Debt Collection Agencies are Harassing Consumers over Rental Debt
Often over debt they do not even owe.
National snapshot of rental debt complaints
“There was a mutual agreement between the site manager, regional manager, and my Section 8 caseworker for me to break my lease…I sent a copy of the email to National Credit Systems collection(s) with the move out information…I was informed that the collection will stay on my credit report until paid. I was also informed that they would make it hard for me to rent anywhere else or establish credit as the negative mark will remain.”
-Complaint narrative filed to the Consumer Financial Protection Bureau (CFPB) from Minnesota on March 27, 2024
Landlords and property owners are using collection agencies to go after tenants they claim are behind on rent. In many cases, these agencies are targeting people without any delinquent rental debt at all. This, along with aggressive collection tactics, remains a pervasive issue for the millions of Americans with debt in collections.
The web of debt collection can be frustratingly complex. Over 7,000 companies comprise the multi-billion dollar industry. Banks and other direct creditors may collect money owed themselves or hire third-party collectors, and creditors may sell debt to buyers who can then collect the debt, contract collection services to another company, or also sell. Buyers are able to purchase debt for pennies on the dollar, making it easy for them to turn a profit even on partial repayments. If the financial agreement allows, collectors may raise interest on debts owed.
In August of 2023, the Consumer Financial Protection Bureau (CFPB) began soliciting complaints on rental debt collection practices. Out of just over 6,000 complaints, half reported “attempts to collect debt not owed,” similar to the share of complaints over the same issue for all debts. Even incorrect debts listed in a person’s credit history can negatively impact their credit score, adding extra pressure to pay collectors. Those with complaints related to rental debt were twice as likely to report false statements or misrepresentations compared to all filers. About 8% of filers dealt with legal threats and other actions.
The top sub-issues for rental debt complaint filers included being demanded to pay debt that was not theirs, debt that was a result of identity theft, or the wrong amount of money owed. About 1,200 complaints indicated that filers did not receive enough information to verify debt or a notice of the right to dispute. In some cases, consumers experienced threatening and even abusive behavior from debt collectors.
Exacerbated Financial Burdens
From September to May of this year, rental debt collection complaints steadily increased from 409 to 715 per month before going back down to 525 complaints in June. An average of 17 complaints were filed each day from August 2023 to July 2024. During this time, the amount of collection complaints filed for any kind of debt shot up from around 5,000 per month to nearly 13,000 in April of 2024, a 121.3% increase.
Household Pulse Survey, March 5 - April 1, 2024, Census Bureau
Although the percentage of households with rental debt has dropped since the pandemic, millions of households are still behind on payments. In 2021, National Equity Atlas estimated that the average tenant with rental debt owed about three-months worth of rent. Tenants that were protected by eviction moratoria are still responsible for paying any back rent they may have accrued. While inflation has cooled in recent months, high housing and everyday cost of living expenses are pushing renters to take on more credit card debt.
Black and low-income individuals are more likely to have outstanding rental payments, as well as more likely to be contacted over debt collection in general. For those already at risk of credit discrimination, having a debt tied to their financial history – even in error – can have negative compounding effects.
In one complaint filed against credit agency T.S. Holdings in February of 2024, the filer details how rental debt on their record over “cleaning fees” has become a major obstacle to buying a new car and home. Overzealous debt collection is unfortunately not the only issue plaguing renters. Currently, the CFPB is working to address “junk fees” tenants may be saddled with, such as being forced to pay for routine maintenance. Low credit scores already make it difficult for people to successfully apply for and secure housing, and property managers may penalize tenants with low scores by charging them “risk mitigation” fees.
The adoption of digital tenant-screening tools by landlords has also been an area of concern for the bureau. The determinations made by these companies, typically through black-box algorithms and dubious inputs, can be “opaque, inaccurate, difficult to challenge, or even discriminatory,” according to CFPB General Counsel Seth Frotman. Last year, both the CFPB and the Federal Trade Commission took legal action against credit reporting agency TransUnion over their rental screening subsidiary, which failed to ensure accuracy in tenant background checks. TransUnion is also one of the main agencies consumers reported to the CFPB over rental debt collections.
The companies which garnered the most complaints over rent collection included National Credit Systems, Rowland Avenue Management, T.S. Holdings, and HW Holding. These companies may take information given to them by landlords at face-value without investigating the validity of claimed debts. Back in 2008, National Credit Systems (NCS) was sued by an Arizona resident for tacking on “attorney’s fees” to his bill, an error NCS overlooked because they trusted the landlord-creditor would provide accurate information. A complaint filed in December of 2023 against Rowland Avenue Management (also known as Columbia Debt Recovery/Genesis) claimed that the individual was being charged fees for an apartment they never moved into.
A Regulatory Shift
Consumers dealing with rental debt collections are protected under the Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Reporting Act (FCRA). FDCPA establishes guidelines around debt collection companies must follow regarding communication tactics and necessary notifications, while the FCRA sets guardrails around data that can be collected and shared by consumer reporting agencies, including tenant screening services. A 2021 advisory opinion warned that companies who assemble consumer data by using name-only matching, which can result in false identity links, would be in violation of FCRA. Effective November of 2021, the CFPB’s Debt Collection Rule set additional standards for credit agencies around validation notices, collection practices, and information reporting. Any individual being contacted over debt has the right to dispute, even beyond the thirty-day notice that their debt will be sent to collections.
As reported in Payments Dive, Frotman notes a trend of “growing financialization” of American life, driven by high medical, housing, and other costs. As with other forms of debt, consumers are dealing with abrasive collectors attempting to gather medical debt they may not even owe. Under Director Rohit Chopra, the CFPB has begun a rule-making process to wipe medical debt from credit reports, which will complement legislative efforts taken in some states. The bureau has also gone after banks and credit card companies charging unnecessary fees, including charges to access account information.
In addition to heightened scrutiny around rental “junk” fees, the CFPB is tackling housing affordability by examining high home closing costs, limited choice in loan providers, and by making it easier for homeowners to refinance their mortgage. Tenants who have seen their rent go up dramatically in recent years may finally see some relief and accountability. The Justice Department has recently filed suit against RealPage, an algorithmic rent-setting software, alleging that the company’s price-fixing and anti-competitive behavior led to skyrocketing rents nationwide.
Landlords, property companies, and collection agencies have the ability to use the threat of debt to exploit renters. Having a bill go to collections is a frustrating and far too familiar process. Getting hounded by credit reporting agencies over any category of debt is not only irritating, but also immensely stressful. Being behind on payments can result in serious financial consequences for the average person, from significant drops in one’s credit score to garnished wages. Perhaps even more frustrating is the fact that a credit report may include penalties sourced from unreliable data furnishes, and having a record scrubbed clean of irrelevant or incorrect information can be a lengthy process. Penalties and debts may limit access to capital, making it difficult to reach financial stability especially for renters who are more likely to be in already precarious situations.
For far too long, financial and housing insecurity have been taken advantage of for profit. Robust enforcement of regulation aimed at debt collectors, such as intensive review and prevention of wrongful and predatory collection, would be beneficial to all. For renters on the frontlines of the housing crisis, policy interventions must also include stopping landlords from charging baseless fees, strengthening tenant protections, and making housing more affordable.