FTC says debt buyers' data is often flawed
BY PHIL MULKINS World Action Line Editor
Wednesday, February 13, 2013
2/13/13 at 6:48 AM
In Debt Collection Land there's a monster that eats the dead - defunct debts. Considered the bottom feeders of the industry, buyers of "zombie debt" take debts that are beyond the statute of limitations - for pennies on the dollar - and renew their default dates by tricking originators into "making just one little payment."
The Federal Trade Commission has been testifying to Congress about this group for decades, and on Jan. 30 it announced results of its "first empirical study of debt buyers - companies in the business of buying consumer debts and trying to collect on them."
As the FTC previously determined, debt collectors who have insufficient information often approach the wrong consumers, try to collect the wrong amount, or both. The report, "Structure and Practices of the Debt Buying Industry" ( tulsaworld.com/FTCDebtBuyers), found there is much room for improvement in the information that debt buyers have when they contact consumers attempting to collect.
The study analyzed 5,000 portfolios of consumer debt containing 90 million consumer accounts having a $143 billion face value. By dollar amount, most of the debt studied, 71 percent, was credit card debt, but the study also included mortgage, medical, utility, telecommunications and other consumer debt. It evaluated the types of information debt buyers received from creditors at and after the time of purchase, as well as the contracts governing the relationships between debt buyers and creditors.
The report notes that debt-buying plays a role in consumer credit. Debt buyers paid 4 cents on the dollar, getting older debt for less, for billions in debts from creditors. Proceeds reduced creditor lending losses, allowing them to offer more credit at lower prices.
But as the report points out, debt-buying also raises significant consumer protection concerns. "Consumers each year disputed 1 million debts that debt buyers attempted to collect," the FTC reported.
FTC experience has found that consumers often dispute the amount of the debt, or whether they owe the debt at all. Debt buyers verified only half of the disputed debts, meaning buyers could not verify, or did not attempt to verify, 500,000 debts each year.
The report also notes that at the time of purchase, creditors provided debt buyers with some important information concerning debts, including the name, address and phone number, and Social Security number of the debtor; the creditor's account number; the outstanding balance on the account; and the dates of account opening and last payment.
Buyers, however, did not receive some "key information about debts purchased," mainly whether consumers previously disputed the debts or whether collectors previously verified the debts.
Creditors also imposed limitations on debt buyers' ability to obtain information and documents on accounts after the sale. Most contracts between creditors and buyers stated that creditors didn't warrant the information provided buyers was accurate.
The study focused on nine of the nation's largest debt buyers, which make up more than 75 percent of the industry, and did not include data from smaller debt buyers. It also did not consider the practices debt buyers used when taking legal action against consumers, or the accuracy of the information debt buyers received and used to collect debts.
Protections from abusive debt collectors sought
Consumers Union, publisher of Consumer Reports magazine, has again asked regulators to protect consumers from abusive debt collectors - just as the Federal Trade Commission reported that debt collectors haven't verified debts in half of the cases studied.
The FTC analyzed 5,000 debt portfolios of 90 million consumers who owed $143 billion, the study covering nine of the nation's largest debt buyers, or 75 percent of the industry. It found that consumers disputed a million debts annually, but debt buyers verified only 500,000.
A 2011 CU report ( tulsaworld.com/CU2011CredColl) issued by the East Bay Community Law Center showed debt collectors are filing more and more lawsuits without enough proof to back them up. Without complete documentation, collectors often sue on invalid debts or even paid debts. This is worsened by consumers not receiving timely suit notices or debt so old that consumers had no pay-off records.
CU has urged state and federal regulators to end robo-signing, collection attempts without documentation, suing the wrong people, suing for the wrong amounts and suing on debts they can't lawfully recover. CU wants the FTC to establish a "sell by" date for all debt, making it illegal to sell or attempt to collect debt that is more than 7 years old. In Oklahoma, contract debt is uncollectible after five years of nonpayment - see the June 10, 2010, Action Line ( tulsaworld.com/Action06102010).
The organization wants all debt collectors, including debt buyers, to reveal the name of the original creditor and to provide an itemized record of the total principal, interest, fees and other charges added to the debt and to provide detailed records on the debt to consumers within five days of first notification.
CU wants increased oversight of consumers being properly notified of lawsuits, courts to be required to provide supplemental notice of filed collection suits to debtors, and default judgments to be prohibited when notices are returned as "undeliverable."
Original Print Headline: FTC finds issues with debt buyers
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JASON POWERS / Tulsa World