One reason the CFPB’s proposed time-barred debt disclosures might not help consumers despite the study showing they help consumers understand their rights and what the Bureau should do about it

by Jeff Sovern

The CFPB recently proposed various disclosures to include on validation notices pertaining to time-barred debt. Before doing so, the Bureau retained ICF International to test the notices empirically; this testing found that the notices enabled many respondents to better understand certain rights as to time-barred debt. So far, so good. But the study tells us far less than that, because it doesn't tell us what actually happens when consumers get debt collection notice in real life, as the Bureau candidly admits (p. 12; footnote omitted): 

In general, the Bureau believes that effects observed in a controlled setting, such as that employed in this testing, may be larger than those that might be observed in practice. For example, in the testing described here, respondents were given monetary incentives to participate, and therefore were likely to read and think carefully about the survey. Further, respondents were prompted at various times to refer to the notices and the specific disclosures so that the Bureau could most effectively test the content of the disclosures themselves. Consumers may read less (and less carefully) in the context of everyday life, and Bureau conducted cognitive testing interviews suggest this is true for at least some consumers in the debt collection context.

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Whether consumers read the disclosure in real life is an important issue for disclosure policy, but the testing was not designed to address this question.

This matters because some limited empirical evidence suggests that consumers are less likely to take in the information in disclosures when they are in stressful situations (see here, at pp. 14-15). Of course, plenty of evidence shows that they are not likely to take it in at other times either.

Obviously, the Bureau should test time-barred debt disclosures (as well as other disclosures) in circumstances as close to real-life as possible. I have conducted surveys of my own and it kills me that I can't test in real-life circumstances.  But the Bureau doesn't face the same limits I do. Some states already require time-barred debt notices.  Perhaps the Bureau could determine if the existing notices are effective. For example, it may be that the Bureau could enter into agreements with debt collectors to monitor what consumers do after receiving the notices. Maybe the Bureau could survey consumers who actually received the notices to see what they understood from the notices.  I don't know what constraints the Bureau operates under, but conceivably the Bureau could buy some time-barred debt–at pennies on the dollar, it would probably cost less than the staff needed to conduct a survey–send out its debt collection notices, and then see what happens. To be sure, consumers can be hard to reach when they are ducking calls from debt collectors, but perhaps they would be easier to reach when the Bureau, as opposed to a debt collector, calls to survey them. The Bureau would have to be careful not to act in such a way as to create a conflict with its consumer protection mission, and would have to return any money consumers actually sent it, but such an experiment might tell more about how effective such notices are than a sterile survey. If John Oliver can buy debts for entertainment purposes, surely the Bureau can do so for consumer research purposes.

In any event, if the Bureau does go forward with its rule, it should definitely follow up in some way along the lines I have described with consumers who eventually receive the notices to see what they absorb from the notices. I wish I could.

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