Are Debt Buyers Overrepresented in FTC Complaints Against Collectors?
According to an analysis of data received from a Freedom of Information Act (FOIA) request for January and February 2012, debt buyers made up a disproportionately high percentage of complaints against the ten most commonly-complained about third party debt collection agencies. This seems to bolster a common complaint among contingency agencies that debt buyers are giving the ARM industry a bad name.
Over the first two months of 2012, the ten most commonly-named companies in debt collection complaints accounted for 2,724 complaints, or about 10.7 percent of the total, out of a universe of more than 4,000 named companies, according to data from the Federal Trade Commission’s Consumer Sentinel Network. It should be noted that “Unknown Company” was by far the most common company mentioned in complaints and is not counted in this total.
An analysis by insideARM.com revealed that of those ten companies, four were debt buyers, accounting for 42 percent of the Top Ten’s complaints.
Only very large ARM firms appear in the Top Ten list, as companies with more consumer contacts tend to have more complaints filed against them. Indeed, the four debt buyers in the Top Ten are very large.
But there are much larger contingency debt collection operations appearing further down on the list. Some of the largest ARM companies in the world did not have enough complaints against them to warrant inclusion on the Top Ten list while smaller debt buyers did.
Also, only companies named specifically by consumers can be counted in the analysis. So there is a very good chance that some of the contingency debt collection agencies named in complaints were working on behalf of debt buyers. For example, one other company in the Top Ten that does not identify itself directly as a portfolio purchaser lists on its web site debt buyers as one of its major clients, but that company’s complaints were not counted in the debt buyers’ totals.
It’s easy to cast nasty eyes at debt buyers and blame them for the rise in complaints against collection agencies. But we must remember that the volume of debt being sold by original creditors, and by debt buyers into the secondary market, has been rising steadily since the early 2000s. There might have been a hiccup in the market after the financial collapse, but there is still a lot of debt being bought and sold, and the trend is largely driven by creditors.
So debt buyers are finding themselves on the front line more than ever. With consumer contacts increasing, it makes sense that complaints against them would also increase.
The nature of purchased debt itself also probably plays a role in the elevated complaints volume. Debt that is bought rather than forwarded directly by credit grantors to collection agencies tends to be older, especially when it is resold into the secondary market. Purchased debt also no longer carries an expectation of customer service that some banks insist on with their contingency collection vendors. And verification documentation issues often plague accounts – and sometimes entire portfolios – that are sold.
Related Content:
- FTC Debt Collection Complaints Compendium – Q1 2012
- The Complaints Issue
- The Global Debt Buying Report
- The Debt Collection Compliance Handbook
I would submit that most of the debt buyer complaints originate with the original creditor.
As a Recovery Manager in a commercial bank, my job was described to me as “being similar to following elephants in the circus parade with a broom and shovel.”
Sure, Recovery Managers bear responsiblity for the disposition of all the accounts that charged off due to the normal reasons for delinquency. But also the accounts that the rest of the organization failed to resolve customer services issues on prior to charge-off.
From my past experience, that is where the vast majority of FTC and OCC complaints originate.
For debt buyers who purchase accounts from creditors with accelerated sale processes, I could easily see those those complaints then fall upon them.
The FTC/OCC complaint data is interesting, but I suspect that it is skewed.
The real question is how many of those complaints are valid. And in that light, the industry’s focus should be on those debt buyers who have actually been sanctioned either by the states or the feds.
My first comment is after spending over 40 years in managing charged off accounts, of which was 18 for three of the top five credit card banks, I never heard the statement about following elephants so am sorry that the commercial bank viewed a recovery manager as such. Secondly, we did not sell the types of charged off accounts that were client service disputes. Lastly, the significant rise to charge off debt buying may contribute to the rise in complaints but I agree that reporting complaints is more that just a number since the data does not identify resolutions nor validity of same as mentioned by the second comment.
Hello. You write a ‘disproportionately’ high percentage at…10.7% of complaints are made against debt buyers, over two months? Then this “Only very large ARM firms appear in the Top Ten list, as companies with more consumer contacts tend to have more complaints filed against them. Indeed, the four debt buyers in the Top Ten are very large. Then “Also, only companies named specifically by consumers can be counted in the analysis and “It should be noted that *Unknown Company* was by far the most common company mentioned in complaints and is not counted in this total”. Begging the question how large is your true pooling size, and where is it? I, for one, would say no Debt Buyers are not attributing to a disproportionate amount of complaints. The ARM industry itself is a litigious one and complaints are encouraged (some I’m sure legitimate, some frivolous) to help give credence to class action suit filings.
Dan Cover: 10.7% of the complaints were logged against the Top Ten ARM companies, not just debt buyers (debt buyers accounted for 42 percent of the complaints then against the Top Ten).
As for your question about “true pooling size,” do you mean our sample? For January and February 2012, there was no sample; we got all of the complaint data. We analyzed every single complaint made to the FTC against collection agencies (including debt buyers) over those two months.