Consumer Law & Policy Blog

The Recorder: Theft of Lawyers' Identities Leads to Debt Collection Scams, Problems for Lawyers and Consumers

Here.  An excerpt:

A common scheme involves debt collection. Someone using the name of a lawyer will call or send letters to victims warning them to pay up or face criminal charges. There may or may not be a real debt. But some recipients will pay without questioning. Others get angry and track down the "attorney's" name on the bar's website. That's often the first time a lawyer learns someone has swiped his or her identity.

* * *

But the bar has no authority over non-lawyers. And warnings to scam artists usually just lead to the suspect disappearing for awhile only to pop up later with a new name and scheme, said [senior trial counsel in the California State Bar's office of intake] Horton-Billard.

(hat tip: Arundhati Satkalmi)

Peter Holland on Junk-Debt-Buyer Lawsuits

Peter A. Holland of Maryland has written Defending Junk-Debt-Buyer Lawsuits, 46 Clearinghouse Review No. 1-2 (May/June 2012). Here is the abstract:

Junk debt buyer lawsuits have overwhelmed the courts all across the United States. These lawsuits wreak havoc on consumers and their families. Often overlooked is the fact that judgments against consumers which are based on junk debt are part of a zero sum game, where every bogus judgment deprives a legitimate creditor of the chance to get paid from scarce resources. Thus, the legitimate creditor to whom money is owed is materially harmed by the junk debt buyer who extracts money based on an illegitimate claim, or who causes someone to declare bankruptcy. Providing representation to this otherwise unrepresented population will not only help individual consumers. It could improve the entire U.S. economy, by preserving precious resources to pay what is legitimately owed, and avoiding paying for what is not. This article surveys the landscape of the junk debt buyer industry and provides advice for consumer advocates engaged in the battle against unscrupulous junk debt buyers.

How Much Do Student Loan Debt Collectors Make?

by Jeff Sovern

Quite a bit, according to Bloomberg BusinessWeek. The article reports:

Joshua Mandelman made $454,000 in a single year as a student-loan debt collector -- more than twice the pay of the U.S. secretary of education.

His boss, Richard Boyle, chief executive officer of Educational Credit Management Corp., received $1.1 million in 2010, including commuting expenses from his ranch in New Mexico. Five other managers each took home more than $400,000.

* * * Four other [ECMC] debt collectors took home between $301,000 and $389,000 in 2010.

ECMC is a non-profit.  Who knew the non-profit sector paid so well?

 

 

Judith Fox Study of Debt Collection Practices

Judith L. Fox

 of Notre Dame has written Do We Have a Debt Collection Crisis? Some Cautionary Tales of Debt Collection in Indiana, 24 Loyola Consumer Law Review (2012).  Here's  the abstract:

The Federal Trade Commission, in 2009, raised issues about debt collection practices and called on jurisdictions to investigate local practices that may be abusive to consumers. This article is the beginning of a larger study of debt collection practices in Indiana. It examines debt collection cases filed in Indiana courts in a three month period of 2009 and 2011 While most research on this issues has been in small claims court systems, this article suggests that the same, if not greater, consumer abuses exist in other courts. The research shows a pattern of large, national debt collection firms moving away from small claims courts, despite the size of the debt being collected. The procedural hurdles in these courts make it easier to obtain judgments and may result in greater abuse to consumers.

 

American Banker Articles on Debt Collection Practices

by Jeff Sovern

The American Banker has run a couple of pieces on debt collection practices here and here.  The headline of one article says a lot by itself: Bank of America Sold Card Debts to Collectors Despite Faulty Records.  The articles have in turn drawn attention from Joe Nocera of The New York Times ("Why People Hate the Banks"), and a couple of my favorite bloggers, Ed Mierzwinski ("Banks Still Run Amok"), and Bob Lawless at Credit Slips ("One Answer to Why People Hate Banks").

My comment will be modest. The American Banker states:

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, according to a 2010 credit card sales agreement submitted to a California state court in a civil suit involving debt that B of A had sold to CACH.

* * * It also stated that some of the claims it sold might already have been extinguished in bankruptcy court. B of A has additionally cautioned that it might be selling loans whose balances are "approximate" or that consumers have already paid back in full.

When a debt collector attempts to collect a debt that it knows might already have been paid back in full or extinguished, or the balance of which is approximate, and states the amount of the debt to the consumer--which surely debt collection requires--wouldn't that be a false representation of the character, amount, or legal status of the debt, in violation of section 1692e of the Fair Debt Collection Practices Act? 

 

MSN Money: Debt Collectors Using Facebook to Collect Debts; Is it Legal?

by Jeff Sovern

Here.  An excerpt:  "One strategy collection agencies use, according to Michelle Dunn, a 24-year veteran of the debt-collection industry and the author of "The Guide to Getting Paid": setting up a fake profile and using it to try to friend someone (a few states have laws against online impersonation)."

I wonder how many provisions of the Fair Debt Collection Practices Act this violates.  Section 1692e prohibits "any false, deceptive, or misleading representation or means in connection with the collection of any debt." Wouldn't a fake profile by definition be false, deceptive, or misleading?   Subsection (11) of that section requires collectors to disclose that communications they send are from debt collectors.  Somehow, I doubt the friend requests include that information.  And if the friend request is the first communication from the collector, other disclosure requirements come into play. 

Section 1692f bars "unfair or unconscionable means to collect or attempt to collect any debt."  That language is vague enough that it might not capture this behavior, but then again it might.

If the collector posts something on the consumer's Facebook page, and the page is accessible to third parties, that would violate section 1692c's prohibition on communicating with third parties in connection with the collection of a debt, as the article observes.

The authors of the FDCPA surely did not anticipate Facebook, but they seem to have regulated debt collectors' use of it just the same.

UPDATE: Ted Mermin pointed out to me a comment in the California Law Review, Debt Collection in the Information Age: New Technologies and the Fair Debt Collection Practices Act, authored by Ted's former student, Colin Hector, that addresses the FDCPA's application to the use of Facebook to collect debts.

 

 

David Lazarus Interview with Richard Cordray on Proposed Rules for CFPB to Supervise Large Credit Bureaus and Debt Collectors

by Jeff Sovern

Here.  Lazarus has an interesting quote from Cordray: "Unlike most services or products where consumers can shop around among different providers, consumers can't do that with these businesses," Cordray said. "Consumers don't get to choose their debt collector, and they don't get to choose whether to have the consumer credit reporting agencies keep track of their credit history."

That's an important point.  Free-marketers argue that government regulation is generally unnecessary because the free market will discipline poorly-performing businesses.  But there is no free market as to debt collectors or credit bureaus, with the result that the market cannot be expected to address such businesses when they misbehave.  That's another reason we needed the CFPB as well as the Fair Credit Reporting Act and the Fair Debt Collection Practices Act.

 

CFPB Proposes Oversight of Larger Credit Reporting Agencies and Debt Collectors

by Jeff Sovern

The proposal is to cover debt collectors with receipts exceeding $10 million and credit bureaus with receipts over $7 million.  As for the credit bureau piece of the proposal, here's an excerpt from an article in the Washington Post:

[L]ittle attention has been paid to the so-called “Fourth Bureau” firms that target the 30 million consumers outside the mainstream financial system. Often they are students, immigrants or low-income consumers who do not qualify for traditional loans or choose not to use them. Instead, they rely on a makeshift system of payday lenders, check cashers and prepaid cards — none of which show up in the Big Three. Without a paper trail of credit, these consumers are virtually shut out of the traditional banking system.

As a result, fourth bureau firms are increasingly using non-traditional and, at times, unreliable data, including auto warranties, cellphone bills and magazine subscriptions to come up with credit scores.

* * * [The proposal would cover] not only the three major credit bureaus but also roughly 30 smaller firms in the Fourth Bureau. The rule would give the CFPB authority over about 94 percent of the industry by receipts.

But the debt collection industry would receive less attention under the proposal.  The Bureau explains: "the proposed threshold would likely bring within the Bureau’s scope of supervision approximately 175 entities out of approximately 4,500 firms engaged in debt collection . . . . Thus, approximately 4 percent of all collection firms would be covered by the proposed threshold." Put another way, 96% of debt collector firms will not be subject to the Bureau's supervision.  Will that drive unscrupulous individual collectors to work for the 96% to evade the Bureau's oversight?  If so, is that a good thing?

Comments on the proposal will be due within 60 days of publication of the notice in the Federal Register; instructions for commenting can be found here and should refer to Docket No. CFPB-2012-0005.

 

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Debt Collection in the News

Yesterday the FTC announced a consent decree with Asset Acceptance obliging them to pay a $2.5 million fine.  The consent decree also requires the collector to disclose to consumers when the collector's suit would be time-barred that the collector will not sue them on the debt.  The FTC's statement is here; coverage in the Times is here.

Meanwhile, the Baltimore Sun reports that the number of suits brought by debt buyers in the Maryland courts may have dropped because of the tough new Maryland rules on collection suits.

News Article on Debt Buyers

Here, from the Frederick News-Post.  An excerpt:

Debt buyers bank on the likelihood that some people will pay up without a fight or fail to defend themselves in court, Holland said. And because the debt is so cheap, the agencies risk little by purchasing it.

Companies buy massive spreadsheets of names, account numbers and alleged debt amounts, he said. Often, no supporting documentation exists to show the person owes the money, and the thread of ownership tangles until even attorneys have trouble making sense of it.

Many consumers have no memory or record of the original debt, so the calls from creditors hit them out of the blue.

This can be dangerous. In the chaos of the industry, the same debt can be sold to several people, [Maryland law professor Peter A.] Holland said.

"They don't realize that proof is lacking, and the danger there is that they end up paying it to the wrong person. And then they have no protection if the right person comes forward and sues them," he said.