In the world of civil penalties, getting a major company to pay a $2.5 million settlement doesn’t seem like much, maybe the equivalent of a $100 parking ticket. This is an ouch factor, but it’s not financially devastating.
But look past the money that Asset Acceptance Capital, one of the nation’s largest consumer-debt buyers, has to pay to settle a case with the Federal Trade Commission over its alleged use of deceptive practices to collect old debts, and you see a major push from the government to send a signal to the debt-buying industry.
The Fair Debt Collection Practices Act defines a debt collector as someone who regularly goes after money owed to other parties. Debt buyers pay pennies on the dollar for defaulted debt.
I certainly don’t question the right of firms to collect on debts that they are legitimately owed, but one of the problems is that uncollected debt is sold without the records to prove debt claims. Often there’s scant documentation other than the person’s name, last known address, Social Security number and debt amount.
State courts have become burdened by debt-collection cases. Frustrated by the lack of proof, judges in several states have implemented court rules or administrative orders demanding that debt buyers provide better documentation before allowing them to sue consumers to recover alleged obligations.
“As debt gets older and passes from one debt buyer to another, the quality of the information deteriorates,” said David Vladeck, director of the FTC’s Bureau of Consumer Protection.
The federal government also is concerned that debt collectors are going after “time-barred debt.” Debt collectors have a limited number of years or a statute of limitations in which they can sue someone to collect. After the time runs out, unpaid debts are considered “time-barred.”
Many consumers, however, aren’t aware that their debt is no longer collectible. The statute of limitations varies from state to state. Debtors also don’t know that many states allow the time-barred clock to reset if they make a small payment on the debt.
The FTC alleged that Michigan-based Asset Acceptance violated the Fair Debt Collection Practices Act and the Fair Credit Reporting Act by, among other things, failing to disclose to consumers that their debts were too old to be legally enforceable, misrepresenting that people owed a debt when the company couldn’t substantiate the debt was theirs and providing inaccurate information to credit reporting agencies.
The FTC also claimed that the company didn’t tell people that if they made a partial payment on an old debt, it would extend the time a debt could be legally collected.
In agreeing to settle with the FTC, Asset Acceptance didn’t admit any guilt. In a statement, the company’s president and chief executive said, “We are pleased to have this matter behind us, and to have clarity on the FTC’s policies and expectations of the debt collection industry.”
Under the proposed settlement, which still needs court approval, the company has agreed to disclose to consumers that it will not sue to collect debts that are time-barred. Once this disclosure has been made, the company cannot sue consumers even if they make a partial payment that otherwise would have removed the time-barred restriction.
Additionally, the company can’t misrepresent to consumers that they owe a particular debt or a certain amount unless the company has a reasonable basis for doing so. To follow through on that promise, the company must investigate consumer disputes before continuing any collection efforts.
Asset Acceptance also can’t place debt on a consumer’s credit report when it has failed to notify the consumer in writing about the negative report.
The FTC and the Justice Department, which filed the complaint and proposed a consent decree on behalf of the commission, said the settlement is a message to the entire debt-collection industry.
“Going forward, this is a framework for good practices,” Vladeck said.
The FTC is expected to release a report on the industry this summer, he said. Of particular concern is the lack of documentation for old debts.
“We want to pull the curtain back and get a better understanding of how the industry works,” he said.
If you find you’re being pursued for an old debt, read up on your rights. The FTC has issued a new publication, “Time-Barred Debts: Understanding Your Rights When It Comes to Old Debts.” The publication provides advice on what you should do if you’re sued for a debt that is past the statute of limitations.
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