By Charlene Crowell
Despite consensus by economists that the economic recovery is well underway, many of America’s working poor, under-employed and unemployed people continue to struggle financially. Adding insult to injury, these financially vulnerable households face debt collectors who harass and sue them on incomplete and/or inaccurate information. In many cases, consumers are harassed for bills they do not owe by firms they have never heard of.
The financial strain on families is compounded by court judgments that favor debt collectors without first determining the validity of the claims.
The growth of this seemingly irrational system is the focus of recent research.
Both the Human Rights Watch (HRW), a global nongovernmental human rights organization and co-recipient of the 1997 Nobel Peace Prize, and the Alliance for a Just Society, a national network of racial, social and economic justice organizations, recently released reports chronicling this disturbing financial trend.
Rubber Stamp Justice, the title of the HRW report, is so-named because judges often act as “little more than a rubber stamp” in debt collection claims brought into local courts. Researchers found that courts routinely award default judgments, without the consumer present, in an alarmingly large number of cases — as many as tens of thousands a year.
For example, Encore Capital Group, the largest debt collector in the country has often filed between 245,000 and 470,000 new lawsuits in a single year, HRW found. Additionally in 2014, Encore and one of its closest competitors, Portfolio Recovery Associates, together collected more than $1 billion through hundreds of thousands of lawsuits.
“When debt [collector] lawsuits result in unjust and financially disastrous outcomes for poor families, the courts’ own failures and shortcomings are often directly responsible,” states the HRW report. “Fundamental problems with debt [collector] lawsuits often come to light only after the companies have already won judgments they were never entitled to, in courts that never asked them to present any meaningful evidence in support of their claims.”
HRW also notes how several states have created “judgeless courtrooms” where charged consumers are often forced to participate in unsupervised discussions with debt buyers and their attorneys. Although intended to provide an open forum for compromise, many consumers wind up forfeiting their rights for a future court hearing.
To remedy this untenable situation, HRW advocates legislation to limit the interest rates added to debts after the original creditor, often a credit card company, sells old debt to a debt collector.
“Federal law can and should recognize that debt [collectors] are not in the same position as original creditors – they are seeking to appreciate an investment in bad debt, not to recoup money they have lent under agreed-upon contractual terms,” states the HRW report.
Similarly, the Alliance for Justice’s report, Unfair, Deceptive & Abusive: Debt Collectors Profit from Aggressive Tactics, ranks specific consumer concerns, notes the related regulatory role of the Consumer Financial Protection Bureau (CFPB) and offers recommendations for both rulemaking and legislative action.
“Consumer complaints filed with the Consumer Financial Protection Bureau (CFPB) suggest that unfair, deceptive and abusive tactics are prevalent in the debt collection industry,” states the Alliance report.
In 2014, 130,000 consumer debt collection lawsuits were filed in just one county – Cook County, Illinois. A year earlier in 2013, the Alliance report states that one debt collector, PRA Group, Inc., simultaneously pursued 1.5 million individual accounts.
Top consumer debt collection concerns filed with the CFPB between November 2013 and August 2015 were:
- Demands to pay a debt the affected consumer(s) believes is not owed;
- Frequent or repeated calls about the same alleged debt; and
- Failure to provide documentation to verify the debt.
Enacted in 1978, the Fair Debt Collections Practices Act (FDCPA) was designed to eliminate abusive, deceptive, and unfair debt collection practices. It applies only to the collection of debt incurred by a consumer for personal, family, or household purposes. This consumer- oriented federal law calls for debt collectors to provide consumers with certain basic information such as the amount of the debt and the name of the creditor to whom the debt is owed.
Less well-known, however is the law’s requirement that debt collectors must give consumers a 30-day notice to dispute the debt before it is assumed as valid. Additional information on FDCPA is available on the Federal Trade Commission web, and on CFPB’s web. These two agencies also share enforcement duties for this law.
The Alliance for a Just Society offers several state-level recommendations; but has just one for Congress: “close loopholes in existing law that leave consumers vulnerable to unfair, deceptive or abusive debt collection activities.” Among the multiple CFPB rulemaking recommendations, the advocacy group supports penalties that are “sufficient to act as a meaningful deterrent against future violations” and a halt to abusive practices related to medical debt.
“These recent reports affirm the urgent need for state and federal courts, legislators and regulators to address these abusive practices,” said Lisa Stifler, a senior policy counsel who leads the Center for Responsible Lending’s work on debt collection. “When people are being wrongly pursued for debts they do not owe, it is time for action and reforms.”
Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at [email protected]