FTC Settlement is Largest Ever for a Debt Collection Agency

West Asset Management has agreed to pay $2.8 million, the largest civil penalty ever won by the FTC in a debt collection case, to settle charges that it violated the FDCPA when collecting debt from consumers.

West Asset Management employs over 1,500 collectors and manages collections on over 20 million delinquent accounts. The FTC alleged that West Asset Management, Inc. violated the FTC Act and Fair Debt Collection Practices Act when collecting debts from consumers. It would be easy to simply dismiss this as an example of a bad collection agency, but this is a major collection agency that is part of all the major trade organizations and the Federal Trade Commission continues to report more complaints about debt collectors than any other single industry.

Here are some of the FTC’s complaints against West Asset Management, all of which violated federal law:

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Debt Collection Complaints Top 2010 FTC Complaint List

The FTC has released its 2011 Fair Debt Collection Report and in 2011 the FTC received more complaints against debt collectors than any other industry. Further, the number of complaints received by the FTC concerning third-party debt collectors and creditors increased from the previous year. The FTC is required to report annually on their enforcement efforts related to the FDCPA.

The report states the number of complaints related to third-party debt collectors and in-house creditors totaled 140,036 complaints and accounted for 27 percent of all complaints the FTC received. This represents an increase in total number of complaints compared to 2009, when the FTC received 119,609 debt collection complaints, accounting for 22.8 percent of all complaints to the FTC.

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The Fair Debt Collection Practices Act was first passed by U.S. Congress in 1966 and was thoroughly revised in 2006.

Most of the questions we get here relate to what collectors can and can’t do. Since all collection agencies in the United States are governed by the FDCPA or Fair Debt Collections Practices Act, I decided it would be good to post on the Top 5 things most consumers DON’T KNOW about the FDCPA.
 

Most consumers understand that collectors can and cannot do certain things, but sometimes they make assumptions based on logic or intuition. However, it is important to understand exactly what FDCPA covers and what it does not… in many cases it may surprise even the most educated consumers.

So, here is our list of the Top 5 Things You Did Not Know About FDCPA.

5. You can have a collector to stop calling you. Just as simple as that. All you have to do is send the collector a letter and let them know you have no intention of paying the debt or that you are requesting that they cease communications. Section 805.c is very clear on this matter:

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Portfolio Recovery Associates, or PRA, is one of the nation’s largest debt buying collection agencies. Despite doing most of their business in California, Texas, Florida and New York, the company faced 47 lawsuits in U.S. District Court for Colorado in 2010. However, here is the kicker, nearly all the lawsuits were filed by one attorney, David Larson.

PRA specializes in buying debt. Late last year, the company reported owning over $50 billion in consumer debt. However, it paid less than $2 billion to buy this debt. This is fairly typical in the debt buying and debt selling industries.

Typically, debt collection lawsuits settle very quickly, as the debt collectors want to avoid lengthy litigation and consumer attorneys are looking for a quick, easy settlement to collect their fees on. They would prefer this to protracted litigation.

It is my belief that where there is smoke there is fire. If Portfolio Recovery Associates has this many cases filed against it in Colorado, there must be something systemically wrong with their collection practices. Otherwise, why would they settle the majority of the cases. In fact, the average time to settle each of the cases filed by Larson last year was 35 days.

Washington Governor Gregoire

Washington State Governor Gregoire signed a new law today that restricts check cashers’ and payday lenders’ ability to collect on consumer debts. Payday Loans have gotten a lot of attention in the Washington Legislature this month, but this bill is very interesting in its definition of “harassment.”

This bill has some relatively benign elements, such as making it illegal for payday loan companies to impersonate a police officer and make false threats to consumers. I’m pretty sure these are already illegal activities in all 50 states, right?

Yet, this bill also bans the so-called “field calls” frequently used by payday loan collectors. Employees of payday loan companies often take off into “the field,” showing up at consumers homes or places of work, usually delivering a letter that notifies them of their payday loan debt. This is the definition of harassment, since the same payday companies have already called 2-3 times per day to remind the customer that they have fallen behind on their payday loan. It is good to see this horrible collection tactic put out of commission in Washington, at least for payday loan collectors.

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While the IRS has stopped working with private collectors, many local District Attorney’s offices have not. A company called American Corrective Counseling Services provides for-profit services to local District Attorney’s offices, including Los Angeles County. The company sends out letters on District Attorney’s letterhead threatening prosecution and jail time for writing bad checks, even though there is little chance that the District Attorney’s will ever follow through with any action. They also charge hundreds of dollars in fees and share a portion of them with the DA’s offices they contract with.

Now if a private debt collector makes threats that they do not intend to or have the means to follow through on, they are in violation of the Fair Debt Collections Practices Act or FDCPA and can pay hefty fines. However, apparently those rules don’t apply to District Attorney’s and ACCS, since they joined together to convince House Rep. Barney Frank to support exempting them from FDCPA in 2006.

This certainly seems like a double standard and could really be an issue with loans secured by a check, namely payday loans. DA’s and ACCS could be inadvertently helping payday loan collectors falsely threaten prosecution against consumers who simply defaulted on a high interest, unsecured loan.

In a very disturbing case, the 7th Circuit has ruled in favor of debt buyers by upholding a lower court decision that MCM Capital Group did not violate the Fair Debt Collections Practices Act (FDCPA).   In Wahl vs. Midland Credit Management, the court decided that by referencing the total amount of debt purchased as the “principle” amount the debt buyer did not violate FDCPA’s requirement that interest and principle be itemized.

The basic story is that Ms. Wahl charged less than $70 to a BP credit card in the 80′s.  Due to a stroke, she was unable to pay the balance, so interest and fees started accruing at about $40 per month.  After Ms. Wahl’s $70 in gas debt had grown to $1,149 in debt, BP decided to sell the debt to a debt buyer.  The debt buyer then began adding it’s own interest, but reported the $1,149 as the “principle” balance and it’s own interest as the interest.

So, what the court affirmed is that if a debt buyer purchases the debt, they are under no obligation to provide the consumer with any information on how a $70 debt turned into $1,149 and can in fact report that debt as the principle balance.

From the 7th Circuit Court’s Decision:

The starting or original amount owed, she would say, was what she actually charged on the BP card. It follows that none of the interest, whether tacked on by BP or Midland, is part of the “principal balance.” And since Midland included the BP interest within the “principal balance” figure, it uttered a falsehood. But this logic ignores Midland’s role in the process entirely. The interest charged by BP was very much part of the principal balance in Midland’s eyes.
Midland obtained the entire BP debt,3 including interest, so the starting or original amount owed, as far as it was concerned, was indeed $1,149.09.

Regardless of the legal merits, this is certainly a very bad decision for the consumer or debtor.  Basically, a creditor can rack up all kinds of usurious fees and interest, in this case over $1000 for $70 borrowed, and then sell the balance to a debt buyer.  At that point, the debt buyer has no obligation to demonstrate how $70 turned into $1,149 and can refer to $1,149 as “principle.”

This sounds like a great decision for payday lenders operating illegally out of Costa Rica or Grenada, banks hiding behind “fees” to charge usurious rates and collection agencies that want to pursue old inflated debts.

PR: wait… I: wait… L: wait… LD: wait… I: wait… wait… Rank: wait… Traffic: wait… Price: wait… C: wait…

Today, the New York Times has an article about collecting debts from deceased people.

The article features DCM Services of Minneapolis and includes an interview with their CEO. DCM Services offers free yoga classes and massages to their collectors. I suppose after selling your soul all day collecting from the relatives of recently deceased, a little yoga or a neck rub can really lighten your spirit? There is also foosball in the break room and catered lunches twice per month. Sounds like pretty good work, so long as you don’t look in the mirror every day.

Other collection agencies that collect on dead people’s debts by contacting grieving relatives who often have no legal obligation to pay are:

• Weltman, Weinberg & Reis, a Cleveland law firm headed up by Scot Weltman
• Phillips & Cohen Associates of Westampton, N.J with Adam Cohen as chief executive. Incidentally, their collectors are trained in all 5 stage of grief, presumably to better take advantage of each stage.
• DCM Services of Minneapolis with chief executive, Steven Farsht arranging yoga and massages for those who pry money from the dead’s relatives.

It’s amazing to me that this is allowed to exist under Federal Law and FDCPA. At the very least there should be some upfront disclosures that notify the deceased’s relatives of the fact that, in almost every state, there is absolutely no obligation of a surviving relative to assume the deceased’s debts. For these debt collectors prey on grief or the idea that the deceased will rest in peace if their credit card debt are taken care of is really about as low as it gets.

What is surprising is how delusional the executives of these collection agencies, law firms or ambulance chasers (you take your pick) are. The fact that three CEO’s would give interviews to the New York Times and have the nerve to discuss their yoga classes or training in the 5 stages of grief is beyond me. Do they really think anyone in their right mind would view this as ethical or even tolerable behavior? I hope they get kicked out of their country clubs for this.

However, what’s even worse to me is the tone the New York Times takes in this article. Not only do they not present an outraged viewpoint, they seem to spin the massages and free lunches in a positive light. They even point out how these agencies refer angry customers to counselors and then call them again in a week when they’ve been “counseled” without so much as pointing out what a racket this is.

Shame on you New York Times and DCM Services.

UPDATE: US Senator Charles Schumer of New York has called for a federal investigation into the collection practices featured in the New York Times article.