Recently, John Oliver of Last Week Tonight did an episode on the debt collection industry. He set up an LLC, named it C.A.R.P. in a hat tip to the eponymous bottom feeder, and purchased $14.9 million in debt from a Texas firm for a mere $60,000. The purchase was one half of a penny on the dollar. In exchange for the $60,000, C.A.R.P. received files filled with names, addresses, phone numbers and SSNs. C.A.R.P. was in the driver’s seat to begin collection but instead Oliver donated the debt to a not-for-profit who subsequently forgave the debt. Then approximately 9,000 potential debtors breathed a sigh of relief.
Oliver’s exposé on the ease of buying so much debt for so little money ultimately begs the question – Do these files contain legitimate evidence to enforce debt collection? If not, what is being done to protect the consumer?
Debt collection files are often sold in bundles by the thousands with contracts providing no warranties for accuracy from the selling party. It is up to the purchasing debt collector to verify the paper trail in the file is legal and enforceable. Too often, it is not. Files are filled with vague spreadsheets that offer no proof or an accounting of a debt. Collection complaints are supported by robo-signed affidavits. Assignments of debt are missing. Sometimes the debts have been paid in full, settled, discharged in bankruptcy or time barred. There are instances of mistaken identity or the debtor being deceased. Unfortunately, an alleged debtor who does not understand her legal rights can become easy prey to a lawsuit that had no evidence to back it up in the first place.
These glaring errors in the debt collection industry’s practices and procedures have not gone unnoticed by federal consumer agencies. In 2015, the Consumer Financial Protection Bureau (CFPB) slapped broad enforcement orders against JP Morgan Chase, Encore Capital Group and Portfolio Recovery Associates (PRA). The CFPB found Chase “sold bad debt to third party buyers,” “assisted third party debt buyers in deceptively collecting debt,” and “robo-signed affidavits to sue consumers for unverified debt.” Chase was ordered to pay $136 million in penalties and payments to the CFPB and certain states that joined the CFPB action, cease collection on certain collection files, pay $50 million in cash refunds to affected consumers and overhaul its debt verification process. Chase went as far as to admit that a good number of its 538,000 collection suits from 2009-2013 had defects. Encore and PRA, two of the biggest debt recovery firms in the country, were also penalized for their collection practices. It was found that both firms “attempted to collect on unsubstantiated or inaccurate debt,” “relied on misleading, robo-signed court filings to churn out affidavits,” and “sued or threatened to sue consumers past the statute of limitations.” Encore was ordered to pay up to $42 million in refunds to consumers, pay a $10 million civil penalty, and stop its collection efforts on $125 million of debt. Similarly, PRA was required to pay $19 million in consumer refunds, an $8 million civil penalty, and was ordered to stop collection on $3 million of debt. Both Encore and PRA were also required to overhaul their debt collection practices. Encore and PRA did not admit wrongdoing but also did not challenge the order.
The CFPB has only just begun in its attempt to reign in abuses in the debt collection industry. The CFPB is expected to release a new rule on debt collection this year. In a report issued on March 22, 2016, the agency highlighted lack of data integrity and detailed debt verification as areas of concern. It also discussed requiring debt collectors disclose to consumers when their debt becomes barred.
These are much needed and positive changes to level the playing field. In fact, it is a restatement of what debt collection agencies should have been practicing in any case – providing proof of a debt that is collectible within the statute of limitations. If the debt is legitimate, the CFPB’s new rule should not be a hurdle to proper debt collection efforts.
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