Consumers Union Renews Call for Debt Collection Reforms as FTC Report Highlights Potential Problems for Consumers
Consumers Need Protection From Debt Collection Abuses
WASHINGTON, D.C. – Consumers Union, the public policy and advocacy arm of Consumer Reports, called on federal regulators today to protect vulnerable consumers from abusive debt collection practices. The consumer group renewed its push for reforms just as the Federal Trade Commission issued a report showing that debt collectors don’t verify alleged debts in half of the cases studied.
“Too often, consumers are harassed about debts that have already been paid off or that they never owed in the first place,” said Suzanne Martindale, staff attorney for Consumers Union. “Today’s report shows that debt buyers often target consumers even though they can’t prove that the debts are legitimate. It’s time to enact some common sense reforms that protect consumers from these unfair debt collection practices.”
The FTC analyzed over 5,000 portfolios of consumer debt involving nearly 90 million consumers owing an estimated $143 billion. The study covered nine of the nation’s largest debt buyers, which make up more than 75 percent of the industry. The FTC found that consumers disputed an estimated one million debts each year but that debt buyers only verified 500,000 of those disputed debts.
Consumers Union’s 2011 report issued with the East Bay Community Law Center detailed how debt collectors are filing an increasing number of lawsuits against consumers even though often they don’t have proof to back up their claims. Without the proper documentation, debt collectors may sue on invalid debts, such as those that have been paid already. The problem is made worse when consumers don’t receive timely notice that they have been sued on the debt or when the debt is so old that the consumer does not have good records to show whether the debt is owed or the amount claimed is correct.
To address widespread debt collection and debt buying abuses, Consumers Union has urged state and federal regulators to enact a number of reforms, including:
End robo-signing and attempts to collect without proper documentation: Debt collectors should be required to document that they are attempting to collect from the right person, for the right amount, and on a debt that they can lawfully recover.
Establish a sell by date for all debt: It should be illegal to sell or attempt to collect debt that is more than seven years old, which is too old to be reported on a credit report under the federal Fair Credit Reporting Act.
Require debt collectors to provide more information to consumers: All debt collectors, including debt buyers, should be required to identify the name of the original creditor and to provide an itemized record of the total principal, interest, fees, and other charges that have been added to the debt, and to provide detailed records about the debt to consumers within five days after the first notification.
Require debt collectors to submit more detailed information when filing suit: Debt collectors should be required to submit basic information about the debt, including the name of the original creditor and an itemized record of the total principal, interest, fees, and other charges that have been added to the debt, when they sue over a debt, so that the consumer can see if it is his or her debt, and in the right amount.
Increase oversight to ensure consumers are properly notified of lawsuits: Courts should be required to provide supplemental notice of all filed debt collection lawsuits to debtors and default judgments should be prohibited if the notice is returned to the court as undeliverable.
In February 2012, the Federal Trade Commission reported that it handled over 180,000 consumer complaints about debt collectors in 2011, more than any other industry.