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By Alex Henderson
If there is any business sector in the United States that surpasses health insurance companies and megabanks when it comes to being corrupt, immoral and unscrupulous, it is debt collection agencies. Debt collectors are not exempt from federal governance; the Fair Debt Collection Practices Act of 1977 contains a long list of rules outlining what they legally can and cannot do. But FDCPA violations are rampant, and judging from the abundance of complaints the Federal Trade Commission and the Consumer Financial Protection Bureau have been receiving, the debt collection industry is showing no signs of cleaning up its act.
The CFPB reported receiving almost 7200 debt collector-related complaints in December 2016, an 11% increase from December 2015. The federal agency has been taking consumer complaints since 2011, and the category that has received the most complaints by far is debt collection. As of Dec. 1, 2016, the CFPB had handled approximately 285,000 debt collection-related complaints along the way. Common complaints included consumers being pursued for debts they no longer owed or never owed in the first place.
The FTC was fairly aggressive about bringing unscrupulous debt collectors to justice during the Barack Obama era; between 2010 and early 2015, the FTC filed lawsuits against 180 debt collectors and banned 63 of them from continuing operations. The FTC even publishes, on its website, a long list of debt collectors it has banned. But debt collection is big business; the Norfolk, Virginia-based Portfolio Recovery Associates, for example, reported total revenues of $881 million in 2014. Agencies typically purchase debts for pennies on the dollar, which can yield a sizable return on their investment if they collect. The potential of a huge ROI inspires many debt collection agencies to be as ruthless as possible, and there are countless examples of the industry’s corruption in recent years.
In 2013, the FTC fined the Plano, Texas-based collector Expert Global Solutions $3.2 million for numerous FDCPA violations, including “(calling) persons repeatedly or continuously with the intent to annoy, harass or abuse.” That same year, the FTC shut down Goldman Schwartz, another Texas-based debt collector, for making harassing phone calls, pretending to be attorneys and other FDCPA violations. And in 2014, the Memphis-based Regional Adjustment Bureau agreed to pay a $1.5 million civil penalty for offenses that included harassing phone calls and making unauthorized withdrawals from consumers’ bank accounts.
That same year, the Southern California-based Asset Capital and Management Group settled charges with the FTC that included harassing consumers and pretending to be process servers; Asset agreed to pay approximately $4 million to consumers it had extorted money from. And in 2015, the FTC shut down Vantage Point Services, another Buffalo-based debt collection company, for making threatening phone calls and pretending to be with a district attorney’s office.
Debt collectors are notorious for going after the wrong people. One of the most egregious examples occurred when Portfolio Recovery Associates mistook Missouri resident Maria Guadalupe Mejia for someone else, hounded her relentlessly and took her to court for a $1000 credit card debt that wasn’t even hers. In 2015, a jury ordered Portfolio to pay Mejia almost $83 million in punitive damages, in addition to having to pay $250,000 for violating the FDCPA. But even though the company was clearly in the wrong, Portfolio spokesperson Michael McKeon had the audacity to call the verdict “outlandish.” Not surprisingly, the CFPB has cited Portfolio as one of the collection agencies it has received the most complaints about.
According to Gina Chialla, an attorney with the law firm that represented Mejia, one of the things that made Portfolio look so bad in that case was its failure to comply with the rules of discovery, the process in which all attorneys on a case share evidence. Portfolio’s contempt for the FDCPA was so blatant it wouldn’t even take an honest look at the evidence in the case.
Although $83 million is a lot of money, Portfolio got off easy in 2015. Ideally, the company should have been shut down, which has happened to many debt collection agencies in recent years.
For debt collectors, the financial crash of September 2008, which brought on the worst economic downturn in the U.S. since the Great Depression of the 1930s, was a golden opportunity to cash in on widespread suffering. In 2012, Marketdata Enterprises reported that the collections industry had grown by 3.9% in 2011. And with consumers having a harder time paying their debts, Marketdata reported, more collectors were resorting to illegal or abusive tactics. Not surprisingly, the most common complaints the FTC received in 2010 and 2011 were debt collector-related—and that remains true today.
In the U.S., medical debt continues to be the most common type of debt, even with the number of Americans lacking health insurance having reached an all-time low thanks to the protections of the Affordable Care Act of 2010, aka Obamacare. A study conducted by the CFPB in 2014 and 2015 found that 59% of Americans contacted by debt collectors said it was for medical debt. In April of this year, the U.S. PIRG Education Fund released the report “Medical Debt Malpractice,” which reviewed 17,701 medical debt collection complaints the CFPB had received and found that “nearly two-thirds (63%) of complaints about medical debt collection assert either that the debt was never owed in the first place, it was already paid or discharged in bankruptcy, or it was not verified as the consumer’s debt.”
The report, according to PIRG, also found that “many complaints document inappropriate and aggressive tactics, including frequent or repeated calls, calls harassing friends and family, threats of legal action, or the use of abusive language.” And if the GOP's American Health Care Act (AHCA), aka Trumpcare—which Republicans in the House of Representatives narrowly passed on May 4—leads to 24 million Americans losing their health insurance as the Congressional Budget Office predicted, medical debt will become even more pandemic.
Given all the abuses in the collections industry, it is important for Americans to know as much as possible about the FDCPA, which has been federal law for 40 years and is quite clear about what third-party debt collectors are and aren’t allowed to do. Using abusive, insulting, racist, defamatory or threatening language is strictly forbidden, as is pretending to be an attorney or law enforcement officer.
One of the most common complaints about debt collectors is their insistence on calling people 20 or 30 times a day, but the FDCPA states that if someone sends a debt collector a letter asking them to cease communications, they must do so immediately. Under the FDCPA, debt collectors are not allowed to call before 8am or after 9pm unless the consumer has made arrangements to speak at another time. According to a CFPB survey, however, three out of four consumers said debt collectors ignored their requests to stop calling, which is illegal under FDCPA rules.
The FDCPA allows debt collectors to contact third parties such as neighbors or co-workers to obtain information about a debtor’s whereabouts, but they aren’t permitted to discuss the specifics of a debt with them. And of course, debt collectors are not allowed to pursue someone for a debt that isn’t even theirs, as Portfolio Recovery Associates did with Maria Guadalupe Mejia.
Consumers who are being abused or harassed by a debt collector should send letters of complaint to the FTC and the CFPB and contact an attorney who specializes in consumer protection. Kimmel and Silverman, which has offices in Pennsylvania, New York State, New Jersey and Connecticut, is among the many law firms that specializes in combating abusive debt collectors. Another firm that has been active in the area of consumer protection is Slough, Connealy, Irwin & Madden, which represented Mejia in her case against Portfolio Associates.
Mejia’s attorneys fought Portfolio in civil court, but in other cases, abusive debt collectors have faced criminal charges. In 2015, the Buffalo-based Four Star Resolution was slapped with an FTC lawsuit and charges from the U.S. attorney’s office in Manhattan for, among other things, pretending to be law enforcement officers and repeatedly threatening and harassing people they were trying to extort money from. Co-owners Travell Thomas and Maurice Sessum, along with 12 employees, pled guilty to conspiracy to commit wire fraud, and on April 20, Joon H. Kim, acting U.S. attorney for the southern district of New York, announced that Thomas had been sentenced to eight years and four months in federal prison and ordered to forfeit $31 million. Others in the company received federal prison sentences as well.
According to Kim, “Travell Thomas was the mastermind behind the largest criminal debt collection scheme ever charged. Using abusive and outrageous threats to take advantage of vulnerable Americans, Thomas and his co-conspirators defrauded victims out of $31 million—and Thomas made a small fortune for himself. Thomas will now serve a significant term in federal prison. This office is committed to prosecuting those who prey and abuse everyday consumers.”
Certainly, legitimate debt collection has its place in the U.S. economy. Businesses need to receive money that is owed to them in order to operate in the black and pay their employees. And when in-house debt collectors do their jobs in a respectful, careful fashion and obey the FDCPA, it is good for business. But third-party collectors violate the FDCPA so often and so blatantly that they are a drain on the economy. While the industry’s trade association, ACA International, will claim it opposes FDCPA violations, the reality is that ACA International is an apologist for an abusive, corrupt, out-of-control industry. ACA’s disingenuous attacks on the CFPB bear that out. To hear ACA International CEO Pat Morris tell it, the CFPB has unfairly maligned third-party debt collectors. But if Morris were truly concerned about collection abuses, he would welcome the scrutiny and want the CFPB to be as aggressive as possible in policing the industry.
Debt collectors thrive on financial misery, and there is likely to be plenty of that in the Donald Trump era. With Republicans trying to rob millions of Americans of health insurance, weaken the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, ease the Obama administration’s restrictions on student loan debt collection and undermine or even abolish the CFPB, the debt collections industry may very well become even more abusive in the years ahead.
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