Year after year, the Federal Trade Commission (FTC) receives more consumer complaints about debt collection than any other single industry. Dubbed the "first major empirical study of debt buyers," the FTC undertook this study since 2009 to further understand the debt buying market to enable it to address the voluminous set of grievances launched against debt collectors.
Through a "compulsory process,"[1] the Federal Trade Commission collected and analyzed nine large debt buyers that collectively purchased 76.1 percent of the debt sold in the United States. Narratives and empirical data were analyzed.
Study Limitations:
- This study comprises large debt buyers who bought portfolios directly from Original creditors.
- This study did not assess the litigation practices of debt buyers, "a frequent source of consumer protection problems."
Over 5,000 portfolios of consumer debt containing 90 million accounts with a face value of $143 billion were analyzed. The nine firms (see below) spent roughly 6.5 billion acquiring these debts from credit issuers and other debt buyers. The vast majority of these portfolios related to consumer credit card debt.
The nine debt buyers that were studied:
- Sherman Financial Group, LLC (New York, NY)
- Encore Capital Group, Inc. (San Diego, CA)
- eCAST Settlement Corp. (New York, NY)
- NCO Portfolio Management, Inc. (Horsham, PA)
- Arrow Financial Services, LLC (Niles, IL)
- Portfolio Recovery Associates, LLC (Norfolk, VA)
- Unifund Corp. (Cincinnati, OH)
- B-Line, LLC (Seattle, WA)
- Asta Funding, Inc. (Englewood Cliffs, NJ)
In 2008, the above debt buyers purchased 78.2% of the credit card debt sold to all debt buyers. Six of the nine debt buyers agreed to supply information comprising the below analysis.[2]
Important, Valuable Findings for the Consumer Debtor
- Debt buyers rarely receive debt-dispute history, which could affect – and potentially infringe on – consumers' verification and cessation demands.
- Purchase and sale agreements typically include "as is" clauses that disclaim all representations and warranties about the accuracy of individual debts. How do debt buyers handle inaccuracies when there is no recourse against the seller?
-
Each year studied, debt buyers sought to collect at least one million debts that consumers directly claimed were not owed.
- Of the four debt buyers that agreed to report dispute data, only 51.3 percent of disputed debts were reported as verified. Older debts were less likely to be verified. Of the one million disputed debts observed, about 500,000 disputed debts were not verified. Sales of disputed, unverified debts contributed to collection attempts against the wrong people.
- While most purchased debts fall within the applicable statute of limitations, I see no suggestion that a rigorous study was conducted as to each state's "borrowing" statutes, which can shorten applicable statute of limitations.
- Most purchase and sale agreements stated that documents may not be available for all accounts.
- Debt buyers sold only 2.9% of their disputed debts. This is actually is decent good-faith showing. Although the FDCPA bars debt buyers from seeking to collect unverified debts, it does not bar them from re-selling those debts. I'm actually surprised this figure is so low. Debts that have been settled, challenged by consumers, or in active litigation are typically not included in portfolios sold. Under some purchase and sale agreements, a buyer can return these accounts for a refund.
- Many debts are purchased and re-sold several times over the course of years.
- Debt buyers were often restricted how they could use the names of original creditors (or other debt sellers) in communications with debtors. For example, some contracts expressly prohibited debt buyers from using the original creditor or other seller's name in the subject line of letters sent of consumers.
- 30% of the accounts sold included the interest rate charged by the original creditor.
- Sellers usually did not include in their data files dispute history, prior collection attempt notes and investigations.
- In this limited study, 3.2% of the accounts were reported as disputed. Forecasted across the entire industry, that amounts to approximately 1 million disputed debts per year. This statistic, however, must be construed in light of the following factors: 1) people receive validation notices, understand them, and bother to dispute the debt in writing, which takes time and effort; 2) this does not include disputes to collectors hired by debt buyers to collect; 3) data regarding oral disputes was insufficient; 4) dispute letters received after the FDCPA 30-day response period may not have been factored.
- Of the 3.2% reported as disputed, only 51.3% were verified (based on debt buyers' representations were actually verified – FTC did not confirm). Debts acquired from the original creditors were nearly twice as likely to be verified.
- Debt buyers were significantly less likely to report verification of disputed medical, telecommunications, and utility debt as compared to verification of credit card debt.
- Debt buyers attempted collection solely by themselves on only 26.8% of purchased debts.
---------
Please do not construe the above findings as a guarantee of any kind in your particular case. Past results do not guarantee a similar outcome for you. With that being said, if you have been contacted or sued by any debt buyer, including any one listed above, we would be happy to use our experience to help you!
[1] The FTC has the authority to issue compulsory orders under Section 6(b) of the FTC Act, 15 U.S.C. § 46(b) (2006).
[2] Arrow Financial Services existed the debt buying business mid-way through the study. B-Line, LLC and eCast Settlement purchase bankruptcy debt and could not provide the information sought by the FTC Order.