Consumers Union Issues Scathing Report on ARM Industry

Collection violation penalties should be “at least $5,000,” collectors should include a copy of a consumer’s original credit agreement signature in their communications, and debt should have a “sell-by date,” according to a new report released by two consumer groups.

The report, “PAST DUE: Why Debt Collection Practices and the Debt Buying Industry Need Reform Now,” was issued in January by Consumers Union and East Bay Community Law Center. Consumers Union is best-known for publishing the popular magazine Consumer Reports.

The litigation practices of debt buyers takes center stage in the paper, noting that “Policymakers at both federal and state levels must act to create better substantive and procedural safeguards for courts and consumers in debt collection litigation.” The paper is filled with consumer anecdotes regarding their experience in the debt collection process.

The groups urge policy updates on the federal and state levels and amendments to court rules “to reform debt buying and debt collection industry practices.”

Some of the most specific policy recommendations involve information requirements for the collection, sale, and litigation of consumer debt. For example, the first policy recommendation is to require more information before a collector can attempt to work an account. In addition to the information already required, the report advises ARM professionals to provide a statement notifying a consumer that they have a right to suspend collection attempts until validation; itemization of all fees and charges on the account’s current balance; a copy of the consumer’s signed credit agreement; and a chain of title on the debt if it has been sold.

The report also recommends raising the civil penalty for violations of the Fair Debt Collection Practices Act (FDCPA) to “at least $5,000” from the current $1,000.

The authors encourage policymakers to establish a “sell-by” date for consumer debt, after which accounts would not be eligible for debt purchasing. The recommended sell-by date would adhere to the seven-year prohibition on credit reporting already established by the FCRA, or individual state statutes-of-limitations, whichever is lesser. In addition to banning the sale of accounts past these dates, the paper recommends that all debt collection activity should be banned on time barred debt.

ACA International issued a statement late Wednesday responding to the report. “ACA International finds areas for both agreement and disagreement in regard to the authors’ proposed policy changes,” the statement said. “We agree that harassment, threats and other illegal activity against consumers are unacceptable and violators must be held accountable. Our members work very hard to ensure consumers are treated respectfully during all facets of the collection process.”

ACA notes that modernizing the FDCPA and TCPA, along with various state laws, would help increase consumer protections while ensuring a fair operating environment for the accounts receivable management industry.