Exploring Rising Complaints Against Debt Collectors

Consumers filed nearly 120,000 complaints against third party debt collection agencies and creditor collection operations in 2009, according to a recent report from the Federal Trade Commission, the accounts receivable management industry’s chief regulator.

That number likely will increase when the FTC adjusts for complaints transferred into the system from other organizations, the agency told insideARM.

Identity theft lead the list of consumer complaints with 21 percent of total complaints filed with the agency. Complaints against collection professionals ranked second, accounting for nine percent, with complaints against third party collection agencies representing 6.6 percent of the total. The number of complaints against third party debt collectors and creditor collection operations increased 14 percent from 2008 to 2009; complaints against third party collectors rose 11.8 percent while complaints against creditor collections increased 20.8 percent.

ACA International CEO Rozanne Andersen said she believes the complaints signal a “heightened level of frustration” among consumers facing financial problems who feel they have no place to turn for help other than to the FTC or their state attorney general.

Another possible explanation for the rise in complaints is an increase in collection activity seen by the industry recently. In insideARM’s most recent quarterly industry Confidence Survey, more than 60 percent of collection agency respondents reported an increase in placement volume in the early part of 2010, with only 12 percent reporting a decrease.

As more people were losing their jobs, banks were slashing defaulted debt from their books at record rates, sending the accounts into the ARM industry. The Federal Reserve has reported a dramatic spike in credit card charge-offs over the last two years, according to the data the agency collects from U.S. lending institutions.

Credit card charge offs – the bulk of the ARM industry’s debt collection volume – increased 46 percent from 2007 to 2008, and another 56 percent from 2008 to 2009. According to an insideARM analysis of the reported bank charge-offs, there were $83.04 billion in reported credit card charge-offs last year alone.

With more debt to collect and more consumers contacted by creditors and debt collectors, there is more opportunity for consumer complaints.

“Higher placement volumes could lead to higher complaint levels,” said Mark Russell, director at ARM advisory firm Kaulkin Ginsberg, a sister company of insideARM.

However, Andersen said she is reluctant to draw a correlation between the increase in credit card charge-offs with the increase in consumer complaints – especially given the types of complaints filed.

“In a perfect world, that (increase in charge-offs) should not make a difference because for the members of ACA who are adhering to professional collections practices, it doesn’t matter if they have 10 accounts or 10,000 accounts, their behavior should be the same,” Andersen said.

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According to the FTC report, consumers most often complained last year that collection professionals (in order from most common complaint):

• Called repeatedly or continuously
• Falsely represented the amount or status of the debt
• Failed to send written notice of debt
• Falsely threatened a lawsuit
• Failed to identify themselves as a debt collector
• Called repeatedly to obtain actual debtor’s location
• Used obscene, profane or otherwise abusive language
• Called debtor at work knowing debtor can’t take the call
• Threatened debtor with false arrest or seizure of property
• Told someone other than the debtor about the debt.

John Krebs, network program manager for the FTC’s online database of consumer complaints known as Consumer Sentinel Network, told insideARM that the complaints contained in the database have not been verified.

“They are basically what the consumer has told us,” he said. Nonetheless, the FTC and CSN have expanded their education outreach efforts to consumers through the FTC website and through its relationship with other consumer-focused groups. For example, in conjunction with this year’s report to Congress on the collection industry, the FTC released a video that shows consumers how to file a complaint and examples of what they might file a complaint about.

“We have to point out the ease with which consumers can file a complaint with the FTC now,” noted Russell. “We don’t condone actions of collectors that run afoul of the Fair Debt Collection Practices Act (FDCPA), but the connection between complaint system accessibility and public education and rising complaints is pretty obvious.”

The FTC also released a new complaint form and new CSN form in June 2008 that allows consumers to be more specific about the nature of their complaint, Krebs said. Consumers who use CSN’s online complaint tool are asked details about the collection professionals they have dealt with, including whether or not they are the original creditor or a third party agency. The online form also includes specific examples of offenses consumers may choose from when completing the form. Krebs said the updated system allows law enforcement officials investigating consumer fraud and complaints to conduct more narrow searches for information.

Andersen said ACA has been very impressed with the changes the FTC has made to their complaint intake system, which comes in part as a result of the FTC’s discussion with the industry.

“That’s why we are so dogged about presenting consumers with an alternative,” Andersen said “The industry can take care of those complains if we know about them,” she said, adding that the industry can point consumers to the correct person within an agency who has the authority to stop any alleged abuse or violations.

Andersen said the industry will look to the FTC’s report to Congress later this year for other strategies ACA can undertake to address the growing consumer complaints against the industry.