According to a new Center for Responsible Lending (CRL) analysis, federal and state regulator investigations into debt buyers and debt collectors have revealed a widespread pattern of abuses prevalent within the industry that should be addressed by lawmakers. As a result of recent investigations, debt collectors have been forced to pay tens of millions of dollars in fines for multiple counts of illegal activity. The report comes as several state legislatures are considering legislation to put in place new rules-of-the-road for debt collectors to protect consumers.
"People should not be sued and they should not have their wages garnished for debts they do not owe or for stale debts," said Lisa Stifler, a Policy Counsel at the Center for Responsible Lending and one of the authors of the analysis. "Unfortunately, our analysis shows that consumers are often unfairly hurt by debt collectors making improper use of the court system to collect questionable debts. The burden of proof should be on debt collectors to document that a consumer owes a debt upfront before they initiate a lawsuit."
Debt buyers and collectors purchase debt from consumer creditors and then attempt to collect. Unscrupulous collectors often engage in illegal and predatory behavior to pressure or force consumers to pay up. The abusive debt collector's business model often relies on pursuing quick court judgments against consumers. In many cases, consumers do not appear and the resulting default judgments result in wage garnishment. Consumers with similar names, John Smith for example, have been sued and seen their wages garnished because of incorrect, inadequate or deliberately mistaken documentation.
The full report provides information on recent state cases brought by Attorney Generals and regulators in New York, Arkansas, Pennsylvania, West Virginia, Minnesota, Colorado, Maryland and Texas. The cases show that debt collectors sued people over debt that was too old, engaged in harassing behavior, used illegal collection tactics, charged exorbitant interest and falsified or presented fake documents in court.
Recent federal cases include one in which the federal Consumer Financial Protection Bureau called a collector with a team of only 8 lawyers a "lawsuit factory" after it used "robo-signed" documents (documents mass signed with little to no review) to file 350,000 suits against consumers since 2009. The Federal Trade Commission also shuttered one debt collector for engaging in abusive behavior and fined several others.
CRL has urged lawmakers to correct these abuses. Lawmakers have the power to require debt collectors document a consumer owes a debt before initiating a collection attempt, or a court case. They also could bar collectors from suing over debts beyond the statute of limitations, and could stop collectors from selling debts they know have been paid off, or debts that lack adequate documentation to verify the debt.
For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact Andrew High at Andrew.High@responsiblelending.org or 919-313-8533.