As the economy soured, the FTC started cracking down on operations that it says prey on financially vulnerable consumers, including those who are unemployed or debt-ridden. The case against Asset Acceptance marks the eighth debt-collection action filed by the agency in the past two years.
The firm allegedly misled consumers about whether it could sue them for failing to pay old debts even though laws in many states ban debt collectors from taking legal action after a certain number of years have lapsed. The statute of limitations can range from two years to more than 15 years, depending on the state and the circumstances.
The company also trained its employees to coax consumers into making partial payments, knowing that any small payment would “revive” the old debt and reset the clock on the collector’s ability to sue in many states, federal officials said. The clock can also start ticking again for consumers who agree, in writing, to pay the debt.
Asset Acceptance, a subsidiary of Asset Acceptance Capital Corp., did not admit to the allegations made by the government, which started its investigation in February 2006. But Rion Needs, the parent company’s chief executive, said in a statement that his firm is “pleased to have this matter behind us, and to have clarity on the FTC’s policies and expectations of the debt collection industry.”
Asset Acceptance specializes in buying portfolios of consumer debt from credit card firms, health clubs and other credit originators at deep discounts and then collecting on them. The FTC said the firm targets accounts that were previously pursued by other collectors to no avail. Asset’s strategy “includes pursuing consumers for ten years or longer,” the government’s complaint said.
As of September, Asset Acceptance held more than 34 million individual accounts that it bought for 2.54 percent of their original $42 billion value.
The settlement, which has yet to be finalized, requires that the company inform consumers that it cannot sue them for “stale” debt, said David Vladeck, director of the FTC’s Bureau of Consumer Protection.
Asset Acceptance also agreed to notify consumers in writing when it provides negative information to credit-reporting agencies and to conduct a reasonable investigation when an agency disputes the information.
The government alleged that the company was routinely challenged by consumers who said, for instance, that the debt at issue had been paid off or was the result of fraud or identity theft. But the government said the company did not take independent steps to check consumers’ complaints.
Suzanne Martindale, a staff attorney at Consumers Union, said it’s common for debt collection agencies to take consumers to court based on scant information even after the allotted time to prosecute has lapsed. The consumer is caught unaware, she said.
“A defendant does not raise the [statute of limitations] defense in an answer to a lawsuit, and so that defense gets waived,” Martindale said. “It’s asking a lot of a consumer to know to raise a legal defense like that.”
Tony West, assistant attorney general at Justice’s civil division, said the proposed settlement is meant to serve as a framework for the entire industry to follow.
But it’s also important to understand what the settlement does not say: “It does not say that consumers need not pay their debts,” he said.