Consumer complaints that collection professionals frequently try to collect from the wrong person or the wrong amount owed has prompted the Federal Trade Commission to order some of the accounts receivable management industry’s largest debt buyers to hand over information about their practices in buying and collecting consumer debt.
The FTC, which enforces the Fair Debt Collection Practices Act (FDCPA), said it will use the information to better understand the debt buying industry, as well as how the industry’s business practices may contribute to a rise in consumer complaints against ARM companies.
“Debt buyers are now such a major part of the debt collection industry that we, as the federal agency assigned to enforce FDCPA, believe that we need to understand the debt buying industry even better than we do now,” said Thomas Kane, an attorney with the FTC’s Division of Financial Practices. “It will improve our ability to make policy decisions as well as influence our enforcement practices.”
The FTC sent the order to nine companies that buy and collect consumer debt on their own or through outsourced collection agencies. The companies have until February 25 to comply.
Kane said the companies were selected because they are large, not because the agency has determined that the companies violated the law. Collectively, the companies represent about 75 percent of the debt purchased in the United States, he said.
Portfolio Recovery Associates (Nasdaq: PRAA), which purchased $1.75 billion of face-value debt during the third quarter of 2009, confirmed that it received the FTC order seeking information about company practices.
“We are mindful of the FTC’s appreciation of the fact that debt collection is an important component of the credit economy, helping to keep credit available and its cost as low as possible for all consumers,” Judy Scott, a company spokeswoman, told insideARM in an email. “We are pleased to be a resource to the FTC in their efforts to better understand the vital role that distressed asset purchasers play in the economy, and we will work with them in the coming weeks to ensure that they receive information that will improve their knowledge of our industry.”
The FTC has given the companies until February 25 to comply with the order, though no publish date for the study has been set. Each firm must provide specific information, data, and documents for the years 2006 through 2008. Among the data the FTC is seeking:
- Total annual sales and earnings from collecting on purchased debt, selling debt portfolios, and other debt collection-related activities.
- The number of debt portfolios purchased each year and their identification number.
- The portfolio seller’s name, and number of customer accounts in each portfolio.
- The age and types of accounts included (i.e., credit card, medical, auto, etc.).
- The face value of each portfolio and how much the company paid for it.
- The number and face value of accounts sold without collection attempts.
- The number and average accounts purchased from the original creditor or owned previously by one or more debt buyers prior to the company’s purchase.
- To whom the debt buyer resold accounts, and how many accounts the company sold to each purchaser.
The FTC also requested information about all computer databases and software used to maintain, update, and analyze records of consumer accounts, collection calls, collection payments, and other collection data.
Barbara Sinsley, general counsel for debt buying trade group DBA International, said the biggest concern for the companies included in the study likely will be making sure that their proprietary information and business relationships are protected.
“Hopefully, we can reach some sort of compromise to balance the trade secrets of these companies and still give the FTC the information that they need,” said Sinsley, of Tampa, Fla.-based Baron, Newburger, Sinsley & Wier.
Kane told insideARM that the report will not include any proprietary information and each company’s information will be given the highest level of confidential treatment.
It’s the third time in three years that the FTC has gathered information for a report about the debt collection industry. The agency gathered information about debt collection practices during a workshop it sponsored in October 2007. In February 2009, it issued a report based on the workshop in which it found major problems in the flow of information among creditors, debt buyers, and collectors ("FTC Proposes Significant Changes to FDCPA in Workshop Report," Feb. 27, 2009).
Last year, the FTC gathered information during three roundtable discussions on debt collection litigation and arbitration. That report has not yet been published, Kane said. He said it’s too early to determine when the debt buyers study will be published.