FTC Issues Debt Buying Industry Study

by Ballard Spahr LLP
Contact

The Federal Trade Commission has issued a report, The Structure and Practices of the Debt Buying Industry, which the FTC has described as “the first of its kind” empirical study of debt buyers.

The study reflects the FTC’s continuing focus on consumer protection problems relating to debt collection. The FTC said it has received more consumer complaints about the debt collection industry than about any other industry and, as the debt buyer industry has expanded, the agency has seen a significant increase in the number of collection complaints. Concerned about a “possible link between debt buying and consumer protection problems,” the FTC determined that a better understanding of the industry “was critical to future policy and law enforcement work in this area.”

The study examined the process that debt owners use to sell debts to debt buyers and the terms and conditions of purchase and sale agreements. Observing that “serious concerns have been raised about the sufficiency and accuracy of the information that debt buyers have at all stages of the collection process,” the FTC also extensively evaluated the information that debt buyers obtain and use to collect debts.

Using data and information obtained through “compulsory process” from nine large debt buyers that collectively purchased 76.1 percent of the debt sold in the United States in 2008, the FTC analyzed more than 5,000 portfolios of consumer debt containing nearly 90 million accounts with a face value of $143 billion. Credit card debt represented 62 percent of all portfolios and 71 percent of the total amount spent to acquire debts.

The study’s key findings include the following:

  • In addition to the information required for validation notices, buyers typically receive information such as the original creditor’s name, the debtor’s Social Security number, the date of last payment, the charge-off date, and a breakdown of the outstanding balance into principal, interest, and fees. The FTC believes this information, if disclosed to consumers, might help consumers assess if they owe a debt and whether the amount is correct.
  • Buyers rarely receive information from sellers about the specifics of the collection history of the individual debts in a portfolio, such as whether the debt has previously been disputed or verified. The FTC observed that “[k]nowing the dispute history of debts could be very relevant to debt buyers in assessing whether consumers in fact owe the debts and whether the amounts of the debts are correct.”
  • Buyers receive few underlying documents, such as account statements or the terms of credit, but, under the terms of purchase and sale agreements, can typically obtain a defined maximum number of documents at no charge for a specified period of time after purchase. The agreements also typically specify the price and number of documents the buyer has the option of purchasing after such period ends or the buyer has obtained the maximum number of free documents, whichever occurs first.
  • Purchase and sale agreements typically provide for the sale of debts “as is,” meaning that sellers generally disclaim all representations and warranties concerning the accuracy of the information they provide about individual debts. While commenting that this practice does not necessarily mean inaccuracies were prevalent, the FTC stated that “it does raise concerns about how debt buyers handled purchased debts when such inaccuracies became apparent, and for which they had no recourse available from the seller.”
  • Based on dispute data received from four of the nine surveyed debt buyers, the FTC determined that consumers disputed 3.2 percent of the accounts on which such buyers attempted to collect themselves (rather than using a third-party collector). Noting that this rate is likely to understate information problems with debts collected by debt buyers, the FTC commented that if such a rate is applied to the entire debt buying industry, it indicates “each year buyers sought to collect about one million debts that consumers asserted they did not owe.” The FTC believes “[t]he proper handling of this large amount of disputed debts is a significant consumer protection concern.”
  • The four debt buyers reporting dispute data verified 51.3 percent of the disputed debts, with older debts less likely to be verified. The FTC observed that the application of this rate to the “one million debts estimated to have been disputed in the debt buying industry each year … would indicate that each year about 500,000 disputed debts were not verified by buyers.” The FTC also observed that sales of unverified disputed debts “likely contribute to collectors seeking to recover from the wrong consumer or the wrong amount.”
  • Most purchased debts fell within the applicable statute of limitations. But the FTC observed that this finding might not apply to debts purchased by smaller debt buyers not included in the study.

On February 21, 2013, from 12 p.m. to 1:30 p.m. ET, Ballard Spahr will hold a webinar titled “Creditors, Collectors, and Debt Buyers Beware: What the FTC's Debt Buying Study Means for the Consumer Financial Services Industry.”  More information on the webinar and a link to register can be found here.

Although the Consumer Financial Protection Bureau was not involved in the FTC study, the CFPB will undoubtedly use the study as it supervises and investigates debt buyers and considers proposing debt buyer regulations. On January 2, 2013, the CFPB’s final rule defining larger participants of a market for consumer debt collection became effective.

Ballard Spahr’s Consumer Financial Services Group has created a team of lawyers who are already assisting debt collectors and debt buyers prepare for their first CFPB examinations. In addition, lawyers in the Group regularly consult with their clients engaged in consumer debt collection on compliance with the Fair Debt Collection Practices Act and state debt collection laws.

For more information, please contact Practice Leader Alan S. Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com, John L. Culhane, Jr., at 215.864.8535 or culhane@ballardspahr.com, Debt Collection Task Force Chair Christopher J. Willis at 678.420.9436 or willisc@ballardspahr.com, Glen P. Trudel at 302.252.4464 or trudelg@ballardspahr.com, Stefanie H. Jackman at 678.420.9490 or jackmans@ballardspahr.com, or Heather S. Klein at 215.864.8732 or kleinh@ballardspahr.com.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ballard Spahr LLP | Attorney Advertising

Written by:

Ballard Spahr LLP
Contact
more
less

Ballard Spahr LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!