In the wake of the FTC’s settlement with debt buyer Asset Acceptance, the regulatory agency has published a consumer alert regarding time-barred debts. Essentially, debt buyers purchase debt portfolios for pennies on the dollar, and may then go to any length to collect on the debt. Often, the debts in question are past the statute of limitations. This means that the debt collector can’t sue the consumer in court and obtain a judgment against him or her. An ancillary problem is that often, by the time the debt buyer purchases the debt, documentation about the original debt is scarce or non-existent. This results in debt collectors going after the wrong person – perhaps someone who currently has a phone number once associated with the account, or a person with a similar name to the consumer who originally owed the money. All too often, debt buyers threaten consumers with lawsuits over time-barred debt and place negative items on their credit reports – both of which are illegal.
You can find the full FTC Consumer Alert here: http://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt144.shtm
However, here are some highlights:
* State laws vary regarding the statute of limitations; most states have three- to six-year statutes of limitations, but some are as long as ten years.
* If you ask a debt collector if a debt is past the statute of limitations, he must answer truthfully.
* In many states, if you make any payment at all on a time-barred debt, it “resets the clock” and the debt once again becomes current. This means that the debt collector can take you to court and obtain a judgment against you.
* If you’re sued for a time-barred debt, go to court and tell the judge. If you don’t defend yourself, the judge will likely rule in the debt buyer’s favor and a judgment will be entered against you.
* If a collector sues you or threatens to sue you for a time-barred debt, talk to a fair debt attorney. You can sue for violation of the Fair Debt Collection Practices Act.
Asset Acceptance has been a notorious debt buyer, with a track record of going after consumers for debts that have passed the statute of limitations. Now, the Federal Trade Commission has announced that Asset Acceptance has agreed to pay a $2.5 million civil penalty for their bad behavior.
The FTC alleged that Asset Acceptance had violated the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, and that FTC Act. According to the press release issued by the FTC, the regulatory agency’s complaint charged the debt buyer with:
* Misrepresenting that consumers owed a debt when it could not substantiate its representations;
* Failing to disclose that debts are too old to be legally enforceable or that a partial payment would extend the time a debt could be legally enforceable;
* Providing information to credit reporting agencies, while knowing or having reasonable cause to believe that the information was inaccurate;
* Failing to notify consumers in writing that it provided negative information to a credit reporting agency;
* Failing to conduct a reasonable investigation when it received a notice of dispute from a credit reporting agency;
* Repeatedly calling third parties who do not owe a debt;
* Informing third parties about a debt;
* Using illegal debt-collection practices, including misrepresenting the character, amount, or legal status of a debt; providing inaccurate information to credit reporting agencies; and making false representations to collect a debt; and
* Failing to provide verification of the debt and continuing to attempt to collect a debt when it is disputed by the consumer.
As part of the settlement, Asset Acceptance agreed to a number of other conditions. According to the FTC press release:
The proposed settlement order resolving the agency’s charges also requires that when consumers dispute the accuracy of a debt, Asset Acceptance must investigate the dispute, ensuring that it has a reasonable basis for its claims the consumer owes the debt, before continuing its collection efforts. The proposed order also bars the company from placing debt on consumers’ credit reports without notifying them about the negative report.
Illinois Attorney General Lisa Madigan filed suit in an effort to shut down PN Financial, permanently prohibit the company from engaging in debt collection in the state, pay restitution to consumers, and pay civil penalties. According to a press release issued by Madigan’s office, the AG is alleging that PN Financial engaged in egregious activities that violated state and federal laws, including:
* Revealing information about debts to people other than the consumer, including employers or family members;
* Fronting as a law firm and intimidating consumers with fake court case numbers on letters sent to consumers to falsely represent they had been sued for failure to pay a debt;
* Debiting more money from consumers’ bank accounts than consumers authorized, causing some to incur overdraft fees; and
* Accessing consumers’ credit reports without authorization to intimidate them to pay alleged debts.
West Virginia Attorney General Darrell McGraw announced a settlement in the state’s case against Capital One and its sister companies. The case related to the lender’s credit card practices prior to January 1, 2006. Although the settlement means that Capital One does not have to admit to any wrongdoing, the financial institution is ponying up $13.5 million. According to a press release issued from McGraw’s office, “Capital One agrees to provide $3 million in debt forgiveness to West Virginia consumers, $9.5 million to the State of West Virginia to be used for financial relief for West Virginia consumers, and $1 million to the Attorney General’s office for consumer education and restitution.”
A Texas woman says she has suffered immeasurably at the hands of Commercial Recovery Systems, a third-party debt collection agency. In Flynn v. Commercial Recovery Systems (U.S. District Court, Northern District of Texas, Dallas Division), it is alleged that the debt collection agency went beyond the pale in attempting to collect a debt. The complaint alleges that the debt collector called Flynn’s cell phone up to six times a day, and called her octogenarian parents at 7:00 a.m. and told them that there was a warrant for Flynn’s arrest. Moreover, the debt collector allegedly threatened to come to Flynn’s house, and to arrive with a law enforcement agent. Added to the mix are allegations that Commercial Recovery Systems allegedly failed to send Flynn the mandated 5-day notification letter, nor informed her of her right to dispute the debt. The suit, filed by Lemberg & Associates on behalf of Ms. Flynn, cites numerous violations of the federal Fair Debt Collection Practices Act, as well as the Texas Debt Collection Act.
American Banker reports that JPMorgan Chase has abruptly stopped suing consumers over past due debts. Jeff Horwitz writes that the bank has also laid off in-house attorneys and fired regional collections teams. A former attorney for Chase said that the bank may have been investigated by the Office of the Comptroller of the Currency, and a whistleblower last year accused Chase of “robo-signing” affidavits. The article notes that, in a single Florida county, Chase filed 640 collection lawsuits in January 2011. Though an electronic court records search, American Banker found that the bank’s consumer debt lawsuits had disappeared altogether in Florida, Maryland, New York, California, and Washington.
Lemberg & Associates issued the following news release on January 9, 2012:
Lemberg & Associates LLC has filed an amended class action complaint on behalf of a client that alleges that Whirlpool Corporation, which has merged with Maytag Corporation, and Service Net Warranty engaged in deceptive and unfair trade practices regarding the companies’ service contracts. According to attorney Sergei Lemberg, “Thousands of consumers - or perhaps hundreds of thousands - were ripped off by Whirlpool and Service Net when those companies did not repair or replace faulty appliances per the terms of the service contracts.”
According to the amended class action complaint, when he purchased his Maytag clothes dryer, the plaintiff also bought a three-year service contract that promised to repair or replace the appliance if it failed. The complaint states that it also gave the warrantor the option of “buying out” the contract by either refunding the original purchase price less the amount of claims paid, or replacing the dryer with a comparable product. Instead of refunding the original purchase price or replacing the dryer, the complaint alleges that the defendants told the plaintiff that he was only entitled to a refund for the present value of the dryer, minus the cost of the repairman’s visit. According to Lemberg, “That is absurd, since the point of buying a service contract is to avoid the cost of repair.”
The plaintiff alleges that Maytag, which was subsequently purchased by Whirlpool, and Service Net Warranty, which administers the service contracts, failed to fulfill the terms of the service contract by improperly administering buy-outs. As such, the suit alleges that the his dryer’s buy-out, and buy-outs given to similarly situated consumers, constituted breach of contract, unjust enrichment, and a violation of the federal Magnuson-Moss Warranty Act.
Lemberg concludes, “Consumers purchase service contracts to ensure that they will be protected should an appliance need repair or replacement. Corporations and service contract providers need to be held accountable to the terms of the service contracts. On behalf of our client, we are determined to do whatever it takes to give consumers who have been victimized an avenue of redress.”
This release references Sherman v. Maytag Corporation, Whirlpool Corporation, and Service Net Warranty, LLC (U.S. District Court, District of Connecticut, 3:11-cv-01010-JBA).
According to a report in the Wall Street Journal, debt buyers have a new trick up their sleeves. These debt collectors, who buy debt that has passed the statute of limitations, are offering MasterCards to consumers whose credit has been pummeled. The catch? In return for receiving the credit card, the consumer has to make a payment on the old debt – which restarts the clock and makes the debt current again.
Debts that are past the statute of limitations (a length of time that varies from state to state) are not collectible through the court system. In other words, the debt collector can’t take you to court and get a judgment to garnish your wages or take money out of your bank account. But by agreeing to receive the credit card, the debt is “re-aged” and is again eligible for legal action.
The Wall Street Journal article names CompuCredit and Genesis Financial Solutions as big players in this game. It also notes that the Federal Deposit Insurance Corp. and the Federal Trade Commission have gone after both banks and debt collectors who participate in this scheme, citing deceptive practices. Consumers typically don’t realize that their agreeing to repay an expired debt.
The bottom line? If you have time-barred debt, be wary of credit card offers that seem too good to be true.
President Obama did an end run around Senate Republicans, naming Richard Cordray director of the Consumer Financial Protection Bureau vis a vis a recess appointment. Senate Republicans had blocked a vote on the nomination, saying that the CFPB wasn’t accountable to Congress and wanting to replace the directorship with a commission. Supporters of the CFPB, which was established by the Dodd-Frank Act in 2010, said that a commission would water down the agency’s effectiveness in protecting consumer interests. Although the CFPB was officially launched last summer, many of its oversight and rulemaking functions were contingent upon the appointment of a director. Elizabeth Warren, a tireless advocate for the CFPB, spearheaded the agency’s launch but was viewed as too controversial to be considered for the top post. Cordray is the former Attorney General of Ohio, and had previously been tasked with leading the enforcement arm of the CFPB.
It is possible that Obama’s recess appointment may be challenged in court, since presidents typically only follow through with recess appointments when the Senate is in recess for ten days or longer. Nonetheless, the CFPB needs a director so that the agency can take on the debt collection industry and financial institutions that prey on consumers. In today’s hyper-partisan environment, Cordray’s appointment was the right move.
Newsweek Magazine started the New Year right – with a great story on the seedy underbelly of the debt collection industry. A former debt collector relates that she was ordered to keep calling consumers to the point of harassment, and tells tales of threats made by debt collectors to consumers. Gary Rivlin, who wrote the piece, also delves into the world of debt buying, explaining that “zombie” debt may be pursued by three or four debt collection agencies over time, subjecting the consumer to repeated inquiries about debts that have never been validated. He even explains that many debt buyers have no qualms about collecting past a debt’s statute of limitations. He notes that one debt buyer he interviewed “doesn’t bother buying the paperwork that would substantiate the data contained in the spreadsheets he buys from other debt buyers because, he explains, that bumps up the cost of the purchase and therefore eats into the bottom line.
Sergei Lemerg is also quoted in the article, commenting on the Federal Trade Commission report that shows a huge uptick in consumer complaints about debt collectors. Lemberg says that the FTC numbers are “just the tip of the iceberg.”
You can read the full article at the Daily Beast: http://www.thedailybeast.com/newsweek/2012/01/01/america-s-abusive-debt-collectors.html
