For Immediate Release
Debt Collection Abuses on the Rise During Tough Economic Times
Advocates Call For Stronger Protections for Consumers
SAN FRANCISCO - An increasing number of consumers are being hounded by debt collectors for unsubstantiated debt, according to a new report
issued today by Consumers Union and the East Bay Community Law Center.
The groups are calling on state lawmakers and federal regulators to
enact new restrictions on debt buying and to put in place other
safeguards to protect consumers.
As more debt is bought and sold, debt collectors are filing an
increasing number of lawsuits against consumers even though often they
don't have proof to back up their claims. Without the proof, debt
collectors may sue on invalid debts, such as those that have already
been paid. The problem is made worse when consumers don't receive
timely notice that they have been sued on the debt or when the debt is
so old that the consumer does not have good records to show whether the
debt is owed or the amount claimed is correct.
"The debt collection system is in dire need of reform," said Gail
Hillebrand, Director of Consumers Union's Defend Your Dollars campaign (www.DefendYourDollars.org)
"Current law fails to address rampant debt collection abuses and leaves
consumers vulnerable to being harassed for debt that has been paid off
or that they don't even owe."
highlights the experiences of a number of consumers from the San
Francisco Bay Area who have been unfairly targeted by debt collectors.
The groups can connect reporters to consumers who have suffered from
debt collection abuses who are willing to be interviewed by the media.
The sale of debt portfolios has taken off in recent decades.
Industry estimates indicate that debt buyers purchased debt portfolios
valued at $110 billion in 2005 - up from just $6 billion in 1993. Debt
buyers purchase large portfolios of consumer debt from the original
creditor or secondary debt buyers for pennies on the dollar. The buyers
hope to make a profit by collecting a small percentage of those
accounts and then resell the portfolio to another debt buyer who then
restarts efforts to collect.
The rapid growth of the debt buying industry has fueled an explosion
in debt collection lawsuits. Using automated software, some debt
collection agencies have filed thousands of cookie-cutter lawsuits each
month. For example, Encore Capital Group, the largest publicly-traded
debt buyer in the country, filed 245,000 lawsuits in 2009. To keep up
with the huge number of lawsuits, some debt buyers reportedly employ
"robo-signers" who sign affidavits swearing that they have personally
reviewed and verified debtors' records, when they have only looked at
basic account information on a computer screen.
Debt collection lawsuits often target people who do not know their
rights and do not have an attorney. In many cases, debt collectors have
no proof that the debt even existed, let alone that the person they are
suing was responsible for it. That's because very little historical
information about the accounts contained in debt portfolios is required
to be passed from debt sellers to debt buyers.
In 2009, the FTC received more complaints from consumers about debt
collectors than about any other industry. In nearly half of those
complaints, consumers reported that debt buyers sought to collect debts
that were not owed, amounts over what was owed, debts that had been
discharged in bankruptcy, or impermissible fees, interests or expenses.
According to the Federal Trade Commission, the vast majority of
consumers -- as high as 95 percent -- do not respond to lawsuits. In
many cases, consumers simply never receive notice about lawsuits and
therefore fail to appear in court. Obtaining a default judgment against
a consumer frequently requires little more than the name, address, and
alleged balance of the consumer.
"Buying and selling debt is essentially an unregulated industry,"
said Megan Ryan, Supervising Attorney at the East Bay Community Law
Center (www.ebclc.org). "Debt
collectors have taken advantage of that lack of oversight by
aggressively targeting consumers without any back-up information to
substantiate the debt. It's time to enact common sense reforms that
protect consumers from unfair debt collection practices."
To address widespread debt collection and debt buying abuses,
Consumers Union and the East Bay Community Law Center recommended a
number of reforms, including:
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 the time period after which debt is barred from
being reported on a credit report under the federal Fair Credit
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.