Debt Collector Issues Extend beyond Harassment

Washington, DCMany complaints about debt collectors focus on issues such as debt collector harassment, where debt collectors repeatedly phone and threaten people who owe money. Debt collector lawsuits allege consumers have been subjected to aggressive language and false threats, sometimes over debts that they do not owe. In July 2010, the Federal Trade Commission took a look at another aspect of debt collection that could also cause trouble for consumers: debt collection litigation, when the debt collector files lawsuits to recover owed funds.

The report, titled “Repairing A Broken System: Protecting Consumers in Debt Collection Litigation and Arbitration,” noted that when it comes to lawsuits some companies engaged in practices that raised concerns about consumer protection. These included filing lawsuits based on insufficient evidence, not notifying consumers about the lawsuits, garnishing funds improperly - such as garnishing Social Security funds - and threatening to sue on debts that had expired.

Meanwhile, concerns related to arbitration include forcing arbitration on customers without providing a choice, potential bias in arbitration proceedings and forcing consumers to pay more for the arbitration process than they would for court proceedings.

In its report, the Federal Trade Commission recommended reforming the debt collection litigation and arbitration processes. Among the recommendations were requiring collectors to include more information about the debt they seek to recover, given that the complaints often do not have enough information for consumers to respond to. For example, as the Commission notes, it is common for debt to be sold to debt buyers repeatedly, so that by the time the final debt buyer contacts the consumer, the debt is no longer recognizable. The Commission also recommended changing the law so that accounts into which funds that cannot be garnished are deposited - such as accounts that accept Social Security funds - have a limit on how much can be frozen.

Regarding arbitration, the Commission recommended providing consumers with meaningful choice regarding arbitration and eliminating bias in arbitration forums, including making the process more transparent.

These recommendations do not focus on contact between the debt collector and the consumer. Legislation such as the Fair Debt Collection Practices Act, the Fair Credit Reporting Act and the Telephone Consumer Protection Act set out how and when debt collectors can contact consumers. Unfortunately for consumers, debt collectors allegedly frequently violate those laws, resulting in consumers filing lawsuits of their own. The good news is that when debt collection companies have violated the law, consumers are able to recover damages.