Do collection agencies violate the law? You bet they do. So, who regulates the debt collection industry? The Consumer Financial Protection Bureau took over the regulation of debt collectors and handling of debt collection complaints from the Federal Trade Commission (FTC) in late 2011. However, today, the FTC still takes an active role in cracking down on illegal debt collection practices. According to the FTC letter to CFPB in March 2013, seven debt collection cases were resolved in 2012. These cases involved collectors whose practices included using abusive tactics to intimidate consumers, misleading consumers while seeking payment on time-barred debts, using faulty data to identify debtors and the amount they owe, using deceptive tactics to collect on payday loans, and otherwise committing egregious violations of the Act and other federal laws.
In their last report on debt collection practices in 2011, the FTC reported that hundreds of thousands of consumers contacted the FTC in that year with complaints regarding debt collection issues. In 2011, the FTC received more complaints about the debt collection industry than any other specific industry. In 2010, the FTC received a total of 140,036 complaints which accounted for 27 percent of all complaints received by the FTC. This was up over 4 percent from 2009.
There are many cases of collections agencies performing illegal acts. Imagine the number of companies that have not been caught yet! Collection agency stocks are now traded on Wall Street but are more unscrupulous than ever.
FTC Lawsuits in 2011-2012
In two cases that included civil penalties, the FTC obtained $2.8 million and $2.5 million, respectively, for West Asset Management, Inc., and Asset Acceptance, LLC, the two largest civil penalty amounts the agency has ever obtained for alleged violations of the Fair Debt Collection Practices Act.
The FTC charged two other debt collectors with especially egregious practices: Defendants in Forensic Case Management Service, Inc., doing business as Rumson, Bolling & Associates, allegedly threatened physical harm to consumers, desecration of their deceased family members, and killing of their pets to persuade consumers to pay.
FTC Lawsuits in 2010
Here are some recent court cases which were settled in 2010 against collection agencies caught in the act of illegal practices:
- 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. 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 those debts were disputed by consumers. 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 $1,095,000 civil penalty.
- In March 2010, the Commission announced a settlement agreement with collector West Asset Management, Inc. (“WAM”), resulting in a $2.8 million civil penalty, the largest civil penalty ever obtained by the FTC in a debt collection case. The complaint alleged WAM violated the FDCPA by calling consumers and third parties repeatedly with intent to harass or annoy, and by revealing debts to third parties and calling them for reasons other than to obtain location information about the consumer. In addition, the Commission alleged that WAM engaged in deception in violation of the FTC Act by materially misrepresenting to consumers that WAM was a law firm, it would bring civil action or criminal prosecution against consumers who failed to pay, and nonpayment would result in the seizure, garnishment, attachment, or sale of consumers’ properties or wages, or their arrest or imprisonment. The FTC further alleged WAM engaged in unfairness in violation of the FTC Act by debiting consumers’ financial accounts or charging their credit cards without their express, informed consent.
- In April 2010, the FTC filed suit under Section 13(b) of the FTC Act against an alleged common enterprise composed of Internet-based payday lenders, a collection agency, and their principals, seeking preliminary and permanent injunctive relief in addition to consumer redress or disgorgement of ill-gotten gains. The complaint alleged the defendants violated the FTC Act and the FDCPA by falsely claiming to consumers’ employers that they were entitled by law to garnish wages without obtaining a court order; falsely claiming to have informed consumers of their intent to garnish and provided consumers with the opportunity to dispute the debt; and communicating with consumers’ employers and co-workers about debts without the consumers’ knowledge or consent. The defendants also were alleged to have violated the Credit Practices Rule 32 and the FTC Act by including an unlawful wage assignment clause in their loan agreements with consumers. In April, most of the defendants stipulated to the entry of a preliminary injunction. In September, the Commission entered into a settlement with defendant Mark S. Lofgren containing a $38,133 suspended judgment and permanent conduct relief. Litigation against the remaining defendants – payday lender Eastbrook, LLC, also doing business as Ecash and Getecash; collector LoanPointe, LLC; and principal Joe S. Strom – is ongoing.
- In October 2010, the FTC reached a settlement agreement with collector Allied Interstate, Inc. (“Allied”), one of the nation’s largest debt collectors. The Commission alleged that Allied continued collection efforts even after consumers told the company that they did not owe the debt, without verifying the accuracy of the disputed information or otherwise having a reasonable basis for representing that the consumers owed the debt. The FTC further alleged that Allied violated the FDCPA and Section 5 of the FTC Act by making improper harassing phone calls to consumers (using abusive language or calling many times a day for weeks or months); making repeated calls to third parties seeking to locate a consumer; revealing alleged debts to third parties without the consumer’s consent or court permission; and threatening legal action against consumers that it did not intend to take. Under the settlement agreement, Allied paid a $1.75 million civil penalty and agreed to stop collection efforts on disputed debts in the future unless and until it conducts a reasonable investigation and verifies the debt. In addition, the agreement bars Allied from violating the FDCPA or from engaging in the types of conduct the complaint alleged violated the FTC Act.
FTC Lawsuits in 2009
- 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. 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 when the collectors knew or had reason to know that the calls were inconvenient; 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 abusive language. Separate FTC settlements, one with Oxford and its officers, and the other with the attorney and his law firm, each imposed a $1,060,00 civil penalty which was partially or wholly suspended based on inability to pay.
- 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. The FTC charged them with, among other things, violating the FTC Act by: (1) falsely threatening consumers with arrest or imprisonment; (2) falsely claiming that consumers were legally obligated to pay the debts when they were not; (3) making false threats to take legal action that they could not take; (4) repeatedly calling consumers at work; (5) using abusive and profane language; and (6) 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.
FTC Lawsuits for 2008
The Commission surpassed its 2007 record for the largest amount of civil penalties obtained in a single FDCPA case with the following settlement:
- The largest amount of civil penalties ever in an FDCPA case Academy Collection Service, Inc. (“Academy”) and its owner, Keith Dickstein, agreed in November 2008 to pay $2.25 million in civil penalties to settle charges that they violated the FDCPA and Section 5 of the FTC Act. The complaint alleged that those defendants and two other corporate officer defendants, Albert Bastian and Edward Hurt III, had “formulated, directed, participated in, controlled, or had the authority to control” the following acts by Academy collectors: (1) misleading, threatening, and harassing consumers; (2) depositing postdated checks early; (3) 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; (4) making unfair and unauthorized withdrawals from consumers’ bank accounts; (5) communicating impermissibly with third parties about consumers’ alleged debts; and (6) 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.
- In May 2008, the Commission settled an action filed in June 2007 against Tono Records and related companies and individuals whose representatives allegedly victimized Spanish-speaking consumers nationwide by posing as debt collectors seeking payments for purported debts that consumers did not owe. Because the defendants presented themselves as if they were third-party debt collectors, they were subject to the FDCPA as well as the FTC Act. The defendants were charged with violating the FTC Act and the FDCPA by: (1) falsely claiming that a debt is owed; (2) falsely claiming to be, or to represent, an attorney; and (3) falsely threatening legal action, arrest, imprisonment, property seizure, or garnishment of wages. Other FDCPA violations alleged included attempting to collect an amount of debt not authorized by contract or permitted by law; harassing consumers; and failing to inform consumers, within five days of their initial communication with them, of their right to dispute and obtain verification of their debt and the name of the original creditor. The settlement imposed a $1.19 million judgment against the defendants and permanently enjoined them from violating the FTC Act or the FDCPA.
- In September 2008, the FTC settled charges that EMC Mortgage Corporation and its parent, The Bear Stearns Companies, LLC, violated the FDCPA and Section 5 of the FTC Act, among other statutes, in conjunction with servicing and collecting on mortgage loans, including debts that were in default when EMC obtained them. Among other practices, the complaint alleged the defendants had: (1) misrepresented the amounts consumers owed; (2) assessed and collected unauthorized fees; and (3) misrepresented that they possessed and relied upon a reasonable basis to substantiate their representations about consumers’ mortgage loan debts. The complaint further alleged the defendants to have made harassing collection calls; falsely represented the character, amount, or legal status of consumers’ debts; and used false representations and deceptive means to collect, including falsely representing to consumers with “Caller ID” service that defendants were calling from a consumer’s local area code. The settlement required the defendants to pay $28 million in consumer redress.
