April 14, 2012
The new industry that's creating big problems for Oregon consumers
Over the past decade, wrongful debt collection lawsuits and consumer complaints over debt collectors have skyrocketed. Perhaps the most significant reason for the increase is the advent of "debt buying," a relatively new industry that's been riddled with abuse and allowed to operate without meaningful oversight.
Debt buyers purchase vast portfolios of debts in highly-automated transactions from big banks such as Bank of America and JP Morgan Chase. Purchased for pennies on the dollar, buyers need only collect on a fraction of these accounts to turn huge profits. In exchange for modest returns, banks are able to offload stale accounts.
Debt buyers often lack information needed to validate the debts. With alarming regularity, they never even ask for it. Relying on robo-signed affidavits and collection notices mailed in bulk, many in the industry cast their nets far and wide in an effort to scare and confuse as many consumers as possible into paying. It doesn't matter if the debts are legal, when a consumer pays, the debt buyer profits.
The American Banker brought attention to the issue in a 2012 piece focused on Bank of America. In 2009 and 2010, Bank of America sold hundreds of millions in debt to CACHE LLC for an average of 1.8 cents on the dollar. The debts were sold without any records and with a warning that many had likely been paid or were no longer collectable and that the amounts may be inaccurate.
The publication drew the following conclusion:
The pricing reflected the accounts' questionable quality, but what is notable is that the bank could get anything at all for them. B of A was not making "any representations, warranties, promises, covenants, agreements, or guaranties of any kind or character whatsoever" about the accuracy or completeness of the debts' records.
In other words, Bank of America was selling junk – and both parties knew it.
Unfortunately, these "as is" sales are common in the world of debt buying and totally legal. As one might imagine they lead to lawsuits filed with alarming regularity against the wrong people, for the wrong amounts, on debts that have already been paid, or on time-barred debts that are no longer legally collectible.
To say they're "on the rise" is an understatement. Records from Multnomah County show a 5400% increase in debt buyer lawsuits between 1999 and 2012 with similar increases elsewhere in the state. The rapid increase has led several State Attorneys General to take legal action and prompted the Federal Trade Commission to undertake an exhaustive study of the debt buying industry. The study's findings and policy recommendations point the way to proactive steps states can take to lessen consumer abuse and alleviate the burden on our legal system.
Oregon House Bill 2826 requires debt buyers to provide basic evidence and documentation of debts to consumers when notifying them of a potential lawsuit and to the court when lawsuits are filed. The bill ensures that violations are covered by Oregon's unlawful collection practices act and that victims of debt collection abuses are given the tools they need to fight back against wrongful suits.
From the consumer perspective, debt buyer horror stories are often far worse than standard debt collector horror stories. Because illegitimate debts can be sold repeatedly, consumers often find themselves in protracted, expensive, emotional, and time consuming battles with one collector after another and no ability to resolve the matter.
Take the case of Adam Foxworthy, from North Bend. During the recent economic downturn, Foxworthy and his wife fell behind on credit card payments. When they were contacted by a debt collector, they paid the debt and received verification.
A year later, Foxworthy was contacted by another collector acting on behalf of a debt buyer demanding payment. Incredulous, Foxworthy informed the collector that the account had been settled. After much effort on Foxworthy's part, the collector relented and Foxworthy believed the matter resolved.
Over the next two years, he was contacted by two more agents on the same account. Each time he was forced to go through the pains of demonstrating the debt was paid. Each time he succeeded, albeit with a diminishing sense of resolution, knowing that this could keep happening.
Or take the case Jesse Aaron Brook, a lifelong Oregonian and U.S. Army veteran. Last year, Brook and his wife were flooded out of their apartment. Tired of renting, they took steps to purchase a home, staying with friends during the process.
When Brook applied for a loan, he found a debt that had been paid off years before on his credit report. The mortgage broker informed him there was nothing that could be done until the matter was resolved. The debt had been purchased by a debt buyer after Brook had paid it off. Following three months of considerable effort, he was able to resolve the matter and purchase a home.
Unfortunately, representatives of the debt buying industry oppose the basic requirements of HB 2826, claiming that the issue is already under control. They point to best practice standards as the solution – but such standards are voluntary. Industry leaders can't solve this problem, and it's not clear they're interested in trying. Which is why HB 2826 is needed now.