8 Things We Learned From FTC Report On Debt-Buyers

In spite of the many rules imposed on the debt collection industry, it still generates, by far, the largest number of complaints to the Federal Trade Commission each year. That’s why the agency recently completed a lengthy investigation into debt-buyers and why they do such a bad job.

Specifically, the FTC wanted to know why debt-buyers, the companies that snatch up old debt from other companies for pennies on the dollar, seem to constantly be contacting the wrong people and/or using incorrect information about the debt.

You can read the entire 162-page PDF here, but we’ve pulled out the following tidbits we found particularly interesting:

1. Debt-Buyers Only Pay About $.04 Per Dollar On The Accounts They Buy.
Ever wonder why a debt-collection company might make endless calls to someone who only owes $15? Because they can afford to. According to the FTC’s research, if that collector get the full $15, it makes more than $14 in profit. If the debt it older, it’s possible the debt-buyer paid significantly less.

2. Debt-Buyers Have Information That Alleged Debtors Might Need, But Tend Not To Share It
Consumers often complain that a debt collector contacted them and provided only the most vague details about the amount that’s owed. However, the FTC review found that even though debt-buyers are often receiving information that would help the consumer know if they actually owe the debt or if there is a mistake — name of the original creditor,
account number, social security number, date of last payment, date of charge-off — “debt collectors, including debt buyers, generally do not include these types of additional information in their validation notices.”

3. Debt-Buyers Aren’t Being Told If Debt Has Been Challenged
When the debt-buyer pays those pennies for consumers’ debts, they aren’t necessarily being told by the seller if the alleged debtor had previously attempted to challenge the debt. Debt-buyers are also rarely given a breakdown of principal, interest, and fees. All of this information is vital to the supposed debtor in determining how much is actually owed on the debt.

4. Debt-Sellers Rarely Provide Supporting Documents
Many debt collectors are just going on blind faith that the information they receive from the original creditors is accurate. The FTC report reveals that “For most portfolios, buyers did not receive any documents at the time of purchase. Only a small percentage of portfolios included documents, such as account statements or the terms and conditions of credit.”

5. Sellers Make No Guarantees About The Accuracy Of The Info & Documents Provided
Even when the sellers do provide everything the debt-buyer might need to back up its claim, the report found that “sellers generally disclaimed all representations and warranties with regard to the accuracy of the information they provided at the time of sale about individual debts – essentially selling debts, with some limited exceptions, ‘as is.'”

For the debt-buyer, it’s not that big a deal — it only paid a few cents for the flimsy file — but for the consumer who has to deal with trying to prove that the information is inaccurate, it’s a huge pain in the butt.

6. No Guarantee On The Availability Of Documents
In addition to not guaranteeing the accuracy of the debts being sold, the seller often will include a disclaimer saying that not all documents may be available for all accounts handed off to the debt-buyer.

This is why, if you believe there is an issue with a collections attempt, you should assert your right to see documents from the original creditor.

7. Debt-Buyers May Need To Spend Extra Money To Get Those Documents
The few cents spent by the debt-buyer on a debt may increase quickly if the buyer has to go back to the original creditor for documents.

According to the FTC, many debt portfolios are bought under the condition that the buyer has a limited amount of time — ranging from 6 months to 3 years in most cases — to request documents. There are also conditions on the number of documents that can be requested at no charge. Document requests after the time period expires, or above the agreed-upon limit, will incur a fee, typically between $5 and $10 per document.

Meanwhile, debt-sellers often allot 30 to 60 days to respond to these requests.

8. At least 500,000 Disputed Debts Go Unverified Each Year
While debt-collectors’ records show that only 3.2% of debts are disputed each year, that still comes out to around 1 million disputes annually.

Debt-buyers tell the FTC that they verified around 51.3% of the debts disputed by consumers. This would mean that around 500,000 disputed debts go unverified by the buyer each year. However, this number could be higher as the Commission notes that it did not examine how buyers verified these debts or whether the verification was adequate.

To consumer advocates, this report highlights that there are some much-needed reforms in the debt-buying and collections industry.

“Too often, consumers are harassed about debts that have already been paid off or that they never owed in the first place,” said Suzanne Martindale, staff attorney for Consumers Union. “Today’s report shows that debt buyers often target consumers even though they can’t prove that the debts are legitimate. It’s time to enact some common sense reforms that protect consumers from these unfair debt collection practices.”

To that end, Consumers Union has called upon regulators to make the following changes:

• End robo-signing and attempts to collect without proper documentation: Debt collectors should be required to document that they are attempting to collect from the right person, for the right amount, and on a debt that they can lawfully recover.

• Establish a sell by date for all debt: It should be illegal to sell or attempt to collect debt that is more than seven years old, which is too old to be reported on a credit report under the federal Fair Credit Reporting Act.

• Require debt collectors to provide more information to consumers: All debt collectors, including debt buyers, should be required to identify the name of the original creditor and to provide an itemized record of the total principal, interest, fees, and other charges that have been added to the debt, and to provide detailed records about the debt to consumers within five days after the first notification.

• Require debt collectors to submit more detailed information when filing suit: Debt collectors should be required to submit basic information about the debt, including the name of the original creditor and an itemized record of the total principal, interest, fees, and other charges that have been added to the debt, when they sue over a debt, so that the consumer can see if it is his or her debt, and in the right amount.

• Increase oversight to ensure consumers are properly notified of lawsuits: Courts should be required to provide supplemental notice of all filed debt collection lawsuits to debtors and default judgments should be prohibited if the notice is returned to the court as undeliverable.