Research and Statistics

Watchdog agencies announce debt collection crackdown


Federal and state regulators announced a coordinated effort to fight a growing tide of debt collection abuses

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Heavy-handed debt collectors got some tough words fired in their direction on Wednesday.

“Debtors have certain rights,” Federal Trade Commission Chairwoman Edith Ramirez said, “and rogue collectors that step outside the law will face the consequences of illegal behavior.”

Ramirez, flanked by state regulators from Illinois and Minnesota, announced a nationwide crackdown called Operation Collection Protection. The push, signaling a stepped-up focus on collection problems, involves 47 state attorneys general and 17 state regulatory agencies, as well as federal authorities including the Consumer Financial Protection Bureau and the Justice Department.

Efforts by the agencies have brought 115 actions against abusive collectors so far this year, the FTC said, and “consumers and rogue collectors alike should know that this is not the end,” Ramirez said.

The coordinated effort comes as regulators scramble to turn back a tide of collection abuses, which generated 280,000 complaints at just the federal level in 2014. Collection is the industry that gets the most complaints from consumers at the FTC, and it’s also the top complaint heard at the complaint window operated by the CFPB.

“Complaints about illegal and abusive debt collection have really skyrocketed since 2008,” said Illinois Attorney General Lisa Madigan, who joined Ramirez at the announcement Wednesday in Washington, D.C.

One reason is that the wide availability of consumers’ personal identifying details has fueled a new wave of  “phantom debt” scammers, regulators say. Armed with people’s sensitive and supposedly private information, such as Social Security numbers, scammers can convince victims to pay debts that don’t exist, or that are owed to companies they have no connection with.

As part of its crackdown, the FTC created an infographic with consumer tips and statistics about debt collection complaints. Click image to enlarge.

FTC debt collection infographic

“Most of the time the calls and complaints we receive are not from people who actually have debt,” Madigan said.

Even when you don’t owe a dime, heavy intimidation tactics such as threats of wage garnishment — or worse — can coerce people into paying, regulators said.

For example, collectors from BAM Financial told the 84-year-old mother of one target that they had an arrest warrant for her daughter, and later claimed to be bounty hunters, the FTC charged in court papers.

A restraining order that put a halt to the Los Angeles-based collection operation was one of five enforcement actions the FTC announced Wednesday, as examples of its heightened focus on collection abuses. BAM bought consumers’ debts and used an array of illegal threats and lies to collect, according to court papers.

The FTC and state authorities also brought court actions against Delaware Solutions and National Check Registry in New York state, K.I.P. LLC in Illinois, and one other company whose case is under a court seal. For 2015, the FTC has won $88 million in judgments and banned 24 individual defendants from debt collection, according to a news release.

The debt collection industry’s biggest trade group said it supports ridding the industry of “bad apples.” “We don’t make excuses for bad behavior,” ACA International Vice President of Public Affairs Cindy Sebrell said in an emailed statement. “Those who cross the line should be held accountable under the law.” Legitimate collectors follow the rules and treat consumers with respect, she added.

In a blog post Wednesday, the FTC said that overzealous collectors have been hit with criminal as well as civil penalties. Since state and federal regulators began collaborating, 19 people have been indicted in collection cases, pleaded guilty or been convicted of criminal charges, the agency said.

The crackdown announcement comes as news rules for collectors  are being considered, the first major update to the protections against hardball collection in decades. The CFPB is working on a rule that is likely to regulate debt sales and require more documentation for sold-off debts, among other things. Debts sold off cheaply by original creditors are widely blamed for fueling scam collectors as well as contributing to collection errors.

Although the federal and state agencies have no new enforcement powers, consumer advocates welcomed the initiative, especially the crackdown on “phantom debt” collectors.

“They have the resources to figure out who the scammers are and shut them down,” said April Kuehnhoff, staff attorney at the National Consumer Law Center. The U.S. Fair Debt Collection Practices Act empowers individual consumers to sue abusive collectors. However, consumer lawyers who bring private cases rarely have the investigative or financial resources to track shadowy, low-budget scammers who operate with cellphones or Skype-like telecommunication services, she said.

The fight against abusive collection also involves educating consumers, regulators said. Importantly, legitimate debt collectors will document their claim, which is a requirement under the FDCPA.

“The reality is, even if you owe a debt, you still have rights,” Madigan said. “You cannot be called at all hours of the day; you cannot be endlessly harassed.”

See related:Know your rights: Fair Debt Collection Practices Act

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