March 28, 2013

CFPB Report: Collection Agencies Go After Non-Debtors

When the Consumer Financial Protection Bureau (CFPB) was launched in 2011, part of its stated function was protecting debtors from unfair collection practices. What Congress might not have foreseen when it created the CFPB, as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, was that the agency might have to give debt collector protection to people who do not owe any debts at all.

On Mar. 20, the CFPB presented its annual report to Congress on the Fair Debt Collections Practice Act (FDCPA). The CFPB enforces the FDCPA in tandem with the Federal Trade Commission (FTC), and took over receiving complaints about debts from the FTC in July 2013.


The report states that from July to December 2013, the CFPB received about 30,300 complaints regarding debt collection practices, with categories including improper communication tactics, taking or threatening an illegal action, disclosing a debt, and improperly contacting a consumer. Of all complaint categories, “continued attempts to collect a debt not owed” was the largest, at 34 percent. Of those complaints, 65 percent of consumers said that the debt collection agency asked them about a debt that was not theirs, and 27 percent said they had paid the debt.

The FTC submitted its complaint numbers under different headings, but the one that aligns with “the debt’s not mine” is a category that says a debt collector misrepresented a debt’s “character, amount, or status.” The FTC tallied 23,038 complaints in this category, 38 percent of the agency’s total for the year.

Michael P. Forbes, a consumer attorney based in Wayne, Pa., says that in large part, shoddy recordkeeping and inadequate transfers of information in the credit industry are to blame for people getting calls and letters for debts they don’t owe.

“The bottom line is that there’s a lot of discrepancies,” Forbes said. “A fair amount of records from credit card companies are questionable. Some of this credit card debt is sold one to three or four times over.”

Creditors that sell debt to third-party collectors don’t always send with it adequate documentation, Forbes said.

“The collectors won’t get the original contract, they’ll get one or two statements. When it’s convenient for credit card companies, they’ll give the original agreement. When it’s not, they’ll say ‘we’re only required to keep these for six years.’”

Mark Schiffman, spokesperson for ACA International, a trade association for third-party debt collectors based in Minneapolis, says that documentation is sometimes a problem for his industry.

“Documentation is only as good as information from the creditor,” Schiffman said. “People move, so sometimes that information isn’t updated. It may be an older debt, something they incurred in a different place, and if it’s for a John Smith it’s pretty tough to find the right John Smith.”

ACA International is working with the CFPB on a national standard of documentation, Schiffman said. From his industry’s viewpoint, complaints of mistaken identity would be reduced if people communicated more freely with collectors – that is, pick up the phone when they call – since the collector must be certain they are talking to the right person before they say anything about the debt. That means they do not tend to leave voicemails, and instead call until they reach a live person.

“We can’t disclose that you have a debt to anybody other than you or your attorney – otherwise we get sued,” Schiffman said. “Some folks who are contacted by a collections agency, whom they’ve never done business with assume immediately it’s erroneous … Nobody can collect a debt from somebody who doesn’t owe it.”

Forbes encourages anyone who is being charged with a debt they believe to be erroneous to consult with a lawyer.

“(Creditors) don’t have all the documents and they go forward with this partial information,” Forbes said. “A lot of times when I enter my appearance in the case, they drop it; 95 percent of these lawsuits end up with default judgments, and when people find out they could fight it they say ‘I wish I had known that.’”

If a debt collector is in the wrong, under the Fair Debt Collection Practices Act, once a person is notified of a debt, they have 30 days to send the collector a letter disputing that debt and asking for verification. The verification process requires the collector to stop collecting the debt and send enough information to know if the debt is correct or not.

Harassment from a debt collector constitutes an FDCPA violation. A consumer who is harassed, whether they owe the collector money or not, may file suit within a year against the collector. If the consumer wins, they are entitled to recover damages, court costs, and an additional amount up to $1,000 with a successful lawsuit.