In recent years, The Federal Trade Commission recognized that it receives “more consumer complaints about debt collectors, including debt buyers, than about any other single industry.” The reason for this increase in complaints about debt collectors is due to a growing industry in the US called Debt Buying.
Early Debt Buying
Before the 1980’s, when you owed debt, it was always owed to the original source of your debt. If you bought $3,000 worth of merchandise on a VISA credit card owned by XYZ Company, then you owed $3,000 to XYZ until you had paid off your debt. Beginning around the same time, if XYZ company did not find it valuable to collect on bad debts, they could pay another company to take on the burden of bad debt. This debt buying company became known as a debt collection agency.
How Debt Buying Works
According to Bankrate.com, companies “sell your debt as part of a “bad-debt portfolio” (aka “charged-off accounts,” a bundle of many debtors' accounts) to a collections agency or a third-party broker. The agency that eventually tries to collect your debt will have acquired it for about 4 to 7 cents on the dollar.”
In other words, the debt collector pays a miniscule amount of money for the right to harass you to pay the debt that you now owe to the debt collector. Consider that “a three-year study by the FTC revealed the sale of more than 5,000 “portfolios” containing nearly 90 million consumer accounts with a face value of $ 143 billion at a cost of $ 6.5 billion.” 2013 FTC Report at ii, 8, and Table 2. *594
These debt collection agencies’ sole purpose is to collect the debt you owe in the hopes that they make money from collecting the debt.
Lack of Knowledge
Debt Collection agencies, in the beginning of the industry, knew nothing about how you incurred the debt. Many had insufficient or inaccurate information about the debt. They often had no knowledge about whether you had disputed the debt or your identity had been stolen to rack up expenses. This led to the many complaints received by the FTC about unethical practices by debt collectors.
Lack of Ethical Standards
Before 2013, collection agencies regularly used unethical practices to collect debt including contacting employers, calling all hours of the day and night, threatening to sue when they had no plans to, and saying they would garnish wages without having any rights to do so. Because of the problems consumers endured, the FTC now enforces the “Fair Debt Collection Practices Act (“FDCPA”) of 2013, which prohibits deceptive, unfair, and abusive debt collection practices. Among other things, the FDCPA bars collectors from
using obscene or profane language
calling consumers repeatedly or at unreasonable hours
misrepresenting a consumer’s legal rights
disclosing a consumer’s personal affairs to third parties
obtaining information about a consumer through false pretenses
Debt Buyers & Debt Collection Agencies
According to a recent Supreme Court ruling, there IS a distinction between a debt buyer and a debt collector. If the company calling you actually OWNS the debt, then they may NOT be considered a debt collection agency. This is a fine distinction and is still being played out in how laws are written and how the FDCPA is enforced.
According to Investopedia, “A debt buyer is a company that purchases debt from creditors at a discount. ... The debt buyer then collects on the debt either on its own or through the hiring or a collection agency or resells portions of the debt, or any combination of these alternatives.”
Debt buyers can sell portions of your debt to different credit collection agencies or set up a plan for you to repay the debt over a period of years. Because they only paid pennies on the dollar for the debt you owe, both debt buyers and collection agencies have more flexibility to offer you longer terms to repay. They end up making money even on small amounts that you pay back.
Unethical Practices Crackdown
Because the industry of debt collecting is so lucrative, unethical businesses want a piece of the action and are willing to break the law to make the money. Recently, the FTC has teamed up with three other federal agencies and partners from 16 states to form “Operation Corrupt Collector”. This campaign is challenging debt collection tactics, including phantom debt collection which is the practice of coercing consumers to pay debts they don’t owe or the company has no right to collect.
The Law is Still Being Written
If the law surrounding debt collection sounds complicated, that is because this is a relatively new industry with laws that are still being written. The battle for consumer rights is playing out in courtrooms across the country right now. Many consumers have paid debts that they did not owe to companies who were preying on consumer fears of having debt or getting a bad credit score. These unethical companies need to be held accountable for their actions.
If you are harassed or treated unethically by a company trying to collect a debt, you have rights as a consumer. Contact the lawyers at LawZebra for a case evaluation. We work for consumer rights and to enforce laws that protect consumers from companies that try to make a buck at the expense of your well being.