The Buffalo News has run two articles highly critical of the local debt collection industry. The first article, “Merchants of Debt,”focuses on the large collection industry presence in the area. Many of the complaints made by consumers about collectors are against firms located in Buffalo, which is a major hub of the collection industry.
The article quotes Federal Trade Commission official Peggy L. Twohig as saying, “The whole nature of the industry is there are incentives to be aggressive.” Talk about understatement! The $1,000 federal penalty for violation of the Fair Debt Collection Practices Act has not changed in decades. Many agencies view the occasional fine as a cost of doing business. Meanwhile, the amount of debt available for such agencies to work has grown enormously in recent years.
Collection industry spokespersons routinely claim that many of the complaints are groundless and that real abuses only happen in a small percentage of the cases. Yet ex-collectors say that the pressure to produce is always top priority, while managers look the other way on compliance issues.
Some of the worst offenses seem to be by collection law firms. Lenahan Law Offices went bankrupt last December under the weight of regulatory fines. And Giove Law Office was banned from collecting debt in Idaho for threatening debtors with criminal charges. But non-attorney agencies have also come under fire. Top industry agency NCO Financial paid $300,000 in a settlement with Pennsylvania’s Attorney General to resolve more than 800 complaints against the firm.
The second article, “Wide-Open Market for Debts Feeds Abusive Tactics,” focuses more on the industry practice of purchasing delinquent debts for pennies on the dollar and then dunning debtors to make a profit. In the past, debt purchasing was not as common as it has become in recent years. Banks would continue to retain ownership of the debt and hire third-party collection agencies on a commission basis. Since the banks did not want their own reputations damaged by abusive collection tactics, there was at least some oversight to maintain compliance. Now, however, it’s more common for the bank to sell off bad debts and turn a blind eye to collection tactics. The courts have ruled in several cases that banks are not liable for collection activity that occurs after the debt has been sold. So it’s open season for debt purchasers.
I personally do not object to the concept of debt purchasing or even third-party debt collection. I happen to think that the debt collection industry provides a necessary function in our economy. I do feel, however, that regulations need to be enforced to a much greater degree than they are at present. In addition, tighter rules need to be established for the collection of purchased debt. That end of the industry is the main source of the increase in consumer complaints. More than 40% of the complaints received by the FTC about debt collectors allege that consumers were being harassed over debts they did not owe. That’s not surprising, given that purchased debt is often several years old. Junk debt comes with very little documentation. Often, the purchaser takes a shotgun approach and duns everyone in the nearby area with the same name that’s on the account. Stories are multiplying about people being hassled and threatened over debts that aren’t theirs in the first place.
It’s clearly time for Congress to take a fresh look the Fair Debt Collection Practices Act, with an eye to increasing penalties for violations, and the addition of rules that pertain to debt purchasing.