Debt Collectors Evaluated

The Federal Trade Commission recently submitted the annual report to Congress on the administrative and enforcement actions it has undertaken.

For the most part, creditors are exempt from the act when they are collecting their own debts.

Thus, in-house collectors of mortgage servicers are exempt from the act even if they collect payments when the loan goes into default. The act applies to mortgage servicers when they collect on delinquent loans that were transferred to them, as they then become a third-party debt collector, according to Thomas Kane, an FTC attorney.

The commission analyzes how debt collectors are complying with the act through complaints filed by consumers. In 2005, complaints about third-party debt collectors amounted to 66,627 or 19.1% of all complaints the commission received during the course of the year — more complaints than they filed against any other specific industry.

The commission recognized the number of complaints against third-party collectors is a small percentage when compared to the millions of consumers they contact each year, but said it believes the number of complaints represents a relatively small percentage of the total number of consumers who actually encounter problems with debt collectors.

The FTC noted it received 23,605 complaints last year regarding creditors that were collecting their own debts, a slight increase from 2004 in both percentage and absolute terms. Some “in-house collectors use no-holds-barred collection tactics in their dealings with consumers” that the FTC cannot pursue under the FDCPA, but has done so and will continue to under the Federal Trade Commission Act.

Of the 66,000 plus complaints against third-party collectors, the most frequent allegations — making up nearly 43% of FDCPA complaints — involved debt collectors misrepresenting the character, amount, or legal status of a debt. Allegations of such violation significantly increased from 32% in 2004. And while the act also prohibits collection of any amount unless it is “expressly authorized by the agreement creating the debt or permitted by law,” an additional 4.5% of FDCPA complaints alleged that collectors demanded unauthorized interest, fees or expenses.

Of the 36% FDCPA complaints accusing collectors of harassment, 22% said collectors called repeatedly or continuously, 12 percent alleged use of obscene, profane or otherwise abusive language, about 3 percent alleged collectors called before 8 a.m., after 9 p.m. or at other inconvenient times, and less than 1 percent said collectors used or threatened to use violence if consumers failed to pay. The percentages of the four categories declined moderately from 2004 levels, according to the report.

Unless the collector has legal authority and intent to take threatened action, third-party collectors of mortgage servicers must also refrain from using false or misleading threats of what might happen if a debt is not paid. These include threats to initiate a civil suit or criminal prosecution, seize property, cause job loss, jail consumer or damage a consumer credit rating. About 13 percent of FDCPA complaints last year alleged such false threats, with over 6,000 consumers alleging they were threatened of lawsuits and over 2,000 alleging they were falsely threatened of arrest or seizure property.

There were also complaints alleging actions the act prohibits collectors from are contacting a consumer at work if it is known or there is reason to know the employer does not allow such contact at work; contacting third parties for any purpose other than obtaining information about the consumer’s location; continuing collection efforts with without first providing written verification of the debt after consumers have submitted a dispute of the debt in writing; and from continuing to communicate with a consumer about an alleged debt if the consumer has communicated in writing that he wants all such communications to stop or that he refuses to pay the alleged debt.

The FTC enforcement actions highlighted in the report were its expanded action against last year against a now-defunct Illinois debt collector and the $10.2 million judgment the commission obtained last July against a New Jersey debt collector, the largest judgement for illegal debt collection practices. Among alleged violations, the now-defunct New Jersey collector falsely threatened consumers with arrest and criminal and civil prosecution to extract money in excess of any debts the consumers may have owed.