As inflation continues to soar, consumer remedies deserve a second look
Consumer prices have jumped over 6% and inflation is dominating the national conversation. To accommodate the new normal of higher prices, the U.S. government and other entities like labor unions are making adjustments to everything from Social Security benefits to income tax deductions by increasing payments. But one area has long been neglected in addressing rising costs: remedies in consumer protection laws.
Since 1970, the Fair Credit Reporting Act (FCRA) has protected consumers’ information collected by credit bureaus and other reporting agencies by ensuring accuracy, preserving privacy and preventing abuse. The federal Fair Debt Collection Practices Act (FDCPA) has protected Americans from debt collection harassment and abuse since 1977. Both laws grant financial remedies to the injured consumers that enforce their provisions, but the amount of the remedies has never once been updated since the laws were enacted decades ago.
Since the 70’s, the FCRA has allowed consumers with credit reporting claims to recover up to $1,000 per statutory violation of the law, while the FDCPA allows statutory damages up to $1000 per case even when multiple violations of the law are present. It is decades-past time for an update.
An annual inflation rate of 6.2%, a 31-year high, has been enough to spark panicked headlines and heavy debate among policymakers, but the effects of the 351% cumulative rate of inflation on FDCPA statutory damages also have been consequential but less discussed.
Statutory damages are key components of consumer protection laws that shield consumers from unfair, deceptive and abusive business practices. For one, they ensure harmed Americans are able to get remedies in instances when a bad actor breaks the law but where actual damages are hard to prove. Statutory damages also give consumers an incentive to bring claims when their rights are violated, which ensures the laws are being enforced.
As statutory damage provisions in the FDCPA, FCRA, and other consumer protection laws have remained stagnant, their value has eroded over time. A $1,000 award in 2021 is equivalent to around $219 in 1977, meaning the damages have depreciated by over 75% in the past 40+ years. Consumers are certainly not suffering less harm today than they were in 1977. Indeed, more invasive and abusive corporate tactics have emerged over the decades that make it even tougher for consumers to overcome them.
Recent legislation has attempted to update inflation amounts in specific areas. The Comprehensive Debt Collection Improvement Act of 2021, for example, would have addressed inflation for FDCPA statutory damages. It is a step in the right direction.
But as it stands now, coupled with rising prices in general, today’s statutory remedies are a far cry from what they used to be and are inadequate for consumers who have stood up for their rights after being wronged by more powerful businesses.
Furthermore, the devaluation of statutory damages makes it easier for unscrupulous businesses to treat them as a cost of doing business instead of a deterrent that would encourage them to stop illegal behavior. Since 1977, the debt collection market has rapidly changed and expanded due to the rising levels of consumer debt and the rise of the practice of debt buying. The FDCPA’s statutory penalties still reflect the 1977 debt collection market, not the 2022 market with its much higher risk of harm to tens of millions of consumers.
More should be done to update consumer remedies to account for inflation, similar to the measures in place to tackle inflation in other arenas. Recently, the Internal Revenue Service announced its annual inflation adjustments, which among other things, raised the standard deduction and the maximum Earned Income Tax Credit. Similarly, the Social Security Administration (SSA) has been authorized to make Cost of Living Adjustments (COLA) under the Social Security Act since 1973. Last year, the SSA announced it would adjust benefits by 5.9% to account for current inflation rates. The first of these adjustments was made in 1975.
Civil penalties collected by government agencies are also adjusted for inflation. After finding that the impact of civil monetary penalties were diminished due to inflation, Congress passed the Federal Civil Penalties Inflation Adjustment Act of 1990 and its 2015 update “to improve the effectiveness of civil monetary penalties and maintain their deterrent effect.” The Consumer Financial Protection Bureau and the Federal Trade Commission, as well as other agencies update their penalties for inflation each year.
While the rate of inflation might not remain as high as it is now, inflation is an inescapable reality and lawmakers should address its devaluing effect on consumer remedies. The decades-long erosion of these remedies has wider consequences for the safety of the marketplace.