Recycling Debt Collection Grows
As millions of consumers struggle through one of the most difficult financial times in American history, debt collectors continue to expand their traps. Previously, the Shriver Center reported on the use of fake courts by debt collection companies to highlight the industry’s fraudulent and abusive practices. The latest fraudulent debt collection practice is the repeated reselling of debt that has already been collected upon.
Consumers Union and the East Bay Community Law Center’s February report on the debt buying industry revealed that debt collection abuses are on the rise. More debt is being bought and sold—industry estimates suggest that in 2005, debt buyers purchased debt portfolios valued at $110 billion, a dramatic increase from just $6 billion in 1993. There has also been an exponential growth of lawsuits against debtors. Debt collection agencies file thousands of lawsuits each month using automated software. Encore Capital Group, one of the largest debt buyers in the nation, filed 245,000 lawsuits in 2009 alone. In New York City, more than 450,000 debt-collection affidavits were filed by debt buyers from January 2007 to July 2008, resulting in over $1.1 billion in judgments and settlements.
Many of these lawsuits are filed without any proof to back up the debt collection company’s claims. Frequently, loan or other debt documentation is lost in during the passage of debts from one seller to another, and debt collectors take advantage of such situations to profit. Some debt collection agencies therefore use “robo-signers” who sign affidavits swearing that they have personally reviewed and verified the debtor’s records without actually having done so. This allows debt collectors to sue on debts that they claim are too old to verify.
Moreover, consumers rarely receive timely notice that they have been sued, which prohibits them from defending themselves. Even with appropriate notice, many of these individuals do not know their rights nor can they afford an attorney to argue on their behalf.
In fact, the Federal Trade Commission (FTC) received more complaints from consumers about debt collectors than about any other industry in 2009. Nearly half of those complaints involved debts that were not owed, amounts in excess of what was actually owed, debts that had been discharged in bankruptcy, or impermissible fees, interests, or expenses.
In its 2011 Fair Debt Collection Practices Act Report, the FTC reported receiving 140,036 debt collection complaints in 2010, an increase from the 119,609 complaints received in 2009. The top three categories of complaints were:
- calling repeatedly or continuously;
- misrepresenting the character, amount, or status of the debt (including demanding a larger payment than is permitted by law); and
- failing to send consumers a statutorily required written notice about the debt and their rights.
The FTC is investigating the debt buying industry and will issue a report with its findings and recommendations. The Consumer Financial Protection Bureau, will also need to utilize is authority to issue rules under the Fair Debt Collection Practice Act (FDCPA) to continue to rein in abusive debt collection practices.
The FTC’s animated video explaining consumer rights regarding debt collection is available on the agency's website and on YouTube.
This blog post was coauthored by Ji Won Kim.
