FTC Opens Initial Study of Consumer Debt Purchasers
1/7/2010
Source: Isaac Wolf, Scripps Howard News Service

WASHINGTON - The Federal Trade Commission is examining a segment of the debt collection industry that has been blamed for trying to collect from the wrong people, filing baseless lawsuits and torpedoing credit scores.

As concerns mount about the $60-billion debt resale market, the federal agency announced that it has opened it's first-ever study of the consumer debt purchasing market, said Tom Pahl, the FTC's assistant director for financial practices.

A Scripps Howard News Service investigation in November and December documented serious problems spawned by this market. The Scripps articles showed that when old credit card debts and other debts are sold, the new owners frequently do not receive documentation of the original debt.
That, in turn, can lead collectors to use bad information to try to collect unsubstantiated debt, sue consumers without proof and damage their credit scores.

FTC officials and judges in the past have compared the debt purchasing market to a children's game of "telephone," where a message is whispered through a line of people, progressively getting more garbled.

The study's goal will be to find out how, when and to what extent there are these breakdowns that can leave consumers in the lurch, Pahl said. In late December, authorities quietly ordered extensive records from the nation's nine largest debt buyers, which cumulatively own 75 percent of purchased debt, according to Pahl.

"We're trying to diagnose the nature and extent of any problem in the debt buying segment," Pahl said.
Consumer advocates took the FTC announcement as a sign that the federal agency is taking a more aggressive stance on an industry that draws more complaints than any other profession.
"It's the wild, wild west out there and nothing's being done about it," said Ira Rheingold, executive director of the National Association of Consumer Advocates. "This is the first step."

Representatives from the nation's largest debt purchasers either declined comment or did not return calls Thursday.

But a spokesman for a leading debt collection industry trade group tried to put the examination in a positive light. "The FTC's study of the debt purchasing industry will give the industry the opportunity to educate regulators," said David Cherner, legal counsel of ACA International, the Minneapolis-based industry group.

Results of the study could lead to enforcement actions or policy recommendations for Congress. Dating back to 1977, the existing debt collection law stipulates that Congress must set the rules, not the FTC.
Cherner said that one of the most important issues the FTC should focus on is how the flow of information actually begins, with creditors held accountable for supplying correct information.

To put the market in perspective, the world's largest debt collection company, Horsham, Pa.-based NCO Group, owns up to $15 billion of debt, company CEO Michael Barrist told Scripps Howard in October. "It is a business that we are in opportunistically," Barrist said at the time.

But after the FTC's announcement this week, an NCO official declined to comment.
Mid-February is the deadline for collection firms to submit their records, said Pahl, who would not say when the study would be concluded.