“I used to be harassed by debt collection agency for a debt that was not my own…I had to change (phone numbers) because I kept on getting calls from a collection agency that were intended for the prior owner of the phone number. It did not matter how much I told them that they were calling the wrong number.” So wrote Dylan Tate, responding to a request for comments this year from the Consumer Financial Protection Bureau (CPFB) on the public’s experience with debt collectors.
About 30 million Americans were saddled with alleged debt in collection in 2012. Yet the hodge-podge regulatory system over debt collection abuse fails to protect the harassed as law has fallen behind technology and the extent of the problem leaving literally millions of people like Tate to fend for themselves against the terror of collectors.
Four years after Congress created the CFPB and gave it limited authority over collectors, the agency is still studying the issue. It plans to survey consumers this summer about their experience and knowledge of their rights.
Though a slow economy accelerated debt collection and harassment, an improving economy may not slow it. “Debt collection agencies will experience renewed demand” as people regain ability to pay, IBISWorld reported.
CFPB’s authority extends to only the largest companies – it estimates its proposed rules would cover about 175 firms. IBISWorld counted 9,599 collectors last fall.
The Federal Trade Commission (FTC) “receives more complaints about debt collection than any other specific industry and these complaints have constituted around 25 percent of the total number of complaints received by the FTC over the past three years,” FTC officer James Reilly Dolan testified last year. The FTC got 199,721 collection complaints in 2012, up from 119,609 in 2010.
An FTC report said “many consumers never file complaints with anyone other than the debt collector itself….Some consumers may not be aware that the conduct they have experienced violates (the Fair Debt Collection Practices Act, or FDCPA). For these reasons, the total number of consumer complaints the FTC receives may understate the extent to which the practices of debt collectors violate the law.”
FDCPA doesn’t even apply to banks. If a bank harasses people, they should contact the Office of the Comptroller of the Currency (OCC) or Federal Deposit Insurance Corporation. But if a bank hires a collection agency, consumers can go to the FTC. Complicated jurisdiction baffles people. “We do get a lot of complaints” about banks, said Tom Pahl, assistant director of the FTC Bureau of Consumer Protection (BCP). William Lund, superintendent of the Maine Bureau of Consumer Credit Protection, said people are so baffled that he gets many complaints from out of state.
FTC logs said that about half of alleged debtors simply complained of harassment. Others said they never got required written notices. Plenty cited threats of legal action ranging from garnishing wages to seizing property, harming credit ratings and forcing them out of jobs. Many said callers didn’t identify themselves. People complained of obscenity, illegally calling before 8 am or after 9 pm, threatening violence, etc.
And 22 percent of the complaints regarded collectors bothering third parties, such as family, friends, coworkers, employers and neighbors. Legally, collectors may only contact other people to locate someone. The FTC reported that collectors “have used misrepresenting as well as harassing and abusive tactics in their communications with third parties, or even have attempted to collect from the third party.”
And when you die, debt doesn’t die with you and neither do collections. Collectors call relatives to ask if they’re the one who opens mail or paid for the funeral. If someone says “yes,” collectors have taken that as proof they’re the ones responsible and then asked about assets. So last year, the FTC decreed that collectors may inquire as to who has been designated the estate executor, and then only communicate with that person.
So who is annoying the most people with repeated phone calls, threats, obscenity and other obnoxious tactics to collect debt? Largely major banks and collection agencies they hire.
The FTC provided a list of the companies getting the most complaints over a recent 28-month period. All had gotten into legal trouble before for their tactics but continued harassment.
The largest sources of complaints, in order:
1. Expert Global Solutions (previously NCO Financial Systems, Inc.). In 2004, NCO paid the FTC $1.5 million, at the time a record debt collection fine. But last July, the company broke its own record and paid the largest ever civil penalty in a debt collection case, $3.2 million. “It’s the one we get the most complaints about,” said consumer lawyer Craig Kimmel. Its “dialing system is otherworldly in its sophistication to keep calling people….They will keep calling until somebody pays and people will pay just to get rid of them.” Vaughn’s Summaries called it “the worst debt collection agency.”
2. Allied Interstate, Inc., part of iQor, a privately-owned conglomerate. Allied wracked up complaints covering everything from falsely representing debts to calling at inappropriate hours. Allied paid $1.75 million in 2010 to settle charges of telephone harassment – the second largest fine of its kind at the time. While Citibank, the nation’s third largest bank, doesn’t show up on the list of top violators, that doesn’t mean it’s not profiting from questionable tactics. Another division of parent company Citigroup owns a large stake in iQor. “I draw two conclusions,” stated Sen. Sherrod Brown (D-OH) at a Senate hearing. “Citigroup and other banks think debt collection is a lucrative business. There’s a reputational risk to associating with those companies. Citigroup probably does not want their name on an aggressive means so they have iQor or Allied Interstate.”
3. Portfolio Recovery Associates (PRA).The company specializes in buying debt, especially of bankrupt people for a fraction of the value and trying to collect the entire sum. More than 1,000 people complained that callers don’t identify themselves. PRA is subject to at least five class action and multiple individual suits for alleged wrongdoing such as calling cellphones without permission.
4. Capital One Bank, an Allied client. People complained that agents call repeatedly and continuously and at inappropriate times, fail to send written notices, won’t verify debt and use profanity.
5. Bank of America (BofA). Nevada settled a lawsuit in 2013 against BofA for alleged deceptive trade practices and violating a 2009 order. Nevada charged BofA with a litany of misrepresentations including “falsely notifying consumers or credit reporting agencies that consumers are in default when they are not.”
6. Midland Credit Management (MCM), a national debt buyer that uses several names, including Encore Capital Group and Ascension Capital Group. MCM paid nearly $1 million in fines to Maryland in 2009 for alleged violation of state and federal laws, including operating without proper licensing.
7. I.C. System. The Minnesota Dept. of Commerce fined I.C. $65,000 for violating a variety of state laws, including failure to screen job applicants properly, hiring felons and not notifying the state that it dismissed at least 10 employees for profanity.
8. National Credit Solutions (NCS) of Oklahoma City (often confused with a Texas firm with a similar name). The company went out of business after five state attorneys general sued it. NCS was acting on behalf of Hollywood Video, the movie rental service that went bankrupt in 2010. NCS filed negative credit reports on video renters, threatening to sue them. The problem stemmed from movie watchers who tried to return videos at stores that closed, said company founder Brett Evans. Though customers followed instructions to leave videos in a bin, their returns weren’t recorded and NCS tried to collect late fees.
9. JP Morgan Chase, an NCO client. The OCC last September issued a Consent Cease and Desist order against Chase for multiple “unsafe and unsound practices (including) filing misleading documents in court, not properly notarizing forms and not properly supervising its employees and contractors.”
The FTC got one of its largest settlements, $2.8 million, from West Asset Management last year. West didn’t show up on the above list as many people named their creditor, not the collection agency, when complaining. The Omaha, NB-based West agreed not to engage in tactics the FTC accused it of, including calling the same individuals multiple times a day, using “rude and abusive language” and disclosing information to third parties.
But West was making plenty of the calls that led to trouble for the banks. West said on its website that its clients include “seven of the top 10 credit card issuers, and other Fortune 500 companies.” The top five include four of the biggest sources of complaints: Chase, Capital One, Citigroup and BofA, according to Card Hub.
Despite collecting more than $56 million from collectors in penalties since 2010, the FTC has filed only 15 lawsuits in nearly four years. It focuses on the most serious abusers or cases that can establish a legal precedent.
Congress wrote FDCPA in 1977 – when collectors used rotary phones as their chief weapon. So the law doesn’t address sending texts, emails and misleading Facebook friend requests. Collectors post messages on social network sites of friends and relatives. At a workshop on the issue, BCP Director David Vladeck said that though “using these communications media to collect debts isn’t by itself necessarily illegal, the potential for harassment or other abusive practices is apparent.”
Two years ago, an FTC report stated “neither litigation nor arbitration currently provides adequate protection for consumers. The system for resolving disputes about consumer debt is broken.”
Consumers also get confused because of the growing debt buying business. Companies specialize in buying debts for between five and ten cents on the dollar, then trying to collect the whole shebang. (The nation’s 19 largest banks sell about $37 billion a year in credit card debt, according to the OCC.) So people hear from a company they’ve never heard of claiming they owe money. Almost no one engaged in this practice in 1977 so it’s not clear how FDCPA affects debt buyers. People can pay their original creditor and think they’ve settled the matter, only to face continued collection efforts from the buyer.
The OCC said it is working on guidance and “has raised its expectations for banks. “Selling debt to third party debt collectors carries particular compliance, reputational, and operational risks,” OCC said in a statement given to Brown, adding “it is evident these risks are gaining increasing prominence.” Brown said that “OCC has historically been more friendly to banks than to consumers.”
Collectors do more than call and harass. They sue. The New Economy Project (NEP), a New York community advocacy center, released a report stating “debt collection lawsuits — particularly those filed by debt buyers — wreak havoc across New York state, depriving hundreds of thousands of New Yorkers of due process and subjecting them to collection of debts that in all likelihood could never be legally proven.”
Congress has ignored legislation introduced in recent years to modernize the law. Brown examined the issue at a July hearing. Brown said “I don’t know about a legislative solution” and that recent events gave him “hope we may be able to do something (but) we won’t reopen Dodd-Frank (the 2010 consumer protection act) in a major way.”
Congress’ Government Accountability Office (GAO) recommended four years ago that new law or regulation needs to better define how collectors need to verify debt – such as by showing copies of bills sent and not paid. Currently, creditors can just provide a statement of what they want to collect, not necessarily billing statements and proof they are targeting the right person and seeking the proper amount. Congress ignored the warning.
State enforcement varies widely. The National Association of Attorneys General admitted its members had taken few cases to court. The GAO reported that “comprehensive data on state actions are not available.”
Even the industry complains about the confusion. “We see a very complicated patchwork of laws with very little uniformity,” says Mark Schiffman, spokesperson for industry trade association ACA International.
Charles Pekow lives in Bethesda, Maryland.