FTC Complaints Against Debt Collectors Don't Tell Whole Story: ACA

In 2009, consumer complaints to the Federal Trade Commission about third-party collectors increased in absolute terms, but decreased as a percentage of overall consumer complaints filed with the agency, the FTC said in its annual report to Congress.

The FTC received 88,190 Fair Debt Collection Practices Act (FDCPA) complaints about third-party debt collectors in 2009, representing 16.8 percent of all consumer complaints. In 2008, the FTC received 78,925 third-party debt collector complaints, representing 19 percent of all consumer complaints.

ACA International, the debt collection industry’s largest trade group, said that the FTC’s methodology for analysis paints an incomplete and inaccurate portrayal of consumer complaints against the third-party collection industry.

“We agree with the FTC about the importance of consumer protection from debt collectors who engage in deceptive, unfair or abusive collection practices,” said Rozanne Andersen, ACA International CEO. “But, respectfully, by counting solely the number of consumer complaints without verification of whether they were actually illegal or a violation of the FDCPA, or whether the complaints were resolved, only tells a small part of the real story.”

In the report, the FTC admitted that the numbers tell only a part of the story.

“The FTC recognizes that third party collectors contact millions of consumers each year,” the report said. “The number of consumer complaints the FTC receives about these collectors is therefore only a small percentage of the overall number of consumers contacted by collectors). Nevertheless, the FTC receives more complaints about the debt collection industry than about any other specific industry.”

ACA said that it is working diligently to reduce the number of consumer complaints, adding that the Better Business Bureau’s annual report on complaint resolution released in early March 2010, showed that the collection industry resolved 85 percent of the complaints it had received in 2009, compared to the average of 73.8 percent among all industries in the U.S. (“Credit and Collection Industry Complaint Resolution Exceeds National Average,” March 23)

“Effective complaint resolution helps consumers find answers to their questions and reduces the likelihood and expense of adjudication through the legal process,” Andersen said.

Since 2002, the credit and collection industry has resolved an average of 82.5 percent of the complaints filed with the BBB, exceeding by 11.5 percent the average of complaint resolution by all industries.  From 2002-2009, all other industries resolved on average 71.45 percent of the complaints received.

“We are proud of our rate for complaint resolution, but we are pushing ourselves to do better,” said Andersen. “That’s why ACA is resolved to continue working with the FTC, state attorneys general, regulators and others to better assess consumer complaints and ensure that, as an industry, we better understand and diligently address them.”

If looking strictly at percentage terms, the industry is improving, according to FTC figures.

The FTC report added that in 2009, the number of complaints the FTC received about creditors’ in-house collectors increased in absolute terms, but decreased slightly as a percentage of total complaints. In 2009, the FTC received 32,076 complaints about in-house collectors, representing 6.1 percent of all complaints the FTC received. In 2008, the FTC received 26,652 complaints about in-house collectors, representing 6.4 percent of all complaints received.

Combined, complaints about third-party and in-house collectors totaled 119,364, representing 22.8 percent of all complaints received, compared to 104,766 complaints in 2008, which represented 25.2 percent of all complaints.

The FTC broke the complaints into five major categories, with tabulations on each (complaints can fall into more than one category, so they can be counted more than once):

• Harassing the alleged debtor or others: In 2009, 46.5 percent of complaints fell into this category, making it the most frequently cited FDCPA violation in consumer complaints, as it was the year before.
• Demanding larger payment than is permitted by law: A total of 31.1 percent of the complaints fell into this category
• Threatening dire consequences if the consumer fails to pay: A little more than one-fifth (20.9 percent) of complaints cited this part of the law.
• Impermissible calls to the consumer’s place of employment: The percentage of complaints in this area jumped to 13.6 percent, compared to 10.3 percent a year earlier.
• Revealing alleged debt to third parties: Violation of this part of the law was cited in 12.2 percent of complaints.

FTC Enforcement Actions Against Collection Agencies
The FTC currently is conducting a number of non-public investigations of debt collectors to determine whether they have violated FDCPA or the FTC Act, the report said. The FTC has also filed or settled four public law enforcement actions in the past year: Two new law enforcement actions alleging FDCPA and Section 5 violations against companies collecting debts, and settlements in two previously filed cases.

In June 2009, the FTC settled an action against Oxford Collection Agency, Inc., its officers, and an attorney who acted as its agent, for collection practices allegedly in violation of the FTC Act and the FDCPA (“Collection Agency Settles with FTC for $225,000,” July 6, 2009).

The FTC’s complaint alleged that the defendants falsely threatened to garnish consumers’ wages, bring lawsuits against them, or have them arrested. It also charged that the defendants used illegal and abusive collection methods such as calling consumers before 8 a.m. or after 9 p.m.; calling their workplace; telling employers, co-workers, relatives, and neighbors about the consumers’ debts; continuing to call after receiving consumers’ written demands to stop; calling consumers repeatedly throughout the day; calling back immediately after the consumer hung up; and using profane or other abusive language.

Separate FTC settlements, one with Oxford and its officers, and the other with the attorney and his law firm, each imposed a $1.06 million civil penalty, which was partially or wholly suspended based on inability to pay. Both settlements enjoin the defendants from violating the FDCPA, and from making misrepresentations in connection with the collection of a debt.

In September 2009, the FTC concluded its case against Academy Collection Service, Inc., by settling with the two remaining corporate officer defendants, Albert Bastian and Edward Hurt III, who operated Academy’s Las Vegas collection center (“Debt Collection Supervisors Settle FTC Charges,” Jan. 8).

The complaint alleged that the individual defendants “formulated, directed, participated in, controlled, or had the authority to control” the actions of Academy’s collectors, which included misleading, threatening, and harassing consumers; depositing postdated checks early; falsely threatening or implying that the company would garnish consumers’ wages, seize or attach their property, or initiate lawsuits against the consumers if they failed to pay; making unfair and unauthorized withdrawals from consumers’ bank accounts;  communicating impermissibly with third parties about consumers’ alleged debts; and  engaging in harassing or abusive behavior, such as threatening the use of physical violence, using obscene or profane language, and repeatedly or continuously causing the telephone to ring.

The settlement imposes civil money judgments against Bastian and Hurt of $375,000 and $300,000, respectively, which were partially suspended based on their inability to pay. The consent decree enjoins them from violating the FDCPA and from, in connection with debt collection, making withdrawals from consumers’ bank accounts without express informed consent and from making misrepresentations.

In October 2009, the FTC and the State of Nevada settled an action filed in November 2008 against an international Internet payday lending operation that used unfair and deceptive debt collection tactics. The defendants, ten related Internet payday lenders (including Cash Today) and their principals, operated from the United Kingdom and targeted consumers in the United States (“FTC Slaps $1 million Fine on Internet Lender Over Collection and Loan Practices,” Sept. 22, 2009).

The FTC charged them with, among other things, violating the FTC Act by: falsely threatening consumers with arrest or imprisonment; falsely claiming that consumers were legally obligated to pay the debts when they were not; making false threats to take legal action that they could not take; repeatedly calling consumers at work; using abusive and profane language; and disclosing consumers’ purported debts to third parties.

Under the terms of the settlement, the defendants had to pay $970,125 in consumer redress for distribution by the FTC and $29,875 to the State of Nevada. They are enjoined from, in connection with debt collection, making misrepresentations or engaging in unfair practices in violation of the FTC Act.

In February 2010, the FTC settled an action against Credit Bureau Collection Services and two of its officers to resolve allegations that the defendants violated the law in the course of collecting debts from consumers (“Collection Agency Settles FTC Credit Reporting Charges for $1 million,” March 4). Among other things, the complaint alleged that the defendants violated the FDCPA by misrepresenting both to consumers and to consumer reporting agencies (“CRAs”) that consumers owed the debts and by failing to inform the CRAs that consumers disputed those debts.

The complaint also alleged that the defendants violated the FTC Act by misrepresenting that consumers owed debts or by failing to have a reasonable basis for such representations.

The consent decree filed requires the defendants to pay a $1.09 million civil penalty. Among other things, it also prohibits violations of the FDCPA, and requires the defendants to have a reasonable basis for representations that a consumer owes a debt, and requires them to conduct a reasonable investigation when the truth of those representations is cast in doubt.