefit from a phone call or an email communication from a debt collector? Ms. Auchterlonie. Yes. The studies show that meaningful conversation between a collection agency and someone in collections gives the consumer the opportunity to avail themselves of a number of choices. Often, they can settle the debt for less than the face value. They might be able, if it is medical debt, to enter into some-- Mrs. Wagner. And there is actually a communication-- Ms. Auchterlonie. Yes. Mrs. Wagner. --going on. And I would assume that communication with the consumer is a good thing in that situation, correct? Ms. Auchterlonie. It is. Yes. Mrs. Wagner. If lenders cannot collect debt, does this have any impact on their ability to extend credit? Specifically for financial institutions, such as banks and credit unions, do their safety and soundness requirements make it important for them to be able to collect debt so that they can extend credit? Ms. Auchterlonie. Yes. There is a clear relationship between impaired debts and the amount of asset growth that the bank regulatory agencies will allow institutions to-- Mrs. Wagner. How does the debt-collection process impact both smaller and larger businesses throughout the country and the larger economy? Ms. Auchterlonie. Particularly with small businesses, a lot of the times the reason that they hire a debt collector is because they are professionals in trades--auto mechanics, dentists, etc.--and they just don't have the infrastructure in order to collect on their own accounts. And these may be small accounts, but together they equal $40,000, $50,000, which is a lot for an auto mechanic over the course of a year. Mrs. Wagner. Okay. Ms. Jimenez, I saw you nodding your head during Ranking Member McHenry's line of questioning. Do you agree with Ms. Auchterlonie's assessment, and do you see the need for modernization in this space, ma'am? Ms. Jimenez. I think we have a conundrum, and I think it is not easy to solve. The problem is, we want to protect--and the FDCPA protects--consumer privacy and the avoidance of disclosure of a debt to a third party. And voicemails can be a private thing, but they can also be a public thing, and it's the same with text messages. We also have a problem with, really, the data and the information that the debt collector has about the consumer and whether that is correct-- Mrs. Wagner. But the collector must follow regulations prescribed by the Bureau, if I understand things correctly, and those can be laid out, correct? Ms. Jimenez. Sure. But right now-- Mrs. Wagner. So, there is an opportunity for modernization, so that we could actually communicate. Ms. Jimenez. I don't think--modernization, standardization consistency, I think that is good for everybody. The-- Mrs. Wagner. Wonderful. Great. Ms. Jimenez. --question is in the details. Mrs. Wagner. Thank you. I yield back. Chairwoman Waters. Thank you. The gentlewoman from New York, Ms. Velazquez, is recognized for 5 minutes. Ms. Velazquez. Thank you, Madam Chairwoman, and Ranking Member McHenry. Ms. Desai, do you think that if these taxi drivers knew about the confession-of-judgment practice, and that their entire account could be drained, they would have still taken out these taxi medallions loans? Ms. Desai. I think many would not have. Ms. Velazquez. Thank you. Commissioner Chopra? Mr. Chopra. Confessions of judgment, just for background, have actually been banned under the FTC credit practices rules for many, many years. Those rules, though, do not cover loans to small businesses. So the fact that confessions of judgment are being used, especially for small, individual businesses, including taxi drivers, is concerning. Ms. Velazquez. Thank you. Ms. Kuehnhoff, in response to the predatory lending practices against New York taxi drivers and the series of Bloomberg articles that ran last year, I have introduced H.R. 3490, the Small Business Lending Fairness Act, which will prohibit confessions of judgment at the Federal level in commercial lending practices. Can you explain why this is something we need to implement at the Federal level? Ms. Kuehnhoff. Yes. Thank you for your question. As we have been discussing, many important consumer protections--either protections from predatory lending practices or predatory debt collection practices--don't exist for small businesses. So this bill would be a step in the right direction to try to bring these small businesses under those same types of protections that we provide for consumers, especially small businesses that look a lot like consumers because they are also particularly vulnerable. Ms. Velazquez. Ms. Desai? Ms. Desai. Yes, I would absolutely agree with that. Ms. Velazquez. Mr. Chopra, the Federal Truth in Lending Act (TILA) requires transparent disclosures in consumer finance but does not apply to small businesses. I am currently working on legislation that will expand this coverage. How would TILA coverage to small businesses enable them to make fully informed comparisons on their financing options? Mr. Chopra. Yes, small-business borrowers, particularly the smallest ones, are entrepreneurs. They would hugely benefit from some of the same protections that consumers enjoy as well. Ms. Velazquez. And, Ms. Desai, I know that Chairman Levin on the New York City Council has been working with the industry. Has there been any resolution to your case? Ms. Desai. No. And I am also a member of the city council's Medallion Task Force. We need to address the predatory lending practices, but, to be honest with you, the number-one concern for the 6,000 owner-driver families is to have the actual debt restructured. It is, on average, $600,000, but the real market value, when hedge funds are buying off foreclosed medallions, is closer to $150,000. We want to see the current loans that the owner-driver families are under be restructured to that amount, and then their monthly mortgages, which right now average $3,500, could be reduced to even $900. With that reduction, they would no longer be in the annual debt of $25,000, that they find themselves in today. Ms. Velazquez. Thank you. Madam Chairwoman, I yield back. Chairwoman Waters. Thank you very much. I will now yield to the gentleman from Florida, Mr. Posey, for 5 minutes. Mr. Posey. Thank you very much, Madam Chairwoman and Ranking Member McHenry, for working together to ensure that we guard innocent people against abusive and unfair debt- collection practices. Although they are not here today, I want to commend the work of the Consumer Financial Protection Bureau in proposing a new rule to modernize the implementation of the Fair Debt Collection Practices Act. There may be some residual criticism of the Bureau's proposal, but I think the public comment process should bring out ideas for improving on a very good start. As we consider further concerns today, we need to keep in mind that bad debts are a cost to lenders, either in writing them off or in collecting them. Any business must cover its costs to stay in business, and these bad-debt costs must be covered. In the long run, that means higher interest rates or finance charges for those who actually pay their debts. Higher interest rates and risk to lenders mean less available credit to those who can and do repay their debts. We all support protecting debtors, but we must be careful not to push that debt cost so high as to restrict credit access. I have an abiding interest in protecting our servicemembers. We have a draft bill, a discussion draft, in front of us today that would prohibit debt collectors from communicating with the commanding officer or officer in charge of any servicemember regarding an outstanding debt. The bill would also strengthen related prohibitions about false or misleading representations to servicemembers. This is based on the Military Lending Improvement Act from the 115th Congress sponsored by the former U.S. Senator from Florida, Bill Nelson. As we look to improve this bill, what protections do we need to put in place to address the special needs of servicemembers? And I will start with you, Mr. Bedard, and we will go to my left, your right. Mr. Bedard. Thank you. I agree with you that these proposals do create a more healthy communication between consumers and debt collectors. When I read what you have proposed here, what I did not see in that proposal was a confirmation that consumers can actually consent to those communications. Consumers can consent to those communications under the current state of the law, and to the extent any proposals that changed the law preserved those communications, I would encourage that as well. Mr. Posey. Thank you. Ms. Auchterlonie. When I was at the CFPB, I had the great honor of working with Holly Petraeus, and I think she would be very pleased to see that this is before the committee. I support it. Ms. Jimenez. Are we going down the-- Mr. Posey. Yes. Ms. Jimenez. I am not an expert in servicemember affairs. I do think that the bill that you have proposed is a good step. It is wholly inappropriate that debt collectors are able to talk to commanding officers. That exerts a pressure that really no one should be able to have. I think it is similar to debt collectors who could talk to employers, which really right now they should be only doing for location information, but there have been instances beyond that. So, I support your bill. Ms. Kuehnhoff. I think that the protections you have proposed are important and in line with those that have been outlined by the CFPB's Office of Servicemember Affairs. I would highlight two others that have been presented in those reports. Threatening reductions in rank and threatening revocation of security clearance are both issues that have come up in the CFPB's reports as well. Mr. Posey. Very good. Thank you. Ms. Desai. I would agree with everything that has been stated. It just is such an outrageous practice. Rev. Gould. I, too, concur that that is good ,but I also want to emphasize that everybody deserves that same protection. It reminds me of the payday lending rate cap that is available to servicemembers but not available to all other Americans. And so, it is good, and a step in the right direction, but it needs to be inclusive, and everybody deserves the same protection. Thank you. Mr. Chopra. Congressman, the only thing I would add is, the Department of Defense has actually done work to show how separations from the military due to financial distress are very costly, both to the taxpayers and to our national security. So to the extent we can go after some of the worst abuses, strengthen the Military Lending Act (MLA), and look at ways to improve the Servicemembers Civil Relief Act (SCRA), those are all good steps. Chairwoman Waters. Thank you. The gentleman from Georgia, Mr. Scott, is recognized for 5 minutes. Mr. Scott. Thank you very much, Madam Chairwoman. And let me commend you on, again, having a very, very much-needed hearing on debt collection and the unfairness that is happening to all too many of our consumers. Mr. John Bedard, how are you? One of my Georgia constituents-- Mr. Bedard. Thank you. Mr. Scott. --and one of our most distinguished lawyers, and owner of the highly respected Bedard Law Group-- Mr. Bedard. Thank you. Mr. Scott. --of Duluth, Georgia-- Mr. Bedard. That is correct. Mr. Scott. --in my district. Thank you, sir. It's good to have you here. Mr. Bedard, let me ask you, we are working on this committee, under the leadership of Chairwoman Waters, on the issue of privacy, and in trying to get a good bill before the CFPB, as well as dealing with the privacy issue with our fintechs. So, it is a big issue to all of us, and certainly to the nation. But there was a survey that the CFPB did, and 63 percent of the consumers who were contacted in that survey said they were abused by debt collectors. But, more remarkably, 90 percent of those who felt they were abused were contacted more than 3 or 4 times in a week, over and over again. And so we have the CFPB's proposed regulation that makes changes to the frequency and manner through which debt collectors can communicate with consumers, including through social media platforms and private messaging services. With consumers already facing these enormous challenges in safeguarding their most personal and sensitive information, do you feel that the CFPB's proposed rule adequately protects the privacy of our consumers? Mr. Bedard. Thank you, Representative. The answer is yes. And the proposal goes one step further. The proposal gives control to consumers over those communication channels. Consumers have an unconditional right to opt out of those communications. So, to the extent consumers even feel at risk of privacy exposure, they can control the process and they can stop those communications by opting out, under the proposal. Mr. Scott. Could you explain, when you say that the consumers will have control, how will they explicitly have this control? Mr. Bedard. Thank you, Representative. Under the current draft of the proposal, every communication that is electronic between a debt collector and a consumer must contain a clear explanation of the consumer's right to opt out of electronic communications. And the consumer has an unconditional right to opt out of those communications. That is why I described that particular rule as giving consumers control over those communication methods. Mr. Scott. Okay. Thank you very much. Identity theft and fraud is another issue with which we are very much concerned. It has come to my attention that many consumers may be facing this as a result of debts that are incorrectly attributed to them. And, in recent years, we have seen an increase of cyber attacks and breaches that have exposed the sensitive information. So let me turn to you, Commissioner Chopra. Are consumers who have experienced identity theft at greater risk of being pursued for fraudulent debt? Mr. Chopra. Yes. Mr. Scott. They are. Why? Mr. Chopra. There have been so many data breaches, not just Equifax, not just Marriott, not just OPM. Our data is everywhere. And consumers, even if we think we have some control over it, it is floating all over the dark web and through our economy. Mr. Scott. Well, quickly, what protections do we have? Mr. Chopra. Right now, there are not affirmative data security and privacy protections generally writ large. The Federal Trade Commission has talked openly about this. And this is going be a problem as Big Tech continues to suck up more and more of our data. Mr. Scott. Thank you. Chairwoman Waters. Thank you. The gentleman from Missouri, Mr. Luetkemeyer, is recognized for 5 minutes. Mr. Luetkemeyer. Thank you, Madam Chairwoman. I have, in my lifetime, been somebody who has actually made some of these loans and then had to collect them. It is a good way to make sure you understand, when you make a loan, you better understand you have somebody across the table who can actually--you don't have to go collect it from. So, it is interesting to hear your discussion today. Just out of curiosity, how many people on the witness panel today have been in business, where you have actually written the bottom of a paycheck, hired and fired, and also have sold your products and services and had to collect the money for those products and services? Anybody? Great. So, you understand what I am talking about here. It is interesting to see--I think, Ms. Jimenez or Ms. Auchterlonie, one of you made the comment a while ago about the percentage of people who pay immediately whenever they are contacted. My experience has been that most people are good people. When they take the money out, they are there to take the loan out to purchase a good or service because it is something that they want or need for themselves or their family, and they intend to pay the money back. They are not somebody whom you have to hit over the head, drag them in, make them sign the form, and then they walk out the door, and then you use that loan form to go beat them over the head and go drag them in or go collect money from them. That is not the way the process works, which is sometimes what is inferred here by some of the discussions we have had. These are people who come in and want to borrow money, and now they have a legal and just debt that they have to service. And most people want to pay that debt back. We talked a little bit today about a couple of instances, especially medical debt and cyber breaches, as situations where we really need to have the debt collectors and the lenders work with these people to make sure that they are not negatively impacted. But contact is extremely important. I can tell you from personal experience that whenever somebody wants to take advantage of you or they want to make sure they don't have to make that payment on time, they will find a way not to answer the phone, or not to answer the door. So, communication is key. And I would appreciate--Mr. Bedard, you have talked about this already quite a bit, and, Ms. Jimenez, you have talked about it a little bit. Would you like to elaborate on how important this is and where we can go with the bills that are being proposed here, to make sure that there is fair contact and that the consumer has to respond to it so that they understand they have a responsibility in the situation, just like the small business or the lender, whomever it is, has the responsibility to collect that debt as well? Ms. Auchterlonie. Yes. I do think that sometimes people with outstanding debts and budget constraints have a tendency to fall victim to the fight-or-flight syndrome and they don't respond to the messages and they avoid those communications, even when the communications can be helpful to them, which has a tendency to increase the calls, increase the contacts, and turn out some of these negative effects that we see. What I really like about the Bureau's rule is first, that it provides the opportunity for collection agencies to use communication means that are now more predominant in our society than just telephone. Second, they have introduced a model form that, using focus groups, they have been copy-testing for both readability and, for lack of a better word, congeniality, in order to get over that stiff statutory language that collection letters have included recently. And the idea is to help consumers feel more comfortable engaging in the debt-collection process so that they have more control over what happens to their outstanding accounts and can engage in the settlements or receive more information or ask questions and so on. Mr. Luetkemeyer. Ms. Jimenez? Ms. Jimenez. Yes. Thank you for the question. I think we are talking about this as if consumers really have only one debt that they are being contacted about, but most of the time they have between 7 and 10 debts. And the Bureau's rule on the contact limitations are per debt. So imagine just being called on each debt, sort of a reasonable amount of time, but that can really overwhelm someone and lead one to realize that, ``Well, I can't really pay all of these, say seven debts, and people who are contacting me. What am I supposed to do?'' On the collector's side, of course they want to be the first person to talk to you, because you are more likely to pay that person. So, it is a collective action problem. And the issue is that the debt collector may not be reaching the right consumer because the information they have is incorrect. I think that some of the Bureau's rules are exactly right. I just think they did not fix the problem at its source, which is with creditors. And so they are fixing around the edges, when they really could have started at the beginning. Mr. Luetkemeyer. One of the things I see here is, most people whose debt has been referred to a debt collector, are people who, for the initial debt, refused to talk to the initial lender. At our institution, we didn't hand it over to a debt collector until we had exhausted all of the other things that we could do. So, these are folks who are kind of hardcore at this point, that you have to find a way to really come down and make sure you get some stuff collected. Thank you very much. Chairwoman Waters. The gentleman from New York, Mr. Meeks, who is also the Chair of our Subcommittee on Consumer Protection and Financial Institutions, is recognized for 5 minutes. Mr. Meeks. Thank you, Madam Chairwoman. I have introduced a piece of legislation, H.R. 3948, the Debt Collection Practices Harmonization Act. And what that would do is, it would extend protections of the Fair Debt Collection Practices Act to State and local debt, to broaden civil justice protections against abusive collection practices and prevent the Secretary of the Treasury from using private debt collectors to recoup debt arising out of a natural disaster. Now, what I have found is, around the nation, States and localities employ debt collectors to collect on debts for things like speeding tickets and other things, but they are not a part of the Fair Debt Collection Practices Act. It doesn't extend to them. My bill tries to close that loophole. So, Reverend Gould, can you think of any reason why local debt collectors should not have to comply with the basic protections provided--local government debt collectors--with the basic protections provided by the Fair Debt Collection Practices Act? Rev. Gould. Thank you, Congressman. Not at all. I spent more than 35 years of my life in St. Louis. There was a little suburb called Ferguson, that most people are now aware of. And after the killing of Mike Brown in 2014, the Department of Justice really shined the light on predatory practices by municipalities. Of the 91 municipalities that make up St. Louis County, it discovered that more than 60 percent of them received up to 50 and 60 percent of their income from things like traffic tickets and traffic fines. People that I know personally have been sent to jail. And so, it is all connected. It is connected to predatory lending. And I believe that your proposed bill is a bill that actually helps to bridge that gap, because it is not just private creditors that are actually putting this burden on everyday citizens; it is also municipalities and other governments. Again, in the case of being in Jefferson City now, after a tornado, people are not exempt from any of the debt that they may owe, whether it is from a speeding ticket or from a furniture store. Mr. Meeks. Thank you very much. Professor Jimenez, I know you have written about the phenomenon of ``zombie debts'', which stem from an unregulated industry that allows for the selling and reselling of unsecured debts with little to no evidence of the sale record. Is mandating certification that a debt is for the right person and the right amount prior to taking a debt-collection action sufficient to protect consumers from abusive collection practices? Ms. Jimenez. Thank you for the question. I think that is a great step. I, in my written testimony, have six or seven other things that I think would also be helpful. But it starts with the seller. The seller has to be the one to provide that documentation, because if they don't, then no one else can. And they have to make affirmative representations that they are giving true information, contrary to the contracts that have been floating around for the past 20 years, where they disclaim accuracy of the information they are providing. I think if we start there, it would go a long way. Mr. Meeks. Would this type of certification regulation place an undue administrative expense or burden on the debt collectors? Ms. Jimenez. Obviously, it takes some effort and some cost. However, the question is, what is that balanced by? I think having documents would help collectors collect from consumers because they would see that, actually, okay, you do own this debt, because you have some evidence. So, I think it might balance out. It is hard to actually say. I do think it is worth it, given that it would protect consumers further than they are today. Mr. Meeks. Thank you. And let me just make another quick comment, because I know a number of my colleagues have already talked about the taxi industry in New York. And I know I only have 33 seconds. I would have asked the question about a man who lives in my district, in Jamaica, Queens. His name is Mohammed Hoque. He came to this country from Bangladesh, and settled in New York City. And in 2014, Mr. Hoque was told by a businessman that if he was able to get $50,000 that day, he could get a loan to purchase a million-dollar medallion. Long story short, he signed the papers, and found out that he was signing something in debt for $1.7 million, and couldn't pay it back, so as a result, he is suffering today. And if I had more time--but I am out of time. But those are the kinds of issues, the small person--he is here today--the small individual. I yield back. Thank you, Madam Chairwoman. Chairwoman Waters. Thank you very much. The gentleman from Kentucky, Mr. Barr, is recognized for 5 minutes. Mr. Barr. Thank you, Madam Chairwoman. And thank you to our witnesses today. I firmly believe that if someone takes out a loan or buys something on credit, he or she should pay back what is owed. And, Reverend Gould, I appreciated your reference and citation to scripture. We see that principle of someone who borrows should pay back what is owed also in scripture, in the Book of Psalms and other places. The Bible has a lot to say about financial matters, as you well know. But obviously, in the event that a consumer is struggling to repay, they should be treated with dignity, and they should be treated with respect during the debt-collection process. I do think some of the modernizations under the CFPB proposal help achieve that very goal. The cost of unpaid debt does not just disappear. Someone has to bear it. And I worry that it may get passed along to other consumers, and if we don't deal with that, the cost of credit goes up. Ms. Auchterlonie, I wanted to ask you about your written testimony in which you cite an academic study that suggests, ``In a competitive market, losses from uncollected debts are passed on to other consumers in the form of higher prices and restricted access to credit.'' Can you go into more detail about how modernizing debt- collection rules could reduce the frequency of consumers bearing the costs for others' unpaid debts? Ms. Auchterlonie. Thank you. I think the principal point is working on finding comfortable, plain-language communication between the collection agencies who represent the creditors and the consumers. That is something that has been a problem recently because so much of debt collection now is--and the kind of clear, straightforward communication is stymied by fear of plaintiffs' litigation. I spoke to a debt collector a few months ago who said, ``I don't write my letters for the least sophisticated consumers. I write my letters for the most sophisticated plaintiffs' lawyers.'' And that has become a real problem and is getting in the way of direct communication between consumers and the collectors, who are really just trying to care for the people that they are talking to and help them work out their debts. Mr. Barr. And, Ms. Auchterlonie, a follow-up question about the 80,000 or so complaints in the CFPB's reporting about complaints about debt collection. In your written testimony, you state these numbers do not correctly reflect the number of complaints about debt collection because of the way the Bureau Complaint Database is set up. Specifically, not all of those complaints are about the debt-collection industry but may capture complaints about the debt itself or other issues not fundamentally about the collection practice or the firm. How can the Bureau improve its Complaint Database to more accurately reflect the nature and substance of the consumer complaint? Ms. Auchterlonie. The Complaint Database is set up with a number of bullet-point questions, and consumers get to categorize their complaints themselves. That effort really isn't fixed or data-checked by any human beings, and I suggest that doing so probably would be very burdensome. I think the important point is not that the complaints aren't helpful and valid; it is just that you can't look at raw numbers and take them out of context. I think the big thing to note is that, of all of the complaints about debt collection, it actually represents less than .005 percent of all debt- collection contacts. And that is not saying that some people haven't had a lot of bad experiences with the rogue collection agencies, inexperienced collection agencies, or agencies that don't have enough capital to invest in compliance. I am not discounting those experiences at all. They are there. And that is why we have enforcement from the FTC and the CFPB. But when you just look at the numbers, it is not necessarily an accurate picture and doom and gloom for the whole industry. Mr. Barr. Thank you for that insight. Mr. Bedard, I want to get to your testimony about regulation by enforcement. I could not agree with you more. I think one of the greatest frustrations with the Consumer Financial Protection Bureau is not giving the American people the rules of the road and not giving us clarity. How can you comply when there is no due process? How can you comply with a law when you don't know what the law is? And so, I think you are spot-on. And I think the Bureau should be commended and Director Kraninger should be commended for trying to provide clarity for regulated parties in our country. In your opinion, is the process that the Bureau used for their proposed rule a step in the right direction away from regulation by enforcement and toward a more regular, orderly, established guidance that does fulfill that promise of due process? Mr. Bedard. Thank you, Representative. Yes, this proposal is a step in the right direction. It brings clarity to an area of the law which is today not clear. And so, I do agree with you. Thank you for recognizing that. It is very important to everybody who is the subject of an inquiry of the CFPB. Mr. Barr. Thank you. I yield back. Chairwoman Waters. The gentlewoman from Ohio, Mrs. Beatty, who is also the Chair of our Subcommittee on Diversity and Inclusion, is recognized for 5 minutes. Mrs. Beatty. Thank you very much, Madam Chairwoman, for having this hearing today. And let me thank all of the witnesses for being here and for your testimony. I have several questions I am going try to get through. And for a couple of them, I am just going to ask you to go down the row and say ``yes,'' ``no,'' or ``I don't know'' or what you think. But let me start with the first question because in Ohio, the great State that I represent, debt collection is a problem. Ms. Kuehnhoff, according to the Consumer Financial Protection Bureau's Complaint Database, debt collection was the topic most complained about by Ohioans, with over 16,000 complaints. More than one-third of these complaints directly address the issue of attempting to collect debt that was not owed. Is there anything that you know of in CFPB's debt-collection rule that attempts to address this issue? Because it is the number- one issue that consumers are having in the State of Ohio. Ms. Kuehnhoff. Thank you for your question. I think that one concern about the proposed rule is, as originally outlined in 2016, the CFPB had a large section about what was called substantiation of information, making sure that debt collectors had the documentation to know that they were approaching the right person about the right amount, and that is not part of this proposal that is before us now with the proposed rule. Mrs. Beatty. Okay. Thank you. Reverend Gould, in your testimony, you stated that the comment letter by the Faith & Credit Roundtable submitted to the Consumer Bureau regarding the debt-collection rule urged them to ban collections on time-barred zombie debts in and out of court. Can you explain why your organization believes this is necessary to adequately protect our consumers? Rev. Gould. Yes. In most States, there were actually zombie laws. And so this collection of debts, like in the State of Missouri, that are older than 10 years, should already be illegal. The lack of protection around that actually opens up people who are already very vulnerable to sometimes having to pay something they don't even know about. I went to college in 1982. My father died when I was 17 years old. About 5 years ago, I needed a transcript and was not able to get it because the school said that I owed tuition. My mother is now also deceased, 10 years next month. My parents paid for my education, so I had no way of defending that bill. I had never received anything from Southern Illinois University. And I literally could not get this transcript until a couple of years ago when somebody actually said it was a mistake. But after me going to get my transcript, they started to send me a bill every month that I had no way to defend, because the people who were responsible for paying it 30 years ago were deceased. Mrs. Beatty. Okay. Thank you. For the next question, we will start with you, Professor Jimenez, under Section 813 of the Fair Debt Collection Practices Act, if a consumer can prove a violation, they are eligible to be awarded $1,000 in damages over and above what the consumer receives for actual damages. Do you know if this $1,000 cap has ever been updated since the FDCPA made it a rule in 1978? Ms. Jimenez. It has not. Mrs. Beatty. Okay. So now, let me ask you this. And just answer ``yes'' or ``no,'' down the row. We will start with you, Mr. Chopra. Do you believe this $1,000 cap sufficiently disincentivized debt collectors from engaging in this type of behavior we too often see? Is this enough? Mr. Chopra. Absent indexing to inflation, just like all civil penalties, as well in the government, it may not provide that deterrent effect. Mrs. Beatty. Okay. Rev. Gould. No. Ms. Desai. No. Ms. Kuehnhoff. No. Ms. Jimenez. No. Mrs. Beatty. Keep going. You are next. Yes or no? Ms. Auchterlonie. I am not sure. I think there is a lot of deterrent value-- Mrs. Beatty. So, $1,000 is enough, in your mind? Ms. Auchterlonie. I think-- Mrs. Beatty. For it to be capped at that since 1978? Ms. Auchterlonie. Well, plaintiffs' attorneys are asking for a lot more than that. Mrs. Beatty. It is a ``yes'' or ``no.'' We know it has been since 1978. We know that it has not been. Ms. Auchterlonie. You could index it. And plaintiffs' attorneys-- Mrs. Beatty. So, that would be a ``no.'' Is that correct? Ms. Auchterlonie. That would be a ``no.'' Mrs. Beatty. Okay. Mr. Bedard? Mr. Bedard. The answer is ``yes'' because of the other remedies that are available under the statute. Mrs. Beatty. But do you think there is a difference between actual damages and punitive damages? Mr. Bedard. Thank you, Representative. There is a difference, yes. And the statute-- Mrs. Beatty. Okay. I'm sorry. My time is up. Mr. Bedard. Thank you. Chairwoman Waters. Thank you. The gentleman from Colorado, Mr. Tipton, is recognized for 5 minutes. Mr. Tipton. Thank you, Madam Chairwoman. And I thank the panel for taking the time to be here. In my real life, I am a small-business guy, and we would wholesale out product, extend credit, and hope that it would get paid back, and the vast majority of the time, it did. But we certainly had a couple of circumstances where, after we had exhausted all of our remedies, placed calls for 6 months to 9 months, trying to be able to get paid back, we had to turn to a credit collection agency. And now, in this role, I have had the opportunity to be able to visit with a few of those folks who run those businesses. And I come from a rural part of the country, and so it is critically important for us to be able to have access to credit, to make sure the bills are paid for those small businesses. I did want to be able to point out that a lot of the credit agencies that I did visit with were pretty compassionate people who are trying to be able to figure out a way to be able to help people actually right their fiscal ship, to maintain their credit, and be able to stand up for them. Ms. Auchterlonie, if lenders can't collect debt, does that have an impact on the ability of small-business owners and potential homeowners to be able to obtain credit? Ms. Auchterlonie. Yes, it certainly does. For highly regulated industries like banks, of course, there are limits once you have impaired debts. For small businesses, it is a cash-flow issue. If you don't have the cash coming in, you don't have the opportunity to provide services in advance. And, as we noted, services are the predominant form of debts in debt collection right now. Mr. Tipton. Yes, I think it is often easy to forget about some of the practical impacts that can often flow through. I cite back to my business. We used those receivables to be able to pay our employees, who had their debts. It is a little bit of a domino effect to be able to actually deal with it. And, Mr. Bedard, if you would maybe speak--you were talking about some clarity with my colleague in terms of the rule. Would you speak--I think it would be good for the committee to hear some of that clarity on the proposed rule from Director Kraninger. Mr. Bedard. Thank you. Under the current state of the law, it is not clear how consumers can utilize electronic means of communication to communicate with consumers, especially when those consumers desire those electronic communications. One of the many things that this proposal does, is it--and I will use his term--it creates the ``rules of the road'' on how consumers can communicate with debt collectors using electronic methods in ways that satisfy all of us that consumers will be treated fairly. That is what this proposal does. It does it for email. It does it for text messages. We have heard a little bit today about how it does that for phone calls. And that very clarity is what helps the collection process. It helps consumers. It helps bring access to credit and the cost of credit to consumers in ways that keep the system functioning. Mr. Tipton. So, it is a way to be able to collect the debt. Ms. Auchterlonie, maybe you would like to speak to it as well? What type of borrowers are harmed most when creditors have to constrict credit because of their inability to be able to collect the debt? Ms. Auchterlonie. The riskiest borrowers. Mr. Tipton. Okay. So the people who may need the credit are ultimately hurt the most. Ms. Kuehnhoff. The people who are deemed the most risky or the least likely to pay are the ones who first get cut off the credit spectrum. Mr. Tipton. Okay. Ms. Jimenez, did you have any-- Ms. Jimenez. I think that is right. Although I will say that I am not sure--in fact, I don't think access to credit is something that ought to be defended at all costs, in the way that sometimes it is phrased. You know, ``This is going to increase the cost or cut off access.'' Sometimes, it is the access to credit for the riskiest borrowers that actually sinks them further and further into debt and despair. And I think it is that easy access to credit for people, who maybe it was even known by the creditor were unlikely to repay, that actually poses a larger problem. Mr. Tipton. Thanks. Ms. Auchterlonie, you came out of the CFPB. In your view, is the rulemaking in line with work previously done by the Bureau? Ms. Auchterlonie. Oh, this rule has been in progress for years. Mr. Tipton. Okay. Ms. Auchterlonie. The principal architects are career public servants, at this point, who have operated under several Directors. And, we have been talking about many of these issues and solving these issues for a long time. Mr. Tipton. Great. Thank you so much. I yield back. Chairwoman Waters. The gentleman from Florida, Mr. Lawson, is recognized for 5 minutes. Mr. Lawson. Thank you, Madam Chairwoman. And I welcome the witnesses to the committee. Earlier, there was some discussion about student loan payments and so forth. Young Americans are increasingly accumulating debt for their education and student loans. They will be assessed collection fees in addition to the student loans they already owe. These fees vary, depending on who holds the loans, but they can be anywhere from 18 percent to 40 percent of the outstanding balance. To put it into perspective, to add an extra 40 percent to a student-loan balance of $30,000 would mean that the balance is $42,000. There is currently no law capping what debt collectors can charge for collection fees on a Federal student loan. In your opinion, should there be a cap? And what percentage should the cap be? Anyone can respond to that. And I will start off on this end here. Mr. Chopra. Sure. Let's just say, Federal student loans, no one should be defaulting, because there are statutory rights to income-driven repayment, that if you can't afford it, your payment is tied to your income, and it can be as low as zero. Yet our system, how it is administered by the Department of Education under multiple Administrations, continues to favor the contractors over the borrowers and the taxpayers. We need to completely revamp this system. And I encourage this committee, which has jurisdiction over a lot of these issues--the Treasury Department gave an exception to the Department of Education which is allowing this to go on, and I think the Treasury Secretary needs to rethink that. But there should not be--this essentially adds insult to injury, and it does not let those people get back on their feet to participate in the economy. It actually is a sentence for them that they will never be able to essentially buy a home or, frankly, even pass an employment verification check. Rev. Gould. Thank you, Congressman. It is not just young people. As a person who went back to school to get graduate degrees so that I could have a professional life in the ministry, I sit here with student-loan debt. There are various movements across the country from faith- based organizations--I am thinking of the Samuel DeWitt Proctor Conference, with the Micah program that they have that is designed to actually help pastors and preachers who have that kind of student-loan debt. So, there should be some limitations. And we also have to talk about the wealth gap and the wealth gap that is disproportionate in communities of color, which then exacerbates the ability to pay. Mr. Lawson. Would anyone else care to respond? Ms. Jimenez. Thank you for the question. I think, like Commissioner Chopra said, we need to overhaul the system. Borrowers need to be able to have rights against their servicers so that their servicers have to do things like timely giving them a loan payment history, and if not, then they ought to have a clear private right of action against servicers for violations of those rights. And we need to investigate why more white borrowers than Black borrowers are in income-driven repayment programs, which are the repayment programs that Commissioner Chopra talked about that would allow them to be current even if they cannot repay. Mr. Lawson. Okay. Thank you. I want to try to get in one other question. Ms. Jimenez, despite the increased number of payment options available to Federal student-loan borrowers, one in every four borrowers is delinquent and in default on the Federal debt. I introduced a bill that changes the repayment period on Stafford loans from 6 months to 1 year after graduation. Would you support this change? If not, I would like to hear your feedback on why not? I have a large number of students in my district, over 100,000. And they, a lot of times, don't have jobs, and they have to start paying at 6 months instead of trying to get a chance to get established. My time has run out, but I just want a quick comment from you. Ms. Jimenez. I think if we could get--it is not a bad idea. I think, ultimately, if we could get those borrowers in income- driven repayment from the beginning, it wouldn't matter, it would be even more helpful. Because even if they couldn't get a job after 1 year, they would be in zero-dollar payments for however long. So there are many, many ways that we can do that. It is too complicated to explain how, but-- Mr. Lawson. Okay. Thank you. And I yield back. Chairwoman Waters. Thank you. The gentleman from Texas, Mr. Williams, is recognized for 5 minutes. Mr. Williams. Thank you, Madam Chairwoman. I, too, am a small-business owner. I sell and I finance automobiles. I have always tried to collect debts on my own. About 50 years ago, I went to a place called Whiskey Flats, Texas, to a trailer park to collect a payment on a used car I had sold. When I knocked on the individual's trailer, he told me I should leave immediately, and from the sound of his voice, I did just that. As I was walking away from the property, I noticed he had a ``George McGovern for President'' bumper sticker on his truck that I had sold him. So I figured that he had a little bad judgment, just for that reason. Now, this incident made me realize that sometimes I may need to turn to the pros to get the money that was rightfully owed to my business. For small-business owners like myself, high accounts receivable balances directly reduce cash flows--it is just simple math--that are necessary to keep the doors open. In an ideal world, everyone would be financially accountable and would pay their debts like you are supposed to. But in a time where we are debating proposals to forgive student-loan debt and to remove negative information from credit reports, we cannot be demonizing this profession that holds people responsible for their financial decisions. As a business becomes more reliant on credit, we need to ensure that we have practical, modern ways to collect this debt. So, Ms. Auchterlonie, while the new CFPB rule is a significant improvement from the initial iteration, it still misses the mark in some significant areas. Can you give us your opinion on how this proposed rule can be further improved upon? Ms. Auchterlonie. Thank you, sir. One of the major criticisms I have about the rule is that it requires debt-collection agencies to provide itemized validation of debt, which requires essentially up to nine new data fields, when they send their letters with debt information to consumers. And for anyone who has ever had to reprogram systems that involve significant data fields, it is a big expense for the industry. And it is even a bigger expense for the creditors who send their collections accounts to debt- collection agencies. Our concern, principally, is that the small businesses who may right now only send 25 or 30 collection accounts per year won't have the ability to provide this information to the debt- collection professionals, and, thus, they won't be able to hire a professional in order to have the debt collected in that legal, FDCPA-covered manner. Mr. Williams. Okay. Thank you. We have heard about the important function that debt collectors serve in our economy, and, as any industry, there are unfortunately some bad actors that need to be held accountable when they break the law. However, we have also heard about the confusing and outdated nature of the regulations that have penalized legitimate businesses who think they are doing the right thing and they are hit with frivolous lawsuits. If this industry had clear guidance on what is expected from the regulators, bad actors would be driven out of the marketplace through competition. That is the beauty of capitalism. So, Commissioner Chopra, before I continue with my question, are you a capitalist or are you a socialist? Mr. Chopra. I believe in markets, and I am a capitalist. Mr. Williams. Thank you very much. So, with that, what effect do you think debt collectors have on the cost of credit? Mr. Chopra. This is actually a market in which normal market forces don't work. Consumers don't get to choose who their debt collector is, so they don't actually have market power to take their business elsewhere. And often, many small businesses actually are outraged when they hear how someone is treating their customers. So, this is actually an example where regulation helps both legitimate businesses and consumers, because you cannot vote with your feet. When we think about how we can make the debt-collection industry work, we have to think about what is right for consumers and the honest businesses. Because, right now--and I have seen a lot of debt collectors--they are at a competitive disadvantage because of abuses in the market. So the market simply cannot work. We should be thinking about honest businesses, about consumers, and a regulation that actually makes sure it is working for them rather than just for the ones who sidestep the law and face no real accountability for it. That is how we will make a market work here. Mr. Williams. All right. Thank you. Mr. Bedard, in your testimony, you mentioned that the CFPB has exacerbated the problems with the debt-collection industry through unfair, agenda-driven enforcement actions. I have spoken to many businesses around Texas who have been bullied into settlements by this rogue agency so they will not have to spend years defending these costly, politically driven allegations. Can you elaborate on the statement from your testimony and give us an example of where the CFPB has tried to regulate by enforcement? Mr. Bedard. Yes. Thank you, Representative. The concerns of your constituents are legitimate. There are areas in the law in which there is no clarity about what the proper behavior is. And when I talk about regulation by enforcement, what we mean is that, instead of creating a rule first and then expecting everybody to follow the rule, what has happened and what we have seen in the past is enforcement actions and investigations, which, you are correct, take years-- Chairwoman Waters. The gentlewoman from Michigan, Ms. Tlaib, is recognized for 5 minutes. Ms. Tlaib. Thank you, Madam Chairwoman. And thank you all so much for being here and for testifying. One of the things that I, as a Member of Congress, in the first 8 months, just even talking to my residents--we just passed a bill out of this committee, of which I am very proud, and with the wonderful support of our Madam Chairwoman here, H.R. 3622, the Restoring Unfairly Impaired Credit and Protecting Consumers Act, which reduces the debt on someone's credit report from 7 years to 4 years, which is a better indicator anyway, and which would be transformative for so many of our folks that we represent and advocate for. But our residents are being scammed. And that is the part that I feel like gets missing about collection, is the ones who were unfairly targeted with high interest rates, predatory lending--unfairly, because they didn't know what their rights were before they signed. I feel like there needs to be a better balance in this conversation, in this debate, in this committee. And I feel like that gets lost. Because I know my residents; they are not buying these expensive cars or these luxury items. It is their lives. They are trying to live. And including those who are starting a business, because it is a dream, it is a way to provide for their children and provide a better future for their family. So, I want to thank you again for your testimony. In my district, the 13th District of Michigan, I was really taken aback by a story of a gentleman who served our country. After graduating from college, he joined the military and served our country for a number of years. And upon returning, he faced harassment, literally harassment, from debt collectors that many Americans know all too very well--countless calls, threats. And even more shocking, he was taken to court to settle his student loan debt and so forth. Just dragged into court without any kind of agreements or discussions beforehand. And so, Commissioner Chopra, I see CFPB as kind of a line to draw that balance, to figure out who are the ones getting abused and who are really scammed into predatory lending, probably what is illegal. Not all of us can afford to go to court, folks. We can't afford to find a lawyer. Do you know how distressing that is? And I know my colleague from Massachusetts is going to talk about the trauma of that, because it is a trauma. It is something that for my residents, it paralyzes their lives immediately. I want to talk to you, Commissioner. What do you think the CFPB can do better right now in regulating debt-collection practices around not only student loans but even around the other kind of predatory lending? Where is that balance? Remind us why we even created the CFPB in the first place? Mr. Chopra. I agree with you. The conversation is not about an auto mechanic who couldn't get a bill paid. The reality is that people who owe debt, many of them simply cannot pay or they don't even owe it in the first place. And that is what is missing about what the original concept of a better debt-collection rule is about. Not just third-party debt collectors; what about the first parties? And what about substantiating the fact that the debt was even owed in the first place? I have seen it firsthand. Many of these collectors don't even have basic information to show that it is actually owed. And you know what many Americans do? They just pay it, because they are scared about what will happen to their credit, to their employment, and other things. Ms. Tlaib. Yes, it is bullying. And they are really dismayed because they are like, ``Well, this is how much I borrowed. Why is it triple the amount?'' You know? They just want somebody to advocate and believe them. Third-party debt collectors are huge corporations that profit off of intimidation, harassment, and threats to borrowers, even though the 1977 Fair Debt Collection Practices Act prohibits this type of abuse. Ms. Kuehnhoff, what are some of the predatory practices of loan servicers that you have seen personally? If you can talk specifically about a story that is more shocking that you have--that people need to realize what the human impact of doing nothing--and this sense that this is politicized, and by having the CFPB as the front line of protecting our residents. Can you talk about a specific case that you think would maybe shed some light on why we need this kind of advocacy within the Federal Government? Ms. Kuehnhoff. Sure. Thank you very much for that question, and I think it is important to keep these consumer stories at the forefront of our thinking about this issue. I am going to really briefly try to recount the story of Ms. H., who had a payday loan that was 7 years outside of the statute of limitations, and was getting harassing calls from debt collectors for months, multiple times a day, back-to-back calls. And even though she was suffering from illness, she continued to be harassed until she finally made an agreement for a payment, which brought that whole debt back within the statute of limitations and subjected her to liability. And I am going to stop there because my time is up, but thank you for your question. Ms. Tlaib. Yes. Madam Chairwoman always keeps us on time. Thank you so much. I yield back. Chairwoman Waters. Thank you very much. The gentleman from Georgia, Mr. Loudermilk, is recognized for 5 minutes. Mr. Loudermilk. Thank you, Madam Chairwoman. And I want to thank the panel for being here today. This is a very important subject, from someone who has been on both sides of the debt-collection issue. When I was in the military, I experienced some debt-collection calls. Some were just because I didn't get paid very much. And then, there were those where it wasn't me, and they are calling. Ninety percent of the time, though, I said, ``It is not me. You have the wrong person.'' Eventually, they stopped. Then, there are those that are continually harassing. We know that that happens. On the other side of the coin, as a small-business owner with a struggling business, just getting started, I got a business opportunity with a doctor. We went in and provided him with computer systems, the network, we got his office up and running, and he didn't pay. I didn't want to go to a debt collector, because it is a close-knit community, and we were doing work with other doctors, and you don't want to get a reputation that you are turning it over to a debt collector, et cetera, et cetera. I changed my mind when I found that the doctor was expanding his office and bought a new car. I went to a debt collector, and they were able to recover the debt. I was the one hurting because I have a small business. I am trying to keep people employed, right? There are bad players out there. Debt collectors do provide a service. So, what we are trying to do is find a balance, strike a balance. It isn't always that they are the bad guy out there. Somebody borrowed money, somebody owes money, and they are not paying for whatever reason. So, we have to find the right balance. Ms. Auchterlonie, can you explain what the consequences for lenders and borrowers would be if they did not have appropriate debt-collection practices in place? If we didn't have any type of debt-collection practice, would that not have a negative effect on every borrower, especially those in a lower-income level? Ms. Auchterlonie. Oh, certainly. I am having images of the movie ``Deadwood,'' actually. No, the FDCPA has put us tremendously far ahead and has been really helpful in the field of regulating debt collection for a very long time. I am looking forward to actual thoughtful regulation that brings it up to date. Mr. Loudermilk. Okay. Because my experience is, when the doctor doesn't pay my office, I have to make up that difference. So I can't pay my employees as much, or I have to charge more to other customers. And we see this. There is a difference between the first party, the second party, and the third party in debt collection. A lot of times, it is that contractor that just gets a bulk of especially medical expenses. I have experienced that recently from hospital bills from an auto accident, that we didn't even receive the bill, and all of a sudden we are getting the calls. Right? So we know that there are some issues out there. But aren't the first-party debt collectors already subject to a series of laws governing their debt-collection practices? I am talking about the first party. Ms. Auchterlonie. Third-party debt collectors have a much stronger regulatory scheme under the FDCPA. The first-party creditors would be subject to what we call the UDAP (unfair or deceptive acts or practices) which have been interpreted very similarly, in many respects, to the FDCPA. Mr. Loudermilk. Okay. Ms. Auchterlonie. The big difference is that first-party collectors don't need to give them any Miranda notice, they don't have to do the debt validation and some of the more formulaic aspects of the FDCPA. Mr. Loudermilk. Is there a reason that there is a different set of regulations for first-party and third-party collectors? Ms. Auchterlonie. Many times--and I see this a lot--a first-party creditor wants to maintain the relationship. Mr. Loudermilk. Right. Ms. Auchterlonie. And, also, if you were subject to the FDCPA and you were making a call that had to say, ``This call is from a debt collector; anything you say can and will be used,'' that wouldn't necessarily be accurate. That mandatory language itself might be deceptive. So having those really prescriptive terms that are in the FDCPA aren't always appropriate for first-party creditors. Mr. Loudermilk. In the scenario I gave with my business, I would be the first party. I am trying to be conscientious, keep that relationship going too. Hopefully, the guy just forgot. Ms. Auchterlonie. Right. Mr. Loudermilk. Maybe he is still trying to get things established, would make some payments a long time. So, that makes sense. Mr. Bedard, is it important for Congress not to establish new policies for first-party debt collectors that conflict with those already-existing requirements? Mr. Bedard. Yes, it is important that those rules do not conflict. I think there is universal agreement that both creditors and debt collectors, together, have a regulatory scheme that makes the process from origination to collection as smooth, as efficient, and as kind as possible to consumers. And the avoidance of conflict between creditor rules and debt collector rules, I think, is a necessary ingredient to achieve that. Mr. Loudermilk. Okay. I see my time has expired. I yield back. Thank you all. Chairwoman Waters. Thank you. The gentlewoman from Massachusetts, Ms. Pressley, is recognized for 5 minutes. Ms. Pressley. Thank you, Madam Chairwoman, for continuing to center those issues of concern to the American people on this committee. A ringing phone is a childhood trauma trigger for me. It is one of the reasons I don't have a landline today. Raised by a single parent who was rarely home, I spent a great deal of time alone at an early age, so early that my mother feared, if authorities knew, they would take me away from her. But as a single mom, unable to afford childcare, she had no other choice. She was gone a lot, working. And we only had each other to rely upon. She was gone, working, to pay the rent on time, to keep groceries and food on the table, to pay for transportation, and, because the school in our community was underperforming, to send me to a tuition-based school. My mother was a beautiful, bright, prideful woman with a strong work ethic who took pride in paying her bills, and paying them on time. So you can imagine how distressing it was and the shame she felt when she could no longer do that. There were many disruptive life events, but there are two that immediately come to mind. The first is a major surgery she had, and the second is the death of her mother, who died suddenly and without life insurance. Consequently, my mother worked and worked, and yet we still owed everybody. We owed the utility company. We owed the landlord. We owed the bank for our car. She owed the school tuition. But the ends simply wouldn't meet, and, consequently, we were faced with eviction notices and the repossession of our car. Like many children growing up under similar circumstances and stressors, I adulted early. I managed heavy-handed knocks at our apartment door, and I managed debt-collector calls with great skill and sometimes, out of childhood desperation, emotional pleading. I also managed what my mother, without meaning to, projected onto me and what I felt: feelings of fear, vulnerability, judgment, and shame. My mother often said, ``Ayanna, don't worry. God will provide.'' And provide He did, through her labor, multiple jobs, and late nights spent away from her only child and baby girl. It is my belief and observation that my mother, in fact, worked her way to a premature death. Our story is the story of millions of families. And that is why I am introducing H.R. 4664, the Monitoring and Curbing Abusive Debt Collection Practices Act, legislation that would require the Director of the CFPB to issue quarterly reports to Congress analyzing consumer complaints about abusive debt- collection practices. We know that debt collectors are quick to employ aggressive tactics. That is why my bill would prohibit the Director from issuing rules allowing collectors to bombard consumers with unlimited text messages and emails--psychological harassment by any other name. Research has shown that some student-loan borrowers are finding themselves physically ill as a result of the stress and anxiety associated with their loans, and we have seen an increase in suicide attributed to debt despair. But there is not only the psychological toll and impact; it is threatening people's very professional livelihoods. In some States, including the Commonwealth of Massachusetts, there are laws on the books allowing a State to suspend and even revoke a professional license due to a defaulted student loan. Commissioner Chopra, can you speak more to this practice, please? Mr. Chopra. Yes. In 1990, the Department of Education started pushing States to pass these laws, because the assumption was that people could pay. And now we are seeing teachers, nurses, and so many other professions losing out on being able to actually earn an income to pay their debt. This is a completely antiquated and backwards way of thinking that assumes that debtors are villains and, instead, wants to punish them, rather than actually helping them get on their feet. Ms. Pressley. Thank you, Commissioner. Now, not only are these debts literally forcing people out of jobs and making you ineligible to work in your field, the collections industry can wield the criminal justice system to go after consumers as well. Representative Tlaib was speaking to some of this. So, Professor Jimenez, there seems to be an increase in the industry's reliance on small claims court, particularly in States that do not have strong consumer protections. Yes or no, are criminal charges a possibility in cases of debt nonrepayment? Ms. Jimenez. A form of--jail is possible. Ms. Pressley. How can a charge like contempt of court hurt a consumer's ability to secure future jobs or financing? Ms. Jimenez. They can actually be sitting in court, like Mr. Okoroafor was, until somebody bails them out by paying whatever the debt is, regardless of whether they had defenses against that debt. And it can be in a criminal record. Ms. Pressley. Ms. Kuehnhoff, in more recent years, the U.S. Treasury has been seizing the--okay. All right. Thank you, Madam Chairwoman. Chairwoman Waters. The gentlewoman from New York, Ms. Ocasio-Cortez, is recognized for 5 minutes. Ms. Ocasio-Cortez. Thank you, Madam Chairwoman. And I would like to thank all of our witnesses here today. This is an extremely important issue, and I think, as my colleague from Massachusetts just described, this is a matter of life and death. And it has been a matter of life and death for our communities back home in New York, for my constituents in particular, especially when it comes to a very specific issue that Ms. Bhairavi Desai articulated earlier in her opening statement. And I want to thank you for drawing attention to this issue and for being here representing New York taxi workers. I sent a letter, along with several of my colleagues from New York, on August 1st, expressing my concern over the role of regulators supervising banks and credit unions involved in predatory lending and collection practices that has led many taxi drivers, including some of my constituents, to suicide. This, I think, is a matter of financial malpractice and predatory behavior that I think, in many ways, should be a national scandal. It is literally killing people. To date, we have only received two responses from those agencies. Ms. Desai, in order for a person to own a cab, a taxi cab, in New York City, you need to own a taxi medallion, correct? Ms. Desai. In order to operate the car for service, you need a medallion. Ms. Ocasio-Cortez. Correct. And these medallions are sold on the open market through auctions where New York City usually sets the opening bid, right? Ms. Desai. That is right. Ms. Ocasio-Cortez. At the last auction in 2014, the City of New York set the opening bid at $800,000 for a taxi driver, correct? Ms. Desai. That is right. Ms. Ocasio-Cortez. And the price in 2002 was $200,000. It skyrocketed to $800,000 just 12 years later. How did that happen? Ms. Desai. There was really a concerted effort between the lenders and the middlemen, called taxi brokers, and several government agencies. The City of New York, from 2004 to 2014, made $850 million from these auctions. I remember after 9/11, when the economy started to crash, the Bloomberg administration, at the time, had said they would auction off medallions in order to balance that budget. Ms. Ocasio-Cortez. Thank you, Ms. Desai. I think one of the things that is so important for people to realize is that these are everyday people, most of them immigrants, in New York City, trying to start their lives and live up to our country's promise. And loans of almost a million dollars were given to drivers who are only making, sometimes, $30,000 a year. Is that correct? Ms. Desai. That is correct. Ms. Ocasio-Cortez. I have three documents, three reports, from The New York Times on this scandal, and I would like to seek unanimous consent to submit them for the record. Chairwoman Waters. Without objection, it is so ordered. Ms. Ocasio-Cortez. I would also like to submit for the record a document that was provided to us by one of our drivers, Mr. Mohammed Hoque. Chairwoman Waters. Without objection, it is so ordered. Ms. Ocasio-Cortez. It shows his actual statement of a million-dollar loan given to him. And his tax records show that in 2012, he was only making $22,392 a year; and in 2013, $23,269 a year. He was given a million-dollar loan while making $20,000 a year, and we are supposed to act as though this is his fault? This is criminal behavior. And it has not just happened to Mr. Hoque; it has happened to immigrant taxi drivers all over the City of New York. Regulatory agencies knew. The City knew. And these suicides are not just an indirect side effect, they are a direct consequence of the neglect of a vulnerable community in New York City. In fact, we have accounts right here reported by The New York Times. One of the drivers drove in front of City Hall himself, wrote a note on Facebook saying he could not continue to live, and killed himself right in front of City Hall. And we are ignoring this crisis. These taxi drivers need a bailout, because this is not just about predatory collection practices, as I was discussing with my colleague here. This is manufactured financial indentured servitude. And it is wrong. We need to bail out these drivers. And I would like to invite my colleagues here on the Federal level and our partners on the city level to make sure they get the justice they deserve. Thank you very much. Chairwoman Waters. The gentlewoman from California, Ms. Porter, is recognized for 5 minutes. Ms. Porter. Ms. Auchterlonie, I want to read you a few statements about debt-collection rules and see if you would agree that they are consistent with your testimony. ``I believe that everyone--this is a quote--in this room shares the same ultimate goal: to end abusive debt collection in the market. Debt-collection abuse is a stain on an industry that has served consumers extraordinarily well.'' Ms. Auchterlonie. Agreed. Ms. Porter. ``Debt-collection laws create a tremendous compliance burden for companies. In the best-case scenario, these burdens increase the cost of lending for consumers. In the worst case, they chase legitimate debt collectors out of the jurisdiction altogether.'' Ms. Auchterlonie. I don't necessarily agree with that. Ms. Porter. Why not? Ms. Auchterlonie. I think the debt-collection rules are essential in order to even out the marketplace. Ms. Porter. You do not think they create a compliance burden? Ms. Auchterlonie. Certain compliance is necessary. Ms. Porter. Okay. Thank you. ``While unintended, the proliferation of diverse laws has created enormous compliance burdens for debt collectors, the costs of which are necessarily passed on to borrowers, increasing the cost of credit.'' Ms. Auchterlonie. I think that yes, it can happen. Ms. Porter. Thank you. What if I told you that the quotes I just gave were about mortgage lending, and I substituted the words, ``debt collection,'' for ``mortgage lending,'' and that the quotes I just read to you were from testimony provided by mortgage bankers in 2005, a few years before the crisis. They sat where you are sitting, before this very committee, convincing lawmakers to block legislation to rein in predatory consumer practices. At the same time those mortgage bankers were here trying to get legislators off their scent, I was also testifying before this committee, trying to get the mortgage abuses and the robo- signings stopped. Your firm represented a lot of those mortgage lenders, and you are here today on behalf of the debt-collection industry. Why should this committee find your arguments and positions on abusive debt collection credible when you are just recycling the same, tired arguments that we hear from industry over and over again? And I illustrate-- Mr. Zeldin. Madam Chairwoman, I raise a point of order. Ms. Porter. Please pause my time. Chairwoman Waters. A point of order has been raised. Please do not raise your board. We have talked about this before. Thank you. Please continue with your testimony. Ms. Auchterlonie. So one of the things-- Ms. Porter. Excuse me. Ms. Auchterlonie. --that we talked about-- Ms. Porter. Excuse me. Ms. Auchterlonie. --is that-- Ms. Porter. Reclaiming my time. Ms. Auchterlonie. Oh, sure. Ms. Porter. Parliamentary inquiry. What is the point of order being made? Mr. Zeldin. Madam Chairwoman, Clause 6 of House Rule XVII prohibits the use of dynamic displays as exhibits. Members are authorized for 5 minutes in hearings to hear from and question witnesses. If the committee allows whiteboards and other dynamic displays, Members can more easily manipulate the data or information in an exhibit to obtain a response that all but eliminates the witness' objective point of view and replaces it with their own. These displays are prohibited on the House Floor and should not be allowed in committee. Ms. Porter. Madam Chairwoman, may I respond? Chairwoman Waters. The gentleman is correct. Dynamic displays are not permitted. Ms. Porter. Madam Chairwoman, that is a rule that pertains to the House Floor, not a rule that pertains to this committee. Are we adding additional committee rules at this time? Chairwoman Waters. The House rules do apply. Will the gentlelady continue with her-- Ms. Porter. Yes, Madam Chairwoman. I realize it is difficult for you to see, but if you could direct your attention over to that ``financial services bingo'' board, these are all arguments that I have heard over and over and over again in my career: frivolous lawsuits; balance costs and benefits; these are just inconsequential violations; we are going to reduce the supply of credit; there are going to be unintended consequences if we regulate. And these are all terms that came out of your very testimony before this committee today. You said that the debt-collection industry was--in your testimony, that it is a caring profession. Ms. Auchterlonie. Yes. Ms. Porter. A caring profession. [Video shown.] Mr. Zeldin. Point of order, Madam Chairwoman. Point of order. Chairwoman Waters. The gentleman raises a point of order. What is your point of order? Mr. Zeldin. What was just getting played? Chairwoman Waters. I have no idea. The Chair was not advised of any attempt to present in any shape, form, or fashion statements, testimony, or questions by something other than her voice. Will the gentlelady please refrain from disrupting this committee? Please continue with-- Ms. Porter. Madam Chairwoman, I would like to lodge my own point of order. I am not required to provide my testimony in advance to this committee. I am making an oral statement. Others have used the same technique in other committees. Chairwoman Waters. The gentlelady is out of order. Would you please continue with your testimony? Ms. Porter. If you are not familiar, that was a clip from the movie, ``Maxed Out,'' in which the debt collector talks about walking consumers out to the end of the plank, just like a pirate. I had another clip that I am unable to play because of the chairwoman's objection, that describes the way in which debt collectors identify neighbors and family members and seek them out, and that that is the most effective technique they have to collect debts, which is legal under the current law, because it humiliates and shames debtors into paying. Ms. Auchterlonie, does that sound caring to you? Ms. Auchterlonie. I was-- Mr. Zeldin. Madam Chairwoman, point of order. That question started with an audio that I did not--we can't assume that all of the witnesses understood what the audio said at the beginning of that question. We can't assume that all members of the committee understood what the audio said at the beginning of that question. It was a faint audio. I didn't hear the words, myself. Point of order. Chairwoman Waters. The gentleman has raised a point of order relative to the origin of the question. The gentlelady has 1 minute and 14 seconds left. I would ask the gentleman to disregard--or to not put forward his point of order, and allow the gentlelady to finish with the question. I think that would save us time and energy. Ms. Auchterlonie. I would take issue with the fact that those types of tactics are legal. They are certainly illegal. And I think everyone on this panel agrees that illegal conduct and that, sort of, cowboy debt collection needs to stop and needs to be vigorously enforced. I have done it myself, personally, when I was at the CFPB, and I continue to believe that that is the CFPB's role. Ms. Porter. Reclaiming my time for one second, Ms. Auchterlonie, are you suggesting that it is unlawful under current law to contact someone's neighbors or families, for a debt collector to do that? Ms. Auchterlonie. It is only lawful under specific circumstances of acquiring location, and it is very specific about what they can say. It is not to be for harassment. Ms. Porter. Okay. So you don't believe that practice, as currently permitted by law, is abusive? Ms. Auchterlonie. The FDCPA specifically says how you are supposed to do it, and if agencies are following those instructions, then it is not abusive. Ms. Porter. Thank you. With that, I yield back. Chairwoman Waters. The gentlewoman from North Carolina, Ms. Adams, is recognized for 5 minutes. Ms. Adams. Thank you, Madam Chairwoman. Thank you for convening this hearing. And to all of our witnesses, thank you very much for being here, and for your testimony. Reverend Dr. Gould, can you talk about how communities of color are disproportionately affected by excessive communication and harassment from debt collectors? Rev. Gould. Absolutely. Serving a Historically Black Church in an African-American community, and often being a person who is contacted to help people, but it is not just my own experiences. There is credible research. In my opening, I talked about the National Consumer Law Center that reports in the State of Missouri, a State that has 83 percent white residents, 65 percent of the 31 percent of people in debt collection are people of color. And so part of the issue is this wealth gap that we have, and communities of colors by and large are victim to divestment. People are not investing in our communities. They are continuing to extract wealth and bar people from actually being able to have access to the same earnings that their white counterparts have. Ms. Adams. Okay. So what initiatives have churches and community organizations undertaken that can help break these debt trap cycles for the most vulnerable communities that you make reference to? Rev. Gould. There is an organization, RIP (Rest in Peace), in New York. Since 2018, they have had 18 churches that have actually eliminated $34.4 million of debt from people who live at or below the poverty level. I mentioned the Samuel DeWitt Proctor Conference, which is an organization that is a social justice conference of the African-American churches, and it is also positioning itself to be able to buy debt to alleviate the burden. In my own State, a beloved sister and colleague, Reverend Traci Blackmon, is currently in a project with other United Churches of Christ to actually eliminate debt and buy the debt in her ZIP Code of people who live below the poverty level. So faith communities are certainly doing our part, but it is also not our part to eliminate bad policies that actually burden consumers. Ms. Adams. Yes, ma'am. Thank you very much. The leading cause of bankruptcy in the U.S. isn't credit card debt, motor vehicle loans, or student loans; it is unpaid medical bills. So, Ms. Kuehnhoff, which financial assistance policies do you recommend that Congress create, modify, or enforce to assisty the 43 million Americans who are struggling under medical debt? Ms. Kuehnhoff. Thank you for this important question, Representative. I think that, first, I am primarily speaking from the debt collection side, but I do want to say that obviously solutions to expanding and improving health insurance are critical for addressing this problem, but I am going to give some solutions on the debt side of things, once medical debts exist: dealing with surprise medical bills in a way that holds consumers harmless for these disputes between insurers and providers; improving the financial assistance policies that are already provided for under the ACA (Affordable Care Act); there is a provision that requires nonprofit hospitals to provide financial assistance policies, but that provision doesn't give any specifics. There is no minimum amount of financial assistance, no guidance as to who should be eligible. There are no requirements on for-profit hospitals. There are no private remedies under those provisions to enforce these rules. And there is no statement that underinsured people should be covered. So, all of these improvements. Ms. Adams. Thank you very much. I want to ask a question about the student debt. Commissioner Chopra, how can existing law protect students of color from being disproportionately targeted by debt collection lawsuits? We have 20 seconds. Mr. Chopra. There are too many lawsuits that are being filed by the Department of Justice against defaulted student loan borrowers, and data shows that overwhelmingly is targeting those who live in ZIP Codes that are disproportionately minority. And I think we need to fix that. Ms. Adams. Great. Thank you very much. Madam Chairwoman, I yield back. Chairwoman Waters. The gentleman from Tennessee, Mr. Rose, is recognized for 5 minutes. Mr. Rose. Thank you, Chairwoman Waters. I think it is important that, when possible, people fulfill their financial obligations, because when that doesn't happen, those costs are borne by someone else, by a small business in a local community or by a taxpayer who did meet his or her own credit obligations. That said, as many of my colleagues have rightfully pointed out today, our regulations are outdated and no longer adequately serve those who need our help. Technology exists today that did not exist in 1977 or 2006 or 2010. And in 10 years, there will be technology, no doubt, that will exist that does not exist today. So while I believe some work remains in the CFPB's proposed rule, the longer we wait to act, the worse the problem will get. I support the CFPB's efforts, but I do believe some important concerns have been raised about flaws with this rule, concerns I hope will be addressed. Last week, the Small Business Administration's Office of Advocacy submitted its comments on the proposed rulemaking, and one of the concerns mentioned was with the validation notice. The office is concerned that, given the amount of medical debts collected, itemization could not only be difficult and unworkable, but it could also violate HIPAA (the Health Insurance Portability and Accountability Act). Mr. Bedard and Ms. Auchterlonie, as attorneys who have operated in this space for some time, might this be a concern the CFPB would have to address to move forward? Ms. Auchterlonie, if you would go first? Ms. Auchterlonie. Yes, we believe so. And in the comments that I helped write, directed towards the Bureau on their rule, we spent quite a bit of time educating them on the HIPAA applications, specifically because medical debt that is in collection is estimated to be between 47 and 58 percent of the outstanding third-party debts in the country. So, there are certainly HIPAA issues. Mr. Rose. Mr. Bedard? Mr. Bedard. I agree with those statements and with the comments that were provided. Mr. Rose. Are there ways to address wanting a more detailed itemized validation notice without having to amend HIPAA- permissive disclosures to include the information requested by the CFPB? Ms. Auchterlonie. One of our suggestions was that collectors have a little bit more flexibility to provide the names of creditors. And this would apply not just in the medical categories, but also financial services and other categories, because the proliferation of debt purchasing means that the institution that owns your account may be this third- party debt buyer that, when you get the letter, you don't recognize their name. But it would be really helpful for consumers in understanding that they are actually being asked to pay for a debt that was originated by some bank or some dentist office or some creditor that they actually recognize. So we ask for the flexibility for debt collection agencies to provide more of a description of the chain of title of the debt, which I think would also reduce a lot of the complaints that, ``this debt is not mine,'' or ``they are collecting an account that I don't own,'' which is really a confusion complaint and not necessarily a malfeasance complaint. Mr. Rose. Mr. Bedard? Mr. Bedard. Those specific things that Sarah just mentioned help consumers understand better who is contacting them, why they are being contacted, and the debt for which they are being contacted. Mr. Rose. Thank you. Another concern raised by both the Independent Community Bankers of America (ICBA) and the Community Financial Services Association of America (CFSA) is regarding the call limitations. As ICBA notes in their comments, activities should not presumptively be deemed harassment if a debt collector wants to follow up with a consumer. Mr. Bedard, Ms. Auchterlonie, is there a scenario where a consumer who has fallen into collections could benefit from a phone call or an email communication from a debt collector? Mr. Bedard. The answer is yes, especially for those consumers who may not even know that they have an account that has fallen delinquent or in default. A text message, an email, or a phone call is welcome to those consumers who are concerned about their accounts and they are interested in keeping abreast of what is happening on their credit. So the answer is, yes, it is very helpful for consumers to receive those kind of communications. Ms. Auchterlonie. And I would also add that when you are in the process of negotiating some sort of long-term payment arrangement, that often takes a couple of different calls, particularly if you are going to get bank account statements or need to talk to a spouse and whatnot. Mr. Rose. Okay. Thank you. I yield back. Chairwoman Waters. Thank you. The gentlewoman from Pennsylvania, Ms. Dean, is recognized for 5 minutes. Ms. Dean. Thank you, Madam Chairwoman, and I thank you for convening this important hearing on debt collection practices. As I am sitting here, I am reminded of a constituent of mine, whom I believe is 100- or 101-years-old, a friend and a constituent, but he is a wonderful man, and he has talked to me for the last 10 years about something he would like to talk about. He said we name all kinds of ills in our society. We name the ill of racism. We name the ill of sexism and many other ``isms.'' He said it is time we named ``poorism,'' because how we treat the poor reflects how we treat the most vulnerable among us. So, I try to use the word, ``poorism.'' I am hoping it will catch on, on behalf of my friend, because he is darn smart. I want to talk about something that you have talked about, Commissioner, and as most of the witnesses have talked about. With student loan debt at the rate of $1.5 trillion in this country, it is saddling our young people, it is stymieing our economy. And, of course, so many young people falling into default, delinquency. And, as you say, they look like they are the bad guy, and they are not the bad guy. Commissioner Chopra, given your experience as the former CFPB Student Loan Ombudsman, I am wondering if you could tell me what you saw in that capacity, and if you could reflect on the fact that that space was left empty by this Administration, for I think as much as a year. What impact might that have had on protecting our student loan debt holders, that may be connected to this proposed rule. Mr. Chopra. I appreciate the question. One of the things that was terrific about what the CFPB did is we not only looked at facts and figures, but we listened to voices very clearly. And to hear about student loan borrowers who were ashamed to go back home for Thanksgiving, who felt that there was a specter over their future because of how they were being treated, I think that it hits us in the gut about what is going to happen to that person's future and, frankly, how does that affect all of us? One of the things we are going to need the CFPB to do--it is the primary regulator of the student loan industry, so if it turns a blind eye or if it helps cover up wrongdoing, that is not just a disservice to borrowers, it is really a disservice to our American brand and our American Dream. If people can't go to college and get ahead and instead they are worse off, if we see that minorities and women have to borrow more and then in the workforce earn less, that is just a road to disaster for all of us. And I hope that every regulator, State and Federal, can be aggressive in cracking down on abuses. Ms. Dean. I thank you so much for your work in this area, and for your testimony today. And then I wanted to turn to you, Reverend. You offered in your opening statement that you would be happy to tell some of the authentic stories that you have had to listen to, pastor to, in both of your careers, in all of your careers. And I think of the beatitudes and blessed are the poor. Would you mind sharing with us some of those stories? I am thinking maybe whether it has to do with minority debt, whether it has to do with payday lending, or any other kinds of predatory practices. Rev. Gould. Certainly. And thank you for the questioning and this framework of ``poorism.'' I have heard testimony of people talking about--it was the doctor who bought a new car. That is not the people that I talk to, and not the people that other faith leaders encounter on a daily basis. I'm thinking about a young woman by the name of Jennifer who lives in Springfield, Missouri. Jennifer has multiple medical problems, and receives disability. Her husband works a low-wage job at KFC. They have five children, which includes a couple of her sister's children. I think her sister passed. Jennifer took out a payday loan to fix her car. Springfield is approximately 4 hours from St. Louis, and she was having a medical procedure and they needed reliable transportation so that she could get to St. Louis, and her family would be able to get back and forth while she was there. It was a payday loan of $500. They paid it back the best they could for 2 years and still had not finished paying it back. And one of our programs, a program that was spurred out of Missouri Faith Voices, University Hope, a couple of churches who put some money together, ended up buying that debt. And Jennifer, the shame that she suffered and actually still suffers, and they paid it off in 2017, she went before the CFPB to share her story and was very proud of her ability to do that, but she still calls me, and inboxes me about the struggle of just being poor. Her son turned 16 on the 25th, and because they have more car issues, she was not able to buy him a card or a cake or anything. So, some pastors helped her with that. But that is the reality of people who are struggling because of the extraction of wealth and income out of the poorest communities. Ms. Dean. Thank you for sharing Jennifer's story, and tell Jennifer we are thinking of her. Chairwoman Waters. The gentleman from Wisconsin, Mr. Steil, is recognized for 5 minutes. Mr. Steil. Thank you, Madam Chairwoman, and thank you for holding today's hearing. Ms. Desai, I appreciate you coming in and sharing your story today. In your testimony you noted that between 2004 and 2014, with the sale of medallions in New York City, that New York City made $850 million. Is that accurate? Ms. Desai. Yes, that is right. Mr. Steil. And at the last auction, they were being sold for $800,000 each? Ms. Desai. The opening bid. Mr. Steil. The opening bid. So in some instances, they are selling them beyond $800,000. The opening bid was $800,000. I appreciate you clarifying that for me. In other words, the elected officials in New York City created a really expensive barrier to enter the market, generating enormous profits for City Hall on the backs of average American workers who are looking to enter the taxicab industry. To me, it didn't have to be this way. If the medallions were sold to drivers who met reasonable certifications standards, we wouldn't have seen this cost drive all the way up. But effectively, in New York City, elected government officials made this decision, to the detriment of many of your members. I am sympathetic to the hardship that many of your members are experiencing today. I appreciate you highlighting this. I know my colleague from New York had comments on this earlier, the significance of this issue. I think, when I walk away from this, watching what New York City did in creating, in effect, a legal monopoly, driving the costs up well outside of what market rates would have been if the government didn't get involved and create a legal monopoly, is a real lesson to be learned for other government jurisdictions to not get themselves involved in the private sector in creating government monopolies and driving costs up, which would have avoided a lot of the problems that we are seeing here today. So, I appreciate you coming and sharing that part of the story today. I want to shift gears just a little bit to Ms. Auchterlonie. One of the proposals discussed today would classify small business loans as personal loans for the purpose of the Fair Debt Collection Practices Act. Could you provide a little detail as to the effect that that would have on credit for small businesses? Ms. Auchterlonie. I think there is a lot of nuance to it, and, in fact, there are a lot of small businesses that end up getting personal loans in any case because they don't have enough credit or enough history as a business, so they have to rely on the personal wherewithal of the borrower. So, there is a little bit of that happening already out there in the marketplace. In some sense, it may make some of the small business borrowing more transparent and straightforward. I do think that you would have to really parse through the Truth in Lending Act to determine which provisions of it apply to small businesses and which provisions are specifically consumer-oriented. It is a long Act. It is very complicated. I would not recommend doing this in a couple of days. And I would also say, consult with as many experts as you can in doing so. Mr. Steil. Thank you very much. Mr. Bedard, any additional comments on that topic? Mr. Bedard. No more, other than to emphasize the importance of the consistency between Truth in Lending and all of the other regulations that we know industry needs to comply with, including the Fair Debt Collection Practices Act, and others. Consistency among them is not an overnight proposition, as she just mentioned. Mr. Steil. Thank you very much. Thank you for your testimony today. I yield back. Chairwoman Waters. Thank you. The gentleman from Illinois, Mr. Garcia, is recognized for 5 minutes. Mr. Garcia of Illinois. Thank you, Madam Chairwoman, and, of course, thank you to all of the witnesses who are here today to further enlighten us about this pressing issue. I would like to ask a question about zombie debt. Under the CFPB's proposed rule, debt collectors can trick consumers into initiating a debt payment on debt that previously sat outside the statute of limitations. This is in contravention of many State protections. For example, in my home State of Illinois, the statute of limitations on most credit card and medical debt is 5 years. What's worse, under the proposal, debt collectors are prohibited from filing or threatening a lawsuit if the collector knows or should know that the legal time limit to sue has expired. So, I have a few questions. Ms. Kuehnhoff, under what types of circumstances should the CFPB find a debt collector should have known that a debt was so old that it could not be pursued in court? Ms. Kuehnhoff. Thank you so much for your question. This is an important issue. I want to first say that I would strongly argue that the CFPB should have a strict liability standard for being held responsible instead of a ``should know,'' whether you knew or should have known. However, if the CFPB does move forward with a ``know or should have known'' standard, then I would argue strenuously that if there is, for example, documentation that the debt collector didn't bother to obtain about the debt that would have shown that the debt was time-barred before they sued, they should be held responsible, because they should have known because they should have obtained that documentation. I think this gets back partly to the substantiation issue as well that we have been talking about. Mr. Garcia of Illinois. As a follow-up, what sorts of evidence would show that a debt collector knew that a debt was so old it could not be pursued in court? Ms. Kuehnhoff. I think that this would get to the records that the debt collector has about the account, whether or not they have documentation. They would certainly have information that was transferred through a database or some other mechanism, that would talk about things like, typically, the date of last payment, and potentially other dates, if those are known. Mr. Garcia of Illinois. Commissioner Chopra, any insights as a former member of that board? Mr. Chopra. One of the things I will add is we also need to think about Wall Street and debt buyers and the rising set of hedge funds that are purchasing a lot of this old debt, creating instruments and also assigning them to create value, as they say. You can buy some of this stuff for a half a penny on the dollar, and you make a 100 percent return if you can get one cent on the dollar. So, we really have to track where is all of this debt flowing around and what are the incentives that we have to attack in order to make sure that people aren't being abused by some of the concerns you are raising? Mr. Garcia of Illinois. Thank you for getting the macro problem of indebtedness out there. Last question, Ms. Kuehnhoff, many debt collectors work on a contingency basis under which fees increase with the age of the debt. In light of this fact, do you agree that this makes zombie debt more lucrative to debt collectors than newer debts? Ms. Kuehnhoff. I think that the rate of return would also depend on how many people pay. So if you are getting paid more per debt that is older, you would still need to convince people to pay them. But certainly there can be problems with incentive structures, and we have called for a prohibition on the collection of time-barred debt because we think that there are a lot of concerns about not having information and documentation to prove that this amount is owed, and to make sure that you are collecting from the right person, and collecting the right amount. So, I would be concerned about aligning incentives to encourage collection of potential accounts for which you don't have documentation. Mr. Garcia of Illinois. Does the proposed rule create an incentive for creditors to pursue old debt? Ms. Kuehnhoff. I think that by deviating from the strict liability standard, it creates an incentive to attempt to not know what the--whether or not an account is time-barred. Again, we would argue for a strict interpretation. Mr. Garcia of Illinois. Thank you. I yield back, Madam Chairwoman. Chairwoman Waters. Thank you. The gentleman from New York, Mr. Zeldin, is recognized for 5 minutes. Mr. Zeldin. Thank to you all of the witnesses who are here. And thank you to the chairwoman and the ranking member for holding today's hearing. Before I get into some of my remarks with regards to this issue, the primary issue at hand with the list of bills being considered, rules being considered here under the committee, I just wanted to specifically touch on the issue with regards to the medallions. I want to lend my support and concern for those who are weighing in, the lessons to be learned with regards to the rise of value and then the fall in the value of the medallions, the people who are hurt drastically in that process because of decisions made by people inside of government and out of government. I was in the State Senate before I came here. I saw some of the decisions made up in Albany, artificially increasing and ultimately leading to the collapse that we saw of the medallion pricing. So it is an issue that I am pleased to see in front of the committee today. I lend my support to any of my colleagues on the other side of the aisle who would be interested in working together on whatever would be appropriate here in Congress. While no industry is immune from bad actors, debt collection agencies can provide practical options to help consumers pay off their debt. On Long Island, many of the debts being serviced by debt collectors are held by small, independent businesses that do not have the means to collect on their own debt. To have a financial system that works, both businesses and customers need to hold up their end of the bargain. Businesses will not be able to extend credit to or provide goods and services for our nation's job creators and consumers without being repaid. However, borrowers should not be harassed or treated with harm in any debt collection practices. That is why it is important that the CFPB proposed its rule on debt collection under the Fair Debt Collection Practices Act (FDCPA). Modernization of the FDCPA is long overdue; and this is a step in the right direction, helping to protect consumers from harmful debt collection practices. Open communications between borrowers and debt collectors is key to a fully functioning credit system. The existing data collection rules are outdated and fail to take into account advances in communication technology. When the FDCPA was passed in 1977, email and text messages were not even in existence. I haven't met many millennials who prefer to communicate via letters in the mail or a phone call over receiving an email or text. It is absurd that the guidelines for this industry are stuck in the 1970s. Rules of the road for clear, modern communication are good for both consumers and businesses. Overly burdensome restrictions on debt collection practices can ultimately hinder consumers' ability to access credit products and make them more costly for everyone. Ms. Auchterlonie, there have been many who argue that the CFPB's proposed rule will open the floodgates to abusive emails and text messages from the debt collection industry. Is that a valid concern? And are there any compliance steps that have to be completed to send emails and texts? Ms. Auchterlonie. Right. The text of the FDCPA itself prohibits abusive communications, all communications, and that is not just telephone but all communications. So, we have that inherently built into the statute. But in addition to that, we also have the specific rules that the CFPB implemented that require opt-out mechanisms, and it is the same sort of opt-out mechanisms you get with commercial or store emails and so on. So, there is an opportunity for consumers to choose the medium in which they communicate with their collection agency. Mr. Zeldin. And I concur with a comment that was made a little bit earlier by my colleague from Kentucky, Mr. Barr. He was sharing his thoughts on, if you incur a debt, you have an obligation to pay it back. And as I pointed out, a lot of the debts owed where I am from in the First Congressional District of New York are owed to small businesses, and they are desperately relying on being able to have those obligations fulfilled in order to be able to pay their bills and to be able to stay in business. It is an important philosophy, I think, for us to understand that key part of it, and that there are debt collectors who, just like every other industry, give their industry a bad name by abusing the rules of the road, and at the same time, there are some debt collectors near and around New York 1, my congressional district, who follow the rules and, when you change the rules, they will follow the new rules. They are doing a good job, responsibly representing their industry, and I think it is also important that we work to have the right rules for them. I yield back, and I again thank the Chair for holding today's hearing. Chairwoman Waters. Thank you very much. The gentlewoman from Texas, Ms. Garcia, is recognized for 5 minutes. Ms. Garcia of Texas. Thank you, Madam Chairwoman, and thank you for this hearing today. I want to apologize to all of the witnesses. I did have to step out for a competing committee hearing on ICE detention centers that the Judiciary Committee was holding. But what really strikes me is how the 2 hearings are really kind of related, because there, we were talking about detention and the almost incarceration-like facilities for basically poor people and vulnerable populations and here, we are talking about debt collection of, as you said, Reverend Gould, the poorest of the poor. So I am going to focus on racial disparities in debt collection as it impacts poor people. And, Ms. Jimenez, I wanted to start with you. Can you talk about the relationship between the racial wealth gap and how it contributes to these debt collection practices? Because especially when we go to the courts, it hurts poor people more, doesn't it? Ms. Jimenez. Absolutely. And I thank you for that question. The racial wealth gap is something that obviously transcends debt collection. The financial position of African Americans, in particular, in this country is a product of obviously a lengthy history, beginning with slavery, exclusion from holding property and government land grants, discrimination in housing, and a litany of exclusionary policies that hindered access to home ownership and wealth building. And so we have a situation where the median wealth of white households is 13 times the median wealth of Black households, and people of color, African Americans in particular, face basically a perfect storm of events that lead them ultimately to be collected upon, called, sued, and have judgments against them far more than their white counterparts. Ms. Garcia of Texas. Wages garnished. Ms. Jimenez. Yes, all of that. Ms. Garcia of Texas. Do you have numbers for what the impact is on the Latino population? Ms. Jimenez. I'm sorry? Ms. Garcia of Texas. Do you have numbers for the Latino population? Are they similar, or the same? Ms. Jimenez. The Latino population numbers are similar, not as stark, I guess I would say. Ms. Garcia of Texas. Again, in another hearing that we had earlier--this is like my eighth hearing this week, so I forget which one it was--but we talked about how long it would take an African-American woman to kind of catch up with the wealth gap. And I was just completely blown away. It would take an African- American woman 100 years, and Latinas 200 years. So, none of us here will benefit from any of that. In fact, I think it probably just gets worse. Reverend Gould, I am going go back to you. Like you, I don't wear the collar, but I am a woman of faith, and for me it is about making sure that people don't get poor. I still remember a consumer advocate commentator in one of the local broadcast stations in Houston who always used to close his program with, ``It is hell to be poor.'' Sure is, isn't it? What can we do to help to lift up those communities, particularly when it comes to payday lenders? Rev. Gould. I think we have to take--we have to actually own all of the history in this country, own what 400 years of enslavement has done to African Americans and our communities. I really think the reparations conversation is a part of this conversation as well. Ms. Garcia of Texas. We have had a hearing in the Judiciary Committee. Rev. Gould. Yes. And so, it is all connected. I spoke earlier about the community of Ferguson, outside of St. Louis, a community that is 67 percent African American, and 23 percent of the income in 2014 came from traffic stops. So, it is all predatory. It is not just payday lenders, but there are also big businesses. One of the things that we-- Ms. Garcia of Texas. I am glad you mentioned traffic stops, because I know that even for traffic tickets, parking tickets, ambulance fees, the public sector is not free from any of these issues either, are they? Rev. Gould. That is absolutely correct. Ms. Garcia of Texas. Governments also hire outside debt collectors to collect fees. Rev. Gould. Yes. In Missouri, we have had for the last 19 years the attorney general's report that gives us a vehicular stops report, and it goes up every year, 4 times the number of African Americans and other people of color being stopped. Well, you are stopped and you are fined and you are fined more than your white counterpart. You work a low-wage job. So it is double, triple, quadruple jeopardy. Ms. Garcia of Texas. Thank you, Madam Chairwoman. I yield back. Chairwoman Waters. Thank you. The gentleman from Arkansas, Mr. Hill, is recognized for 5 minutes. Mr. Hill. Thank you, Madam Chairwoman. Thank you for holding this hearing today. And I thank the witnesses for this long engagement you have had here. We appreciate your forbearance. As a former commercial banker and lender on and off over the years, I certainly understand the importance of these issues and how important it is to try to lend money in a fair way and collect it in a fair way. And I have really appreciated the points of view that you have brought to the hearing today. I want to talk about H.R. 4403, the Stop Debt Collection Abuse Act, which I cosponsored with my friend, Mr. Cleaver from Missouri. This was a bill that we had in the last Congress that we worked on with Mr. Ellison and Mrs. Love, and it safeguards American consumers by strengthening consumer protections against predatory debt collection practices, but this time by the government. It seems to me that we have talked about the Fair Debt Collection Practices Act at length today, which has been in effect since 1977, but it has always been intriguing to me that one of the ambiguities in that law, and also subsequent court cases and interpretation, has facilitated a situation where debt collection companies that work on behalf of government agencies aren't covered. So this really kind of strikes at the heart of the fairness issue, claiming that debt with a government entity does not qualify as consumer debt. One only has to review the consumer complaints, the lawsuits, to find records of confusing and troubling stories around many instances where this has created problems across the country. And even if you look at that as anecdotal information generally, in many instances they are hitting a tack with a sledgehammer. A sad story that I certainly connected with, because I do so much work with our veterans, is the veteran in Houston who had a $1.25 toll debt. Now, I have two kids in college, so I know about those bills when they come in the mail. It said that someone was--it is the only way I know that they are on a toll road or where they were, is by virtue of the unpaid toll tag response that comes to Dad. But, $1.25. And this veteran starts getting the calls. He doesn't know what is going on, and he is confused by it. He is an older man. And he ends up having to pay $300 to settle a $1.25 toll. And that is the kind of thing, we talk about it all day, this is your world, obviously, but this is where I think Mr. Cleaver and I are trying to operate. This is the world where we are trying to simply clarify the debt collection practices for debt collection agents hired by a Federal Government agency, that this law applies to them, just like it applies to the private sector. How could that be complicated or unfair? So, that is what this Act does. I think it is a good step. And I appreciate Mr. Cleaver partnering with me on it. Does anyone disagree that an agent working on behalf of a government agency should be covered by the same laws that private debt collectors are? I am going to do it in reverse. Does anybody disagree with that? Ms. Auchterlonie. No, sir. Mr. Hill. Okay. Thank you for that. Ms. Auchterlonie, would you speak to the benefits of clearing up some of those ambiguities? It is 40 years in the making, but it is clearly a problem. Would you give your views on that? Ms. Auchterlonie. When I was at the Bureau, I actually had an enforcement investigation that was really similar, related to district attorneys giving a collection agency the power to collect on bad checks. And we ended up settling with them for a significant amount of money and asking them to change their practices. Because a lot of times, the government agencies are charged with the responsibility to collect these fines, but they are public servants. They are not professional bankers. They are not professional financiers or collectors. They don't understand the rules of the road. And so, they don't really have the professional expertise to oversee and ensure that the collection agencies that they are working with are using best practices and treating their constituents the way that someone else would prefer to treat a customer. So, I can see some advantages to and where you are coming from on this. Mr. Hill. Good. I want to thank all of you for your testimony. And thank you, Madam Chairwoman. And I yield back the balance of my time. Chairwoman Waters. Thank you very much. Allow me to take a moment to thank all of our distinguished witnesses for their testimony here today. The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous materials to the Chair for inclusion in the record. And with that, this hearing is adjourned. Thank you all so very much. [Whereupon, at 1:25 p.m., the hearing was adjourned.] A P P E N D I X September 26, 2019 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]