Consumer bureau orders debt collection agency to shut down for illegal practices

By Jeanne Sahadi, CNN

New York (CNN) — The Consumer Financial Protection Bureau on Friday ordered Commonwealth Financial Systems, a debt collection agency specializing in medical debt, to shut down as a result of what CFPB determined were illegal collection practices.

Specifically, the CFPB said that the company, which is based in Dickson City, Pennsylvania, “failed to conduct reasonable investigations of disputed debts and failed to inform consumer reporting companies that certain information was being disputed … (and) continued to attempt to collect disputed debts without substantiating documentation.”

The first action violated the Fair Credit Reporting Act and the second violated the Fair Debt Collection Practices Act, the bureau said.

CFPB, which is charged with enforcing consumer protection laws, ordered the company to immediately shut down, banning it from “participating in or assisting others in any debt collection activities, debt buying, debt selling, and consumer reporting activities.”

It also ordered Commonwealth to tell all consumer reporting companies that they should delete all collection accounts for those consumers about whom Commonwealth had provided information.

Lastly, it ordered the company to pay a $95,000 fine to the CFPB’s victim compensation fund. (Here’s a list of other enforcement actions it has taken against other debt collection agencies in the past.)

Commonwealth has not responded to CNN Business’ request for comment.

CFPB and some states aim to remove medical bills from credit reports

In September, the agency announced it would seek to remove medical bills from credit reports altogether, and it told CNN this week it expects to propose a rule doing just that next year.

If such a rule is finalized, consumer credit companies nationwide would be barred from including medical debt and collection information on reports that creditors use to make underwriting decisions.

“Research shows that medical bills have little predictive value in credit decisions, yet tens of millions of American households are dealing with medical debt on their credit reports,” CFPB Director Rohit Chopra said in September. “When someone gets sick, they should be able to focus on getting better, rather than fighting debt collectors trying to extort them into paying bills they may not even owe.”

In the meantime, two states — New York and Colorado — have gotten ahead of that decision.

Earlier this week, New York Governor Kathy Hochul signed a bill prohibiting medical debt from being collected by credit reporting agencies or included in a consumer’s credit report. Colorado recently enacted a similar ban.

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