Can you stop debt collectors from harassing and suing? - Baltimore Post-ExaminerBaltimore Post-Examiner

Can you stop debt collectors from harassing and suing?

Collectors call again and again in the middle of dinner. They call the wrong person. They threaten. They take advantage of the latest technology to embarrass people. Often, they violate the law. Debt collectors will go to all sorts of legal and illegal means to intimidate people who owe or allegedly owe money. Collection has become a multi-billion dollar business, especially in the last few years as the slow economy had caused people to fall behind on payments.

About 30 million Americans were saddled with debt or alleged debt in collection in 2012, averaging about $1,500 according to the Consumer Financial Protection Bureau (CFPB).

Unfair-Debt-Collection-LawyerYet 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.

Realizing this, Congress created CFPB and granted it limited authority to write rules to govern part of the problem under the Dodd-Frank Act in 2010.  Four years later, CFPB collected public comments on the problem over the winter. It plans to survey consumers this summer about their experience and knowledge of their rights.

“I used to be harassed by debt collection agency for a debt that was not my own. I used to have a different phone number. I had to change it 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. I still got calls,” wrote Dylan Tate, a citizen responding to CFPB.

“What amazes me more than anything else is the impossibility of getting a wrongful debt removed from the record. I was a straw man in real estate and the person who stole my identity was arrested, tried and found guilty and sentenced and served time – YET – more than 15 years later I am still receiving calls from debt collectors for forged name documents and statements on my credit report for properties I never owned. How can this be stopped or cleared up?” wrote Gerald Elgert of Silver Spring, Md.

Though the slow economy exacerbated the problem, an improving one may not help. “Debt collection agencies will experience renewed demand,” as people regain ability to pay, Market research firm IBISWorld reported last November.

photo-fdcpaThe Commonwealth Fund estimated that 41 million Americans have been contacted just over medical debt – the largest source of unpaid bills. Medical bills and educational loans are eclipsing the traditional mortgages and auto loans as the fastest growing categories of debt in collection.

But CFPB’s new authority extends to only the largest companies – it estimates its proposed rules would cover about 175 firms. IBISWorld counted 9,599 firms in the business last fall.

The Federal Trade Commission (FTC) has historically taken the lead role in the issue. The 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,” James Reilly Dolan, acting associate director of the FTC’s Division of Financial Practices said in July Senate testimony. The FTC got 199,721 collection complaints in 2012, up from 142,743 complaints in 2011 and 119,609 in 2009. Almost 40 percent of disputes about national credit reporting agencies concern collection. (FTC figures don’t include other complaints it gets that might include debt collection but it codes as identity theft or do-not-call grievances.)

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.

In response to a Freedom of Information Act (FOIA) request, the FTC provided a list of the companies getting the most complaints over a 28-month period. They had, by and large, already gotten into legal trouble but that didn’t stop them from continuing to bother people.

11916824-nationaldebtreliefprogramorgThe largest sources of complaints:

  1. NCO Financial Systems, Inc, a Horsham, PA collection agency (now Expert Global Solutions), with 6,223 complaints. In 2004, NCO paid the FTC $1.5 million, at the time a record debt collection fine. But last July, it 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, a general reference website, called it “the worst debt collection agency.”
  1. Allied Interstate, Inc., part of iQor, a privately-owned conglomerate. Allied wracked up 4,934 complaints covering everything from repeated phone calls to falsely representing alleged debts to calling at inappropriate hours. Allied paid $1.75 million in 2010 to the FTC 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 recent 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 or something.”
  1. Portfolio Recovery Associates (PRA) with 4,481 cases, more than 1,000 of them charging callers with failing to identify themselves. The Norfolk, Va.-based company specializes in buying debt, especially of bankrupt people for a fraction of the value and trying to collect the entire sum. PRA is subject to at least five class action and multiple individual suits for alleged wrongdoing such as calling cellphones without permission. PRI denied to us that it breaks laws.
  1. Capital One Bank, an Allied client, with 3,054 accusations, including calling repeatedly and continuously, at inappropriate times, not sending written notices, refusing to verify debt, and profanity. Kimmel sued Capital One for harassing and demanding almost $287 million from a woman over a debt of less than $4,000.
  1. 130709154122-overdue-bill-debt-collection-620xaBank of America (BofA) at 2,305. Nevada settled a lawsuit in 2013 against BofA for alleged deceptive trade practices and violating a 2009 order. The state charged that the bank continued to “mislead consumers with false promises” that they would not foreclose on homeowners while simultaneously foreclosing. Nevada also charged BofA with a litany of other misrepresentations including “falsely notifying consumers or credit reporting agencies that consumers are in default when they are not.” BofA paid penalties and agreed to change tactics.
  1. Midland Credit Management (MCM), a national debt buyer that use several names, including Encore Capital Group and Ascension Capital Group, with 1,778. MCM’s parent company reported to the Securities & Exchange Commission that it bought $8.9 billion in credit card debt during the first half of 2012 for about 4 cents on the dollar. The company specializes in suing debtors. MCM paid nearly $1 million in fines to Maryland in 2009 for alleged violation of state and federal laws, including operating without proper licensing. Though CFPB officially opened a complaint line in July about collectors, it got 750 such gripes in the first quarter of 2013, according to information received under FOIA. Consumers complained by far the most about Midland – 44 times, or six percent of the total.
  1. I.C. System at 1,767, mostly for calling “repeatedly or continuously.” 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 using profanity. The U.S. Better Business Bureau received 807 complaints about I.C. in the last year.
  1. debt-collection-fairerNational Credit Solutions (NCS) of Oklahoma City (often confused with a Texas firm with a similar name) at 1,644. 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 was filing negative credit reports on consumers and threatening to sue them if video renters didn’t pay up. 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.
  1. JP Morgan Chase, an NCO client, with 1,522. The Office of the Comptroller of the Currency (OCC) last September issued a Consent Cease and Desist order against Chase for multiple “unsafe and unsound practices” in its collection work, including filing misleading documents in court, not properly notarizing forms and not properly supervising its employees and contractors.

California’s attorney general sued the bank last year for allegedly routinely suing consumers for non-payment without following proper procedures. Unless otherwise noted, the companies either declined to address the charges or did not respond to inquiries. Mark Schiffman, spokesperson for ACA International, the largest collector trade group, said “they’ve made it pretty darn easy to complain in the first place. It’s not fair to say that the (FTC files) are a bellwether, that this is a horrible industry.”

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, an online search tool.

2-theusfederalDespite collecting more than $56 million from collectors in penalties since 2010, the FTC has filed only 15 lawsuits in nearly four years. It lacks the resources to handle every complaint so it focuses on the most serious abusers or cases that can establish a legal precedent. While CFPB is now taking complaints and can write rules, its small staff won’t be able to make more than another dent in the problem.

An FTC report on the issue said “based on the FTC’s experience, many consumers never file complaints with anyone other than the debt collector itself. Others complain only to the underlying creditor or to enforcement agencies other than the FTC. 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.”

And much lies out of FTC jurisdiction. FDCPA, for instance, does not apply to banks, on the theory that banks are less likely to annoy their customers than an outside collector. If a bank harasses people, the victims can contact OCC or Federal Deposit Insurance Corporation. But if a bank hires a collection agency, the consumers can go to the FTC. Judging by a look at the FTC complaint database, people are confused. “We do get a lot of complaints” about banks, said Tom Pahl, who served as assistant director of the FTC Bureau of Consumer Protection (BCP) before becoming CFPB’s managing regulatgory counsel. William Lund, superintendent of the Maine Bureau of Consumer Credit Protection, said at a CFPB forum that people are so baffled that he gets many complaints from out of state.

infographic-ftc-top-10-complaints-lgWhat are consumers complaining about? The FTC log said that about half of debtors or alleged debtors simply complained of harassment. Thirty percent said they never even got a required written notice before calls came. A quarter said they got threats of civil or criminal action ranging from garnishing wages to seizing property, harming credit ratings and getting forced out of jobs. And 23 percent said the callers didn’t even identify themselves as debt collectors.

About 16 percent complained of obscenity, eleven percent said collectors were violating the law by calling before 8 am or after 9 pm. and four percent cited threats of violence. Ten percent griped of efforts to collect unauthorized money (interest, late fees, court costs). People also complained about everything from overstating debt, calling at work, continuing to call after getting a written notice not to, and not verifying debt when asked in writing or misrepresenting the law. (Many complaints alleged multiple violations.)

And 22 percent of the complaints regarded collectors bothering third parties, such as an alleged debtor’s family, friends, coworkers, employers and neighbors. By law, collectors may only contact other people to locate an alleged debtor. 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, your debt doesn’t die with you and neither do collections. Collectors have often called relatives to ask if they’re the one who opens mail or paid for the funeral. If someone said “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 – and not try to collect debts before they locate the executor. Estates retain rights to contest claims.

FDCPA-suits-2012Congress wrote FDCPA in 1977 – when collectors used rotary phones as the chief weapon to annoy people. So nothing in the law stops collectors from sending texts, emails and misleading Facebook friend requests to those they want to collect from. 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.”

The law gives the FTC no authority to write rules. The law prohibiting contact before 8 am or after 9 pm was intended to apply to telephones and it’s not clear whether it applies to after-hours email.  And FDCPA includes no criminal penalties.

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.” Arbitration efforts flopped. Three years ago, the Minnesota Attorney General sued the National Arbitration Forum, citing fraud, deceptive trade practices and false advertising – the forum didn’t tell people of its financial ties to the industry. The forum settled and stopped arbitrating.

Consumers also get confused because of the growing debt buying business. Companies specialize in buying debts usually 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 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 after it sold the debt and think they’ve settled the matter, only to face continued collection efforts from the buyer.

OCC said it is working on guidance and “has raised its expectations for banks” in this regard. “Selling debt to third party debt collectors carries particular compliance, reputational, and operational risks,” OCC said in a statement given in July 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.”

Kim Phan, a lawyer for debt buyer trade association DBA International, said the organization is working on guidance for the industry.

Collectors do more than call and harass. They sue. The New Economy Project (NEP), a New York community advocacy center, recently 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.”

In 2011, collectors – mostly buyers – filed 195,105 lawsuits against New Yorkers. Almost two-thirds of the time, plaintiffs win default judgments but seldom win on the merits when cases go to trial, NEP said. “A lot of the debt that we see that’s charge-off by banks is debts that they’ve sold off for pennies on the dollar with very little documentation so the banks aren’t held accountable for that debt and the collectors who are trying to collect…are doing so with very limited information and sometimes don’t have sufficient proof and therefore rely on robosigning and other abusive tactics,” declared Alexis Iwanisziw, NEP research and policy analyst, speaking at a July CFPB forum.

Congress has ignored legislation introduced in recent years to modernize the law. In previous years, senators Charles Schumer (D-NY), Al Franken (D-MN) and Carl Levin (D-MI) conducted hearings and introduced bills but failed to move them. They dropped the issue in the current Congress. Their offices did not respond to inquiries.

Brown, however, examined the issue at a July hearing of his Senate Banking, Housing & Urban Affairs Subcommittee on Financial Institutions and Consumer Protection. Brown said in an interview “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 in a major way.”

 


About the author

Charles Pekow

Charles Pekow is a veteran Washington correspondent who has covered everything from the environment to education to defense contracting and everything in between. A Bethesda resident, he has written for many periodicals, including the Washington Post. Baltimore Magazine, Maryland Life and the Washington Monthly. He has won many journalism honors, including the National Press Club Award and Washington Writing Prize. He is also a fitness freak who can be found riding his bicycle most weekends, weather permitting. Contact the author.
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