Can Debt Collectors Leave Messages?

The Fair Debt Collection Practices Act was passed in 1978, and hasn’t been substantially amended since then. As such, it hasn’t kept up with technological advances. For example, although some people had answering machines back then, they weren’t in wide use. How then, do the provisions of the FDCPA that require that debt collectors identify themselves to consumers jibe with the provisions that prohibit debt collectors from disclosing their identities to third parties? In other words, if a debt collector calls and leaves a message on an answering machine (or voicemail), does he say he’s with the XYZ agency? If so, and if someone else hears it, he’s violating the law. Yet if he calls and leaves a message saying to call back, without identifying himself as a debt collector, he’s violating the law.

In a case recently decided in the 11th U.S. Circuit Court of Appeals, Niagara Credit Solutions argued that it had to violate one law to comply with the other. Thankfully, the judge didn’t buy that argument, saying, “The law does not guarantee a debt collector the right to leave answering machine messages.”

Consumer Financial Protection Agency Moves Forward

According to a Reuters news report, Congress moved one step closer to creating the Consumer Financial Protection Agency. Today, the House Energy and Commerce Committee passed a bill out of committee, following in the footsteps of last week’s action by the House Financial Services Committee.

The House Energy and Commerce Committee added a couple of amendments to the bill, one of which would create a commission to oversee the new agency, making it structurally similar to the Federal Trade Commission. The other amendment would allow the FTC to prosecute violations of the law in parallel with the new agency, instead of being mandated to wait 120 days to see if the Consumer Financial Protection Agency would pursue violations.

Democrats argued that the House version of this bill waters down consumer protections, because it partially or fully exempts certain businesses, such as credit, mortgage and title insurers, auto dealers, and small banks and credit unions. Although attempts were made to cut provisions allowing the FTC to enact rules, those proposed amendments were defeated.

Obama Goes After Collectors - Good News!!!

A government report released on Wednesday by the U.S. Government Accountability Office (GAO), concluded that the FDCPA is outdated and made specific recommendations to Congress regarding modifications to the statute. The report was prompted, in part, by consumer complaints to federal agencies regarding abusive collection practices used by debt collectors.

Of particular interest to consumer protection advocates is the report’s recommendation that the FDCPA regulate the information that debt collectors must provide when buying and selling debt. Consumers have a right to demand proper validation of debt, and collectors sometimes do not provide it due to complex chains of title.  Implementation of this recommendation will ultimately provide consumers with another level of protection.

The report also recommends giving the Federal Trade Commission rulemaking authority over the FDCPA, and updating the statute in light of modern technologies. Hooray for the GAO! Let’s hope that Congress implements the report’s recommendations.

Credit Card Companies May Be Ditching Tainted Arbitration

Credit card companies have long required consumers to participate in arbitration to settle disputes over unpaid bills. According to an article in the Wall Street Journal, the nation’s largest mediators, the National Arbitration Forum (NAF) and the American Arbitration Association, have stopped hearing such cases. Moreover, credit card companies are increasingly dropping the requirement for arbitration.

Why? According to the WSJ, NAF allegedly didn’t handle arbitration fairly and impartially. Indeed, the company may have been deciding against consumers so that its sister company, Axiant LLC, could collect the debt. The Minnesota Attorney General alleged in July that the parent company, Accretive, was working both sides of the aisle, as an arbiter and as a collection agency. Accretive was also tied to the Mann Bracken law firm, which is known for representing credit card companies in arbitration. It’s no surprise, then, that an NAF official recently testified to Congress that 94% of debt collection arbitrations found in favor of the credit card companies - and that a former arbitrator who is a Harvard law professor testified that NAF stopped using her after she ruled in favor of a consumer.

United Recovery System Goes After “Whales”

In our countdown of the top 20 debt collectors, we ranked United Recovery Systems as number 11. A recent article published in the Miami Herald pulls the curtain back on United Recovery and other debt collection agencies that are doing a booming business during these times of economic turmoil. The Herald says that United Recovery is what’s called a “whale hunter,” going after clients with thousands, or tens of thousands, of customers who are behind on paying their bills. It notes that the debt collection agency is garnering $937 million a month in new accounts, and will increase its workforce by 600 this year. United Recovery, like many other debt collectors, uses what’s called predictive software to determine which consumers are more likely to pay off their debt.

Nationwide Asset Services Must Post Bond to Do Business in NY

New York Attorney General Andrew Cuomo recently won a lawsuit against Nationwide Asset Services. The court’s decision mandated that the company pay $200,000 in penalties and post a $500,000 bond if it wants to do business in that state.

Nationwide Asset Services is a national debt settlement company that promises consumers a 25 to 40 percent reduction in their debt. According to Cuomo, only a fraction of one percent saw such savings, while the vast majority continued to be harassed by debt collectors.

A press release issued by the Attorney General’s office quoted Cuomo as saying, “This company made promises to people who were searching for financial help and trying to turn their lives around. But the promises never came true and, in many cases, New Yorkers were left in worse condition than when they started. Thanks to this ruling, the company has to put its money where its mouth is with a performance bond if it wants to do business in New York.”

The decision also applies to the company’s affiliates, ServiceStar and Universal Debt Reduction, as well as its marketer, FGL Clearwater (dba American Debt Arbitration).

The AG’s press release noted:

Debt settlement companies represent that they can substantially reduce consumer debt by negotiating directly with creditors, on behalf of their customers, to pay off outstanding balances at less than the amounts owed. However, Attorney General Cuomo’s Office has found that many of these debt settlement plans are often flawed and, based upon complaints, often mislead consumers about the nature of their services. The debt settlement plans are generally premised on consumers’ aggregating savings, over one to three years, from which both the payment of the company’s fees and any negotiated settlement are to be made. Yet most consumers who are targeted by these companies are unable to meet the savings requirements because of their already-precarious financial situation.

In addition, the companies often take their substantial fees up-front and keep these fees even when they do not provide the promised services. As a result, many consumers find themselves worse off financially because of these debt settlement plans.

Continental Service Group Counts on Student Loan Defaults

According to a recent article in Rochester’s Democrat and Chronicle, joblessness may be at an all-time high, but debt collection agencies are raking in the bucks. Although the number of recent college graduates who can’t find employment is through the roof, Continental Service Group (also known as ConServe), which specializes in collecting student loan defaults, is creating jobs in Buffalo.

The article notes that the company has gone from 100 to 340 workers over the past five years, and that debt collection agencies have collected $376 million in federal student loans during the 2008 fiscal year. Western New York is home to many agencies, with 16 in the Rochester area and 90 in the Buffalo area.

Form Letters from Law Firms May Violate FDCPA

Last month, Forbes.com published a nice round-up of consumers’ rights under the Fair Debt Collection Practices Act, and noted that, when a debt collector violates the law, a person can take him to court and obtain damages, attorney’s fees, and court costs.

A more recent column noted that a decision was handed down last week by the Eastern District of New York saying that a law firm must conduct a meaningful investigation of underlying debt before taking a consumer to court. The judge said that a law firm that does things like process a high volume of notices, and use form letters and facsimile signatures, without reviewing your file is violating the FDCPA.

Debt Collectors Not Worried about Health Care Reform

While Congress, the media, and the public are passionately debating health care reform, there’s one industry that isn’t breaking a sweat. According to Inside Accounts Receivable Management, the Senate Finance Committee health care reform bill was passed without restrictions on health care debt collection practices. There were rumors that the bill would mandate delays in turning overdue medical bills to debt collectors, but the debt collection industry’s lobbying efforts were successful. The article quoted ACA International’s lobbyist as saying that the impact on debt collectors would be “negligible.” Another industry insider said that the bill may provide debt collection agencies with additional opportunities to bring in revenue, since they could advise hospitals on disclosure practices.

Dirty Dozen: New York AG Files Criminal Charges Against 12 Collectors

New York Attorney General Andrew Cuomo filed criminal charges against a dozen employees of debt collection agencies in the Buffalo area. The charge? Posing as law enforcement officials and threatening to throw consumers in jail unless they immediately paid debts they were told they owed. All of the debt collection agencies were owned by Tobias Boyland, the subject of a Dateline NBC “sting” earlier in the year. Cuomo shut down the agencies in June, and has compiled more than a thousand complaints against the companies.

According to an AG office press release:

“The tactics allegedly used here are some of the worst of the worst in the debt collection business,” said Attorney General Cuomo. “The defendants’ alleged lies, deceit and intimidation caused many innocent people to pay money they didn’t owe just to stop the terrifying calls. My office will continue to seek out and punish companies that prey on consumers and violate clearly written laws regarding debt collection.”

According to the felony complaints, the defendants stole thousands of dollars from consumers from across the country by using the threat of criminal charges and incarceration to collect debts that often did not exist, had passed the statute of limitations or had been previously discharged through bankruptcy. The collectors also regularly inflated the amount owed on an actual debt and would falsely tell consumers that they were being sued in civil court.

The complaints allege that the collectors used false law enforcement identities to coerce and cajole terrified consumers into agreeing to make the payments. Frightened at the prospect of arrest and humiliation, consumers authorized withdrawals from their checking accounts, wired money, or sent money orders to the collectors. Consumers were intentionally given misleading names, addresses and telephone numbers that led them to believe the businesses were located far from the Buffalo area.

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Sergei Lemberg, Esq., focuses his practice on defending consumer rights in the areas of Fair Debt Collection Law, Consumer Fraud, Auto Warranty and Auto Injury litigation.

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