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entitled 'Credit Cards: Fair Debt Collection Practices Act Could Better
Reflect the Evolving Debt Collection Marketplace and Use of Technology'
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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
September 2009:
Credit Cards:
Fair Debt Collection Practices Act Could Better Reflect the Evolving
Debt Collection Marketplace and Use of Technology:
GAO-09-748:
GAO Highlights:
Highlights of GAO-09-748, a report to congressional requesters.
Why GAO Did This Study:
Approximately 6.6 percent of credit cards were 30 or more days past due
in the first quarter of 2009—the highest rate in 18 years. To recover
delinquent debt, credit card issuers may use their own collection
departments, outside collection agencies, collection law firms, or sell
the debt.
GAO was asked to examine (1) the federal and state consumer protections
and enforcement responsibilities related to credit card debt
collection, (2) the processes and practices involved in collecting and
selling delinquent credit card debt, and (3) any issues that may exist
related to some of these processes and practices. To address these
objectives, GAO analyzed documents and interviewed representatives from
six large credit card issuers, six third-party debt collection
agencies, six debt buyers, two law firms, federal and state agencies,
and attorneys and organizations representing consumers and collectors.
What GAO Found:
The primary federal law governing third-party debt collection is the
Fair Debt Collection Practices Act (FDCPA), which contains provisions
on how collectors can communicate with consumers and prohibits
collectors from using abusive, deceptive, and unfair collection
practices. Some states have fair debt collection laws that provide
protections additional to those of FDCPA. The Federal Trade Commission
(FTC) is the primary enforcement agency for the debt collection
industry; it collects consumer complaints, enforces violations of
relevant laws, and undertakes consumer education efforts. Federal
depository regulators oversee credit card issuers’ collection
practices, and various state agencies enforce state fair debt
collection laws.
Collecting and selling delinquent debt involves multiple parties.
Credit card issuers typically collect on accounts less than 6 months
delinquent using internal collection departments or “first-party”
agencies that collect under the issuer’s name, and often hire third-
party collection agencies or law firms to collect on older accounts.
Contracts between issuers and collectors often specify the collection
policies and practices used. Third-party collection agencies rely
primarily on telephone calls and postal mail in their operations, but
often use automated mail systems and other technologies to do so
efficiently in large volume. Credit card accounts often are sold—and
may be resold multiple times. Several factors influence the price of
these accounts, including their age, location, and number of times
previously placed for collection.
State and federal enforcement actions, anecdotal evidence, and the
volume of consumer complaints to federal agencies—about such things as
excessive telephone calls or the addition of unauthorized fees—suggest
that problems exist with some processes and practices involved in the
collection of credit card debt, although the prevalence of such
problems is not known. One issue is that collection agencies and debt
buyers often may not have adequate information about their accounts—
sometimes leading the collector to try to collect from the wrong
consumer or for the wrong amount—or may not have access to billing
statements or other documentation needed to verify the debt. Further,
with the advent of the debt-buying industry, accounts are frequently
sold and resold, which can make verification more difficult as the
owner of the debt becomes farther removed from the original creditor.
Communications technologies that are ubiquitous today, such as mobile
telephones, e-mail, and voice mail, were not prevalent when FDCPA was
enacted in 1977. Significant uncertainty exists about how to use these
technologies in compliance with the statute—for example, a debt
collector may violate FDCPA if someone other than the debtor overhears
a voice mail message revealing the debt collection effort.
Additionally, FDCPA does not provide FTC with rulemaking authority,
which has limited the agency’s ability to address concerns related to
the adequacy of account information, collectors’ use of modern
technologies, and other issues that arise in an evolving marketplace.
What GAO Recommends:
Congress should consider modifying FDCPA to (1) help ensure that
collectors and buyers have adequate information about debt transferred
and have adequate documentation to verify debts, (2) reflect
technologies that were not prevalent when the act was written, and (3)
provide FTC with rulemaking authority.
View [hyperlink, http://www.gao.gov/products/GAO-09-748] or key
components. For more information, contact Alicia Cackley at (202) 512-
8678 or CackleyA@gao.gov.
[End of section]
Contents:
Letter:
Background:
Several Federal and State Laws Govern Fair Debt Collection, and
Agencies' Oversight Roles Vary:
Delinquent Credit Card Debt May Be Collected Internally, Outsourced, or
Sold:
Certain Issues Exist about Some Debt Collection Practices and FDCPA
Does Not Address Some Changes That Have Occurred in Technology and the
Marketplace:
Conclusions:
Matter for Congressional Consideration:
Agency Comments:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Comments from the Federal Deposit Insurance Corporation:
Appendix III: Comments from the Federal Trade Commission:
Appendix IV: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Six Largest Credit Card Issuers by Outstanding Credit Card
Loans as of December 31, 2007:
Table 2: Estimated Price Ranges for Credit Card Debt, Per Dollar of
Account Face Value, March 2007 and January 2009:
Table 3: Number of Consumer Complaints Received by Federal Depository
Regulators and FTC, 2004-2008:
Figures:
Figure 1: Credit Card Delinquency Rates, 1991-2009 (first quarter):
Figure 2: Illustrative Example of the Lifecycle of a Sample Delinquent
Credit Card Account:
Figure 3: How Account Information Is Passed among Debt Buyers:
Abbreviations:
FCRA: Fair Credit Reporting Act:
FDCPA: Fair Debt Collection Practices Act:
FDIC: Federal Deposit Insurance Corporation:
Federal Reserve: Board of Governors of the Federal Reserve System:
FTC: Federal Trade Commission:
FTC Act: Federal Trade Commission Act:
NACARA: North American Collection Agency Regulatory Association:
NCUA: National Credit Union Administration:
OCC: Office of the Comptroller of the Currency:
OTS: Office of Thrift Supervision:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
September 21, 2009:
The Honorable Carl Levin:
Chairman:
The Honorable Tom Coburn, M.D.
Ranking Member:
Permanent Subcommittee on Investigations:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
The Honorable Claire McCaskill:
United States Senate:
Credit card debt has increased dramatically over the past several years
and Americans had more than $838 billion in outstanding credit card
debt in 2007, according to industry estimates. With the current
economic recession, the rate at which consumers are falling behind on
credit card debt also has increased. According to the Board of
Governors of the Federal Reserve System (Federal Reserve),
approximately 6.6 percent of credit cards were 30 or more days past due
in the first quarter of 2009--the highest delinquency rate in 18 years.
To recover delinquent debt, credit card issuers use a combination of
methods, including use of their own in-house collection departments,
third-party collection agencies, collection attorneys, and the sale of
debt to a debt buyer. The debt collection industry recovers and returns
to card issuers and other creditors billions of dollars in delinquent
debt each year that would otherwise go uncollected.[Footnote 1] These
efforts increase the availability of consumer credit and reduce its
cost.
Congress enacted the Fair Debt Collection Practices Act (FDCPA)--the
primary federal legislation governing debt collection--in 1977, but the
industry has changed considerably since that time. In October 2007, the
Federal Trade Commission (FTC) held a workshop to learn more about the
current state of debt collection and examine the adequacy of the
regulatory framework used to oversee the industry. Recognizing that
relatively little is known about the debt collection industry and the
process through which credit card debt is recovered, you asked us to
examine this process as well as other issues. Specifically, this report
examines (1) the protections provided consumers under federal and state
laws related to credit card debt collection, and the roles and
responsibilities of federal and state agencies in enforcing these laws;
(2) the processes and practices involved in collecting and selling
delinquent credit card debt; and (3) any issues that may exist related
to some of these processes and practices.
This report focuses on the collection of consumer credit card debt.
However, because debt collection companies typically also service other
forms of consumer debt (such as health care or utility), it was not
always possible to separate processes and data related specifically to
credit card debt. In addition, this report focuses on the largest
credit card issuers--which represent about 83 percent of outstanding
credit card debt--and on medium-to large-sized debt collection
companies. As a result, the collection processes and practices
described in this report may not be representative of smaller credit
card issuers or debt collection companies. To address our first
objective, we reviewed relevant federal laws, rules, and guidance and
we interviewed staff from FTC and the federal depository institution
regulators--the Federal Deposit Insurance Corporation (FDIC), Federal
Reserve, Office of the Comptroller of the Currency (OCC), and Office of
Thrift Supervision (OTS). We also reviewed selected state laws
applicable to credit card debt collection, as well as two compendiums
of state laws. We relied on the appropriate state officials for
analysis of and information about the meaning and scope of state debt
collection laws. To address our second objective, we met with officials
of the six largest credit card issuers, six third-party debt collection
companies, six companies that purchase credit card debt, two law firms,
and industry trade groups representing these entities. We chose the
companies we interviewed because their collection business included
collection of credit card debt and because they ranged in size from
medium to very large. These companies included some of the largest
industry players, although data are not available on the share of the
respective markets that they represent. We also collected and analyzed
various documents from these entities, including public filings and
sample contracts. We also toured the collection facilities of one card
issuer and one debt collection company and observed telephone
collection operations. To address our third objective, we reviewed
FTC's annual reports on FDCPA from 1998 to 2009, the report and public
comments deriving from FTC's 2007 workshop, and documents related to
the agency's enforcement actions. We reviewed federal depository
regulators' examination manuals, as well as formal and informal
enforcement activity the regulators took from 1998 to 2008. We also
reviewed enforcement actions taken by selected state agencies related
to debt collection from January 2006 to May 2009. We analyzed all of
the consumer complaint data from the depository regulators and FTC from
2004 to 2008. In addition, we reviewed various studies and reports
produced by advocacy and trade organizations representing the interests
of consumers and debt collection firms. We conducted interviews with
representatives of relevant federal and state agencies and consumer and
industry trade groups.
We conducted this performance audit from July 2008 to September 2009 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives. More information on our
scope and methodology is available in appendix I.
Background:
Credit card usage has grown dramatically in recent years. From 1993 to
2007, the amount charged to U.S. credit cards rose from $475 billion to
more than $1.9 trillion, according to estimates from the Card Industry
Directory.[Footnote 2] While more than 6,000 depository institutions
issue credit cards, the majority of accounts are concentrated among a
small number of large banks. As shown in table 1, at the end of 2007,
the top six credit card issuers accounted for about 83 percent of the
outstanding credit card loans nationwide.
Table 1: Six Largest Credit Card Issuers by Outstanding Credit Card
Loans as of December 31, 2007:
Card issuer: Citigroup Inc.;
Outstanding loans: $196,811,000,000;
Percentage of total market: 23.5.
Card issuer: Bank of America;
Outstanding loans: $183,691,119,000;
Percentage of total market: 22.0.
Card issuer: JPMorgan Chase & Co.;
Outstanding loans: $148,391,000,000;
Percentage of total market: 17.7.
Card issuer: Capital One Financial Corp.;
Outstanding loans: $62,432,633,000;
Percentage of total market: 7.5.
Card issuer: Discover Financial Services Inc.;
Outstanding loans: $52,302,410,000;
Percentage of total market: 6.3.
Card issuer: American Express;
Outstanding loans: $49,251,563,000;
Percentage of total market: 5.9.
Card issuer: Total;
Outstanding loans: $692,879,725,000;
Percentage of total market: 82.9.
Source: GAO analysis of data from Card Industry Directory.
[End of table]
In 2008, issuers had more than $23 billion in nonsecuritized debt that
was from 30 to 180 days delinquent, according to data from Call
Reports.[Footnote 3] As seen in figure 1, credit card delinquency rates
have fluctuated over time. According to Federal Reserve data, these
rates averaged about 4.4 percent from 1991 to 2007, but since that time
have risen sharply to about 6.6 percent in the first quarter of 2009.
Figure 1: Credit Card Delinquency Rates, 1991-2009 (first quarter):
[Refer to PDF for image: line graph]
Year: 1991;
Q1: 5.29%;
Q2: 5.32%;
Q3: 5.41%;
Q4: 5.3%.
Year: 1992;
Q1: 5.31%;
Q2: 4.96%;
Q3: 5.04%;
Q4: 4.7%.
Year: 1993;
Q1: 4.63%;
Q2: 4.33%;
Q3: 4.14%;
Q4: 3.91%.
Year: 1994;
Q1: 3.62%;
Q2: 3.18%;
Q3: 3.29%;
Q4: 3.3%.
Year: 1995;
Q1: 3.48%;
Q2: 3.57%;
Q3: 3.9%;
Q4: 3.99%.
Year: 1996;
Q1: 4.04%;
Q2: 4.12%;
Q3: 4.53%;
Q4: 4.68%.
Year: 1997;
Q1: 4.67%;
Q2: 4.55%;
Q3: 4.77%;
Q4: 4.9%.
Year: 1998;
Q1: 4.72%;
Q2: 4.56%;
Q3: 4.8%;
Q4: 4.82%.
Year: 1999;
Q1: 4.61%;
Q2: 4.29%;
Q3: 4.64%;
Q4: 4.63%.
Year: 2000;
Q1: 4.35%;
Q2: 4.32%;
Q3: 4.62%;
Q4: 4.7%.
Year: 2001;
Q1: 4.75%;
Q2: 4.75%;
Q3: 5.09%;
Q4: 4.86%.
Year: 2002;
Q1: 4.85%;
Q2: 4.61%;
Q3: 4.96%;
Q4: 5.05%.
Year: 2003;
Q1: 4.57%;
Q2: 4.38%;
Q3: 4.29%;
Q4: 4.62%.
Year: 2004;
Q1: 4.1%;
Q2: 4.02%;
Q3: 4.12%;
Q4: 4.2%.
Year: 2005;
Q1: 3.62%;
Q2: 3.56%;
Q3: 3.95%;
Q4: 3.65%.
Year: 2006;
Q1: 3.8%;
Q2: 4.01%;
Q3: 4.17%;
Q4: 4.05%.
Year: 2007;
Q1: 3.96%;
Q2: 3.9%;
Q3: 4.45%;
Q4: 4.68%.
Year: 2008;
Q1: 4.8%;
Q2: 4.74%;
Q3: 4.83%;
Q4: 5.72%.
Year: 2009;
Q1: 6.61%;
Q2: 6.53%.
Source: GAO analysis of Federal Reserve data.
Note: Delinquent loans are those past due 30 days or more and still
accruing interest, as well as those in nonaccrual status.
[End of figure]
When consumers fall more than 180 days behind on paying their credit
card bills, banks "charge off" the delinquent account.[Footnote 4]
Charged-off loans are generally considered uncollectible--usually
because of cardholder bankruptcy, death, or prolonged delinquency--and
are removed from issuers' portfolios.[Footnote 5] Federal Reserve data
show that in the first quarter of 2008, issuers charged off $4.2
billion, which represented about 4.7 percent of their outstanding
credit card debt. By contrast, in the first quarter of 2009, the amount
charged off had increased to about $7.5 billion, which represented a
charge-off rate of 7.6 percent.[Footnote 6]
The debt collection industry comprises a variety of participants,
including companies that specialize in the collection of debt, debt
collection law firms, and debt buyers, which purchase delinquent debt
for a fraction of its face value. These companies handle credit card
debt as well as other forms of debt, including utility, health care,
telecommunication, and automobile loans, as well as delinquent taxes.
According to the U.S. Census Bureau, in 2006 more than 4,400 debt
collection companies in the United States collectively employed
approximately 143,000 people. Many of these companies were very small--
43 percent employed 4 or fewer employees, while about 3 percent had 500
employees or more.[Footnote 7] The small agencies may operate within a
limited geographic range, while the largest corporations may operate in
every state and internationally. The debt collection industry has
experienced consolidation in recent years, largely due to mergers and
acquisitions. The four largest debt collection companies represented
about 10 percent of total industry revenues in 1992 and 19 percent of
total industry revenues in 2002, the most recent year the Census Bureau
collected this statistic.
Because most debt collection companies are privately held, limited data
exist on the debt collection industry's precise size and other
attributes. However, several sources, including FTC and some industry
participants and analysts, state that the industry has grown in recent
years. Kaulkin Ginsberg, a firm that provides research and other
services to the debt collection industry, estimated that in 2006,
revenues were about $10 billion for third-party collection agencies and
about $1.2 billion for law firms specializing in debt
collection.[Footnote 8] ACA International, a credit and collection
industry trade association, commissioned an industry survey that
estimated that in 2007 collection agencies recovered about $58 billion
in delinquent debts, although these estimates may not have been very
accurate.[Footnote 9]
One significant change in the debt collection business in recent years
has been the growth of debt buying. Debt buyers include firms whose
business model focuses on the purchase of debt, as well as collection
agencies and collection law firms who collect both on debt owned by
others as well as debt they purchase and own themselves. In addition,
some firms are passive debt buyers--investors that buy and resell
portfolios but do not engage in actual debt collection themselves.
While little comprehensive data exist on the debt-buying industry,
Kaulkin Ginsberg estimated that the amount of debt purchased grew from
about $57 billion in 2003 to $100 billion in 2006, with credit card
debt representing about 75 percent of the 2006 total. In May 2006, an
industry trade journal, Collections and Credit Risk, stated that the
global debt-buying market had sales of an estimated $158 billion
annually and that $100 billion of credit card debt is sold annually in
the United States alone.[Footnote 10]
While the exact number is not known, hundreds, and possibly thousands,
of entities purchase debt, according to DBA International, a trade
association for debt buyers. The debt-buying industry is highly
concentrated, and according to The Nilson Report--which provides news
and conducts research on consumer payment systems--10 buyers were
responsible for 81 percent of all of the credit card debt purchased in
fiscal year 2007.[Footnote 11] Only five debt-buying firms are known to
be publicly traded companies, and our review of these firms' filings
with the Securities and Exchange Commission found that four of them
report purchasing credit card debt. Portfolio Recovery Associates,
Inc., reported it had purchased more than $32 billion, face value, of
credit card debt from 1996 to 2008, representing 82 percent of its
overall debt portfolio. Asset Acceptance Capital Corp. had purchased
more than $22 billion in credit card debt from 1999 to 2008,
representing 64 percent of the face value of its debt portfolio. In
addition, Encore Capital Group reported it purchased more than $201
million in credit card debt in 2008. A fourth company, Asta Funding,
indicated it purchased credit card debt, but did not specify the
amount.
Several Federal and State Laws Govern Fair Debt Collection, and
Agencies' Oversight Roles Vary:
A variety of federal and state laws address debt collection practices,
and a number of federal and state agencies play a role in overseeing
the debt collection industry, conducting enforcement activities, and
educating consumers about debt collection.
FDCPA Is the Primary Federal Law Governing Third-party Debt Collection
Practices:
Congress has passed several laws that govern the practices of creditors
or third parties in the collection of debt, including FDCPA, the
Federal Trade Commission Act (FTC Act), and the Fair Credit Reporting
Act (FCRA).
Fair Debt Collection Practices Act:
The primary federal law governing third-party debt collection practices
is FDCPA, which Congress enacted in 1977 in response to concerns about
the practices of many debt collectors.[Footnote 12] FDCPA applies to
third-party debt collectors, a term that includes collection agencies
that operate on a contingency basis, collection law firms, and debt
buyers, but generally does not apply to original creditors collecting
on their own debt.[Footnote 13] According to the Senate report
accompanying FDCPA, creditors were exempted because it was believed
that their incentive to protect ongoing customer relationships made
them less likely to engage in abusive collection practices.[Footnote
14]
FDCPA prohibits debt collectors from using abusive, deceptive, and
unfair debt collection practices as well as other specific practices:
* Communications. The act regulates how collectors can communicate with
consumers who may owe a debt and with others associated with the
consumer. For example, it prohibits a collector from informing a
consumer's employer about the debt and prohibits collectors from
calling before 8:00 a.m. or after 9:00 p.m. Consumers also may request
that the collector cease further communication.
* Treatment of debtor. Debt collectors may not harass, oppress, or
abuse consumers; use or threaten violence; use obscene language; or use
a telephone to engage in actions intended to annoy, such as causing the
telephone to ring repeatedly.
* False or misleading representations. Debt collectors may not
misrepresent who they are, falsely represent the legal status of the
debt, fail to disclose to the consumer that they are attempting to
collect a debt, or imply that nonpayment is a crime.
* Unfair practices. The act prohibits the use of unconscionable or
unfair practices, including trying to collect the wrong amount of debt;
adding unauthorized fees, interest or other charges to the debt; or
causing the consumer to incur collect-call telephone charges.
FDCPA also dictates the process debt collectors must use during the
initial communication with the consumer and the steps a consumer can
take to dispute a debt. Within 5 days of a collector's initial
communication about a debt, the collector must send the consumer a
written notice--a validation notice--that includes the amount of the
debt, the name of the owner of the debt, and a statement informing the
consumer that the debt is assumed valid unless the consumer disputes
the debt in writing within 30 days. If the consumer disputes the debt
within that period, the collector must cease collection efforts until
the collector provides the consumer with verification of the debt.
FTC has primary government enforcement authority under FDCPA--except to
the extent that this enforcement authority is given to seven other
federal agencies for entities under their jurisdiction.[Footnote 15]
FTC has a number of enforcement options for those who violate FDCPA.
FTC can seek a court order prohibiting defendants from engaging in
conduct and requiring that they pay monetary relief, including
restitution to consumers, disgorgement of ill-gotten gains, and civil
penalties of $16,000 per violation.[Footnote 16] FDCPA also provides
consumers with a private right of action--allowing them to bring civil
actions and be awarded monetary damages if collectors engage in
prohibited collection practices or otherwise do not adhere to the act's
requirements.
Federal Trade Commission Act:
The FTC Act, enacted in 1914 and amended on numerous occasions, gives
FTC the authority to prohibit and take action against unfair or
deceptive acts or practices.[Footnote 17] Certain practices that
violate FDCPA provisions may also violate section 5 of the FTC Act, and
FTC often will bring enforcement actions under both statutes in its
cases against third-party debt collectors. In addition, FTC and federal
depository regulators can use the FTC Act to address unfair or
deceptive debt collection practices by original creditors, who are not
covered by FDCPA.[Footnote 18] The FTC Act also authorizes FTC to
obtain a court-ordered injunction to halt the activities of any entity
that it believes is violating the laws it enforces, including FDCPA.
[Footnote 19]
Fair Credit Reporting Act:
FCRA, enacted in 1970, is designed to ensure the accuracy of
information provided for "consumer reports"--reports containing
information about an individual's personal and credit characteristics
used to help determine eligibility for such things as credit,
insurance, and employment.[Footnote 20] Consumer reporting agencies
assemble consumer reports using information provided by data furnishers
that can include credit card issuers, debt collectors, and debt buyers.
FCRA requires that these data furnishers provide accurate information
to consumer reporting agencies and specifies that information about
delinquent accounts generally cannot remain on a consumer's credit
report more than 7 years.[Footnote 21] The act also prescribes how the
date of delinquency of a consumer debt is to be calculated, as well as
the process that consumer reporting agencies and data furnishers must
follow when consumers dispute the accuracy of information on credit
reports. In July 2009, FTC and the federal depository institution
regulators issued a final rule to establish guidelines for reasonably
ensuring the accuracy and integrity of consumer information reported to
consumer reporting agencies and adding a new process for addressing
consumer disputes.[Footnote 22]
Other Federal Statutes:
Provisions in other federal statutes also affect debt collection
practices. The Telephone Consumer Protection Act of 1991 regulates the
use of predictive dialers--a technology on which the debt collection
industry relies heavily in its collections operations.[Footnote 23]
Subtitle A of title V of the Gramm-Leach-Bliley Act governs the
collection, sharing, and safeguarding of consumers' nonpublic personal
information by certain financial institutions, including creditors and
debt collectors, and requires that these entities implement proper
safeguards to protect the security and integrity of consumer
information.[Footnote 24]
In addition, a number of financial regulatory statutes grant federal
depository regulators the authority to examine banks' safety and
soundness, as well as compliance with applicable laws and regulations.
As part of these examinations, the federal depository regulators may
review credit card issuers' internal debt collection practices and
their oversight of third-party debt collectors (vendors), in connection
with applicable laws, regulations, or guidance.
Many States Have Their Own Fair Debt Collection Statutes:
States cannot enforce FDCPA, but according to the National Consumer Law
Center, most states have fair debt collection statutes of their own.
[Footnote 25] According to state officials we spoke with, many of the
state laws largely mirror FDCPA but allow for local enforcement--
however, some state laws are more expansive than FDCPA because they
define "debt collector" more broadly or place additional requirements
on debt collectors' conduct. Examples among four states we reviewed
include the following:
* Applicability to creditors. Some state debt collection statutes may
regulate the activities of creditors collecting their own debts, unlike
FDCPA, which generally applies only to third-party collectors.[Footnote
26] For example, California law expressly defines debt collector to
mean "any person who, in the ordinary course of business, regularly, on
behalf of himself or herself or others, engages in debt collection."
[Footnote 27]
* Consumer notice requirements. Some states may have consumer notice
requirements additional to those in FDCPA. For example, California's
debt collection statute among other things expressly requires third-
party debt collectors to provide a specific notice to a debtor
describing the debtor's rights, including notice that collectors may
not harass the debtor by using threats of violence or arrest or by
using obscene language.[Footnote 28] The Colorado Fair Debt Collection
Practices Act expressly requires collectors to provide consumers with
the Web site address of the Colorado Attorney General, which contains
information on the act.[Footnote 29]
* Restrictions on debt collection activities. Some states may place
restrictions on collection activities additional to the restrictions in
FDCPA. For example, Massachusetts debt collection regulations state
that it is an unfair or deceptive act or practice for a creditor or
debt collector to call a consumer's home more than twice a week per
debt or call locations other than home more than twice in 30 days.
[Footnote 30]
* Private civil enforcement. As with FDCPA, some states may allow
consumers to bring civil law suits against debt collectors that violate
state debt collection laws. According to one state official, such a
private right of action is designed to encourage compliance with the
law while minimizing the use of limited state enforcement resources.
For example, Texas law expressly provides that consumers can also be
granted injunctive relief that prevents a collector from continuing the
unlawful harmful conduct.[Footnote 31]
Debt collection also is affected by applicable state statutes of
limitations, which place limits on when an issuer or debt collector can
initiate legal action against a consumer for collection of a debt.
According to FTC, the statute of limitations for credit card debt
varies by state, but typically ranges from 3 to 10 years, and generally
begins to run from the date the debt becomes delinquent. Some states
may allow the statute of limitations to restart under certain
circumstances--for example, in Kansas, the statute of limitations is
restarted when a consumer makes a payment toward the debt or
acknowledges in writing owing the debt.[Footnote 32] According to FTC,
courts that have addressed the issue have found it illegal to sue or
threaten to sue to recover debt that is beyond the statute of
limitations, often referred to as "time-barred debt." According to the
National Consumer Law Center, courts have generally found that
attempting to collect a time-barred debt without suing or threatening
to sue does not violate FDCPA, except in the few states in which debts
are extinguished at the end of the limitations period.[Footnote 33]
Federal and State Agencies Oversee Debt Collection Practices in a
Variety of Ways:
A number of federal and state agencies regulate the various
participants involved in debt collection and bring enforcement
proceedings against violators of the law by filing and prosecuting
administrative or civil actions and undertaking other consumer
protection measures such as consumer and industry education.
Federal Trade Commission:
FTC has primary government enforcement responsibility to oversee the
debt collection industry and, in doing so, tracks consumer complaints,
takes enforcement actions, and provides consumer and industry
education.[Footnote 34] FTC receives consumer complaints about debt
collection and other matters online through its Complaint Assistant
system or by telephone or in writing through its Consumer Response
Center and enters these complaints into its Consumer Sentinel database.
In addition, local Better Business Bureaus and state and local law
enforcement authorities can also enter information into the Consumer
Sentinel database regarding complaints they receive. Some federal
depository regulators are also members of Consumer Sentinel and can
access the database and review complaints related to institutions they
oversee. FTC and other law enforcement authorities use the Consumer
Sentinel database to target their investigations and guide their
enforcement activities.
FDCPA and the FTC Act provide FTC with enforcement authority to
investigate debt collection agencies it believes may be violating the
law. As noted earlier, if FTC's investigation reveals violations of
either act, the agency can file suit in federal court for injunctive
relief to prevent further violations and seek restitution for consumers
and disgorgement of ill-gotten gains by the collector. Alternatively,
FTC can seek civil penalties and other monetary relief by requesting
that the Department of Justice file suit against the collector on its
behalf. FTC officials told us that the agency has focused its
enforcement efforts on practices that result in the greatest harm to
consumers or on cases that involve a particular legal issue it is
trying to clarify. FTC officials said that to maximize the deterrent
effect of its enforcement actions, they recently have been demanding
greater monetary penalties and naming as defendants individual
corporate officers and managers, rather than simply the company as a
whole.
FTC also undertakes consumer education efforts to inform consumers of
their rights and the restrictions placed on debt collectors by FDCPA.
In 2008, FTC distributed more than 110,000 English-and Spanish-language
copies of the brochure "Fair Debt Collection," which seeks to describe
FDCPA in plain, easily understood language.[Footnote 35] FTC also
issues consumer alerts on its Web site on specific debt collection
issues of concern. For example, the agency issued an alert on the
collection of time-barred debts shortly after it had taken an
enforcement action related to that issue. FTC call center staff also
seek to educate consumers who call to submit a debt collection
complaint--for example, informing them of their right to obtain written
verification of the debt. The agency also seeks to educate and reach
out to participants in the debt collection industry by speaking at
industry conferences, participating in panel discussions, and issuing
FDCPA advisory opinions.
Federal Depository Regulators:
The major credit card issuers are structured as depository institutions
and their activities, including those related to debt collection, are
therefore overseen by federal depository institution regulators. OCC
oversees four of the largest consumer credit card issuers--Bank of
America, Capital One, Chase, and Citibank, while FDIC oversees two
other large issuers, American Express and Discover.[Footnote 36] The
Federal Reserve, OTS, and the National Credit Union Administration
(NCUA) also oversee certain credit card issuers.[Footnote 37] The
depository regulators conduct examinations to evaluate the safety and
soundness of their institutions and ensure compliance with federal laws
and regulations, including the FTC Act and FCRA. While FDCPA does not
apply directly to credit card issuers collecting on their own debts,
some of the practices prohibited by the statute, if engaged in by
financial institutions, may support a claim of unfair or deceptive
practices in violation of the FTC Act, which is the statute on which
the federal depository regulators rely in overseeing collection
activities.[Footnote 38]
As part of issuers' safety and soundness examinations, regulators may
review the sale of credit card debt, as well as the programs issuers
offer delinquent consumers to help them pay their debt, since these
issues can affect the financial stability of the bank. Regulators told
us they also review issuers' management and oversight of third-party
vendors, including third-party debt collection agencies. If they have
reason to suspect problems with these third-party debt collection
relationships, they can investigate the collection agency on site at
the company workplace.[Footnote 39] If the regulators identify
violations related to debt collection, among the possible responses
could be formal enforcement actions (such as cease and desist orders,
civil money penalties, removal orders, and suspension orders) or
informal enforcement actions (such as memorandums of understanding and
board resolutions). In addition, if appropriate, regulators can seek
restitution as a remedy for violations involving unfair or deceptive
debt collection practices. Like FTC, the depository regulators collect
and track complaints from consumers about issuers. They use these data
to focus their risk-based examinations, assess issuers' compliance with
consumer protection laws and regulations, and determine the need for
future regulations or educational efforts.
State Agencies:
Our meetings with state regulators indicated that states vary in how
they regulate debt collectors and enforce fair debt collection laws.
Agencies that play a key role in overseeing debt collection can include
the state's banking or finance division, office of consumer affairs,
and the office of the Attorney General. Some states also have
collections or licensing boards--comprising in some cases both
government regulators and industry representatives--that serve as the
regulatory body for debt collection agencies in the state.
Certain states require debt collection agencies doing business in the
state to be licensed. State agency officials noted that some states may
require debt collectors to pay a licensing fee or post a bond, and some
states can suspend or revoke an agency's license if it has been found
to violate state debt collection laws or otherwise violate licensing
requirements. One state official also told us that licensing of debt
collectors serves to keep debt collectors in compliance with state law
without having to expend state resources bringing collectors to court.
For example, in Colorado the Attorney General's office said that in
recent years it had brought an average of about 50 to 60 administrative
enforcement actions a year--about half of which resulted in settlements
and the other half resulted in the issuance of letters of admonition
(censures). The office said that one or two cases have resulted in the
revocation of a collector's license--but only rarely has court action
been required.
Under the auspices of the North American Collection Agency Regulatory
Association (NACARA), we held a group meeting with agency staff who
oversee debt collection from 17 states. Many of the states represented
gather and analyze consumer complaints about debt collection, often
through telephone hotlines, postal mail, and online forms. States can
also receive referrals from district attorneys, Better Business
Bureaus, and other sources. Some states, such as Minnesota and
Tennessee, review or investigate every consumer complaint received
about a debt collector. Other states, the regulators told us, look
collectively at complaint trends or patterns to determine if an
investigation or enforcement action may be warranted. At least one
state, North Dakota, conducts on-site examinations of every licensed
collection agency operating in the state, either through an on-site
visit or by mail. North Dakota bases its examination cycle primarily on
the complaint volume received against a licensed collection agency, but
examinations are still conducted even if there are no complaints
received against a particular agency.
From January 2006 through May 2009, states took approximately 28
enforcement actions against debt collectors and collection attorneys
for debt known to involve, or possibly involving, credit cards,
according to the National Association of Attorneys General. In many of
these cases state authorities said they imposed civil monetary
penalties, recovered consumer funds, or enjoined the collector from
engaging in further unlawful collection activities. Often, consumer
complaints may serve as the trigger for taking an enforcement action--
for example, Minnesota state officials told us that approximately 95
percent of such actions stemmed from individual consumer complaints.
As with FTC, a number of state regulators make efforts to educate
consumers about their rights under federal and state fair debt
collection laws. Some states that we spoke with have developed Web
sites, brochures, or videos on public access channels to educate
consumers. In some states, regulators also deliver speeches and appear
at conferences related to debt collection. Some states and cities
incorporate debt collection issues into their broader efforts to
improve consumers' financial literacy. For example, New York City's
Department of Consumer Affairs addressed many debt collection issues
during a weeklong "call-a-thon," from which consumers could get answers
to financial questions.
States also coordinate with federal entities and among themselves. For
example, to coordinate oversight responsibilities, FTC staff said they
regularly communicate with state regulators and share information on
industry trends and concerns. FTC also shares information with state
Attorneys General and local law enforcement agencies through its
Consumer Sentinel complaint database. NACARA was created in 1994 to
help communicate and coordinate debt collection regulatory and
enforcement efforts among member states. In some instances, several
states jointly pursued enforcement actions against debt collectors. In
addition, 12 NACARA member states are in the process of developing a
uniform debt collector licensing application to improve the consistency
of information on debt collection agencies across different states.
NACARA members with whom we spoke said they have a good working
relationship with FTC and have participated in FTC conferences.
Delinquent Credit Card Debt May Be Collected Internally, Outsourced, or
Sold:
Large credit card issuers first seek to recover delinquent debt using
internal collection departments or first-party collection agencies that
collect debt using the issuer's name. Issuers offer short-and long-term
repayment arrangements to assist delinquent debtors. When large issuers
are unable to collect these accounts, they typically send them to third-
party collection agencies or collection law firms. But these creditors
also can sell delinquent debt to a debt-buying firm that may, in turn,
seek recovery using in-house collection, third-party collection
agencies, or resale of the debt to another debt-buying firm. Figure 2
provides an illustrative example of the lifecycle of one delinquent
credit card account.
Figure 2: Illustrative Example of the Lifecycle of a Sample Delinquent
Credit Card Account:
[Refer to PDF for image: illustration]
Delinquent account:
Internal collections: Credit card issuer uses its internal collection;
After account is charged off:
Third-party collector: Issuer places account with a third-party
collection agency;
Collection effort fails;
Third-party collector #2: Issuer tries giving account to a different
third-party agency;
Issuer sells the account;
Debt buyer: Debt buyer attempts collection;
Debt buyer sells the account;
Debt buyer #2:
Third-party collector: Debt buyer #2 places the account with a third-
party agency;
Collection efforts continue until collection is successful, statute of
limitations runs out, or owner of debt otherwise ceases collection
efforts.
Source: GAO.
[End of figure]
Credit Card Issuers Maintain Internal Collection Operations:
Large credit card issuers maintain internal collection departments that
attempt to recover money owed on delinquent credit card accounts.
[Footnote 40] Typically, these issuers use internal collection
departments to contact consumers with accounts that are no more than
180 days delinquent and thus have not yet been charged off. Officials
with whom we spoke at the six largest issuers have internal policies
and procedures that govern their collection practices and audit
departments that seek to ensure compliance with applicable laws. While
FDCPA does not apply to creditors collecting on their own accounts, all
of these issuers said they voluntarily use FDCPA as guidance for their
internal collection activities and regularly monitor compliance with
applicable state laws. Some issuers told us their collection staff
undergo training programs that range in length from 2 to 10 weeks and
include topics such as the company's collection policies, procedures,
and technologies; negotiation skills; and compliance with applicable
federal and state laws. The collection departments of five of the six
largest issuers each had from 850 to 8,390 collectors. (The sixth
issuer declined to provide the number of its collection employees.) The
great majority of issuers' internal U.S. collection operations are
based in the United States, although one issuer had a call center
located in Costa Rica. Several of the large issuers we met with have
recently expanded the size of their collection staff due to increases
in the number of delinquent accounts; representatives of one issuer
told us in February 2009 that its collection staff had increased 20
percent since late 2008.
Issuers can assist delinquent debtors experiencing financial hardship
by using a short-or long-term payment arrangement to bring the account
current or offering to settle a cardholder's account by accepting less
than the full balance due. Temporary hardship programs can last up to
12 months and help borrowers overcome financial difficulties, such as
unemployment or short-term illness, by reducing interest rates, finance
charges, and fees. Programs of more than 12 months ("work out"
programs) address longer-term financial hardships, such as divorce,
permanent disability, or the death of a household income provider.
Repayment terms for work out programs vary widely among issuers, but
the federal depository regulators' guidance for credit card lending
states that the programs should strive to have borrowers repay their
credit card debt within 60 months.[Footnote 41] Issuers may choose to
"re-age" the account--or return a delinquent credit card account to
current status without collecting the total amount of principal,
interest, and fees that are due--if it meets certain criteria.
Consumers can benefit from the re-aging of accounts because it can
improve their credit reports. Federal banking guidelines exist on the
frequency and circumstances under which issuers can re-age credit card
accounts.[Footnote 42]
Issuers Outsource Some Collection Activities:
Credit card issuers can outsource debt collection to various types of
collection firms. Accounts that have not been charged off are generally
outsourced to first-party collection agencies and charged-off accounts
are generally outsourced to third-party collection agencies or
collection law firms. Contracts between issuers and these agencies
often specify the policies and procedures to be used in the collection
process. An issuer can also decide to sell credit card debts and the
buyer of those debts can, in turn, resell those debts to another buyer.
Limited available data exist on the specific amounts of the credit card
debt that issuers collect in-house, outsource, or sell because issuers
generally consider this to be proprietary business information.
First-party Collection Agencies:
Some credit card issuers use "first-party" collection agencies to
supplement their in-house collection operations for delinquent accounts
that have not yet been charged off. First-party collection agencies use
the name of the issuer when contacting consumers and may not be subject
to FDCPA. These agencies typically are paid on a fee-for-service rather
than contingency basis. Using first-party collection agencies gives
issuers additional flexibility to manage fluctuations in the workload
and resources of their internal collection operations. Because first-
party collectors use the issuers' name and are collecting from current
customers, there is an emphasis on preserving the relationship with the
consumer and mitigating the negative perception that consumers can have
about their accounts being forwarded to collection. Some issuers also
mentioned that their first-party collection agencies are required to
adhere to the same standards as their internal collection departments.
Third-party Collection Agencies:
If an issuer's internal efforts to collect on accounts have been
unsuccessful or the accounts are more than 180 days delinquent and have
been charged off, the issuer may choose to place the account with a
third-party agency (also known as a contingency agency). Third-party
collection agencies are generally paid on commission based on a
percentage of the amount recovered, with the percentage being higher
for debts that are older or otherwise harder to collect. Third-party
agencies typically use their own names when communicating with debtors
and are subject to FDCPA, as well as any relevant state laws. The
length of time that accounts are placed with these agencies can vary,
but can range from several weeks to several months or years. The
agencies generally return uncollected accounts to the issuer at the end
of the placement period, at which time issuers sometimes place the
account with a different collection agency. Some third-party collection
agencies focus on recovering credit card debt, while other agencies
specialize in recovering other types of debt, such as
telecommunications or health care, although these companies may collect
credit card debt as well. Officials of one large credit card issuer
told us it had contracts with 15 to 20 different third-party collection
agencies, while another issuer had contracts with 20 such agencies, and
a third issuer with more than 50 agencies. Some of the issuers
explained that they choose their collection agencies selectively to
avoid legal or reputation risks and to maintain customer relationships.
For example, they may review companies' records of legal compliance,
data security practices, and number of Better Business Bureau
complaints.
Before an issuer provides a portfolio of credit card accounts to a
third-party company for collection, it "scrubs" the portfolio to remove
accounts for which the debtor has died, filed for bankruptcy,
previously settled the debt, or disputed its validity, according to
several issuers with whom we met. Several collection companies told us
that when they receive a portfolio from an issuer or another collection
company, they typically conduct a scrub of their own, including
checking the accuracy and completeness of names, addresses, telephone
numbers, and other information to ensure the account is valid for
collection. Collection companies can use customized models to help
determine the best collection strategy for the portfolio. These models
assess the likelihood of payment and can help determine payment or
settlement terms that the debtor should be offered.
The collection process begins when the collection company initiates
contact with the debtor either by telephone or in writing. In general,
FDCPA requires collectors to provide a consumer with notice of their
rights under the law, called a validation notice, within 5 days of
initial contact with the debtor, although we spoke with officials from
one agency that sends the notice almost immediately.[Footnote 43] If a
debtor cannot be located, companies often use locator methods, such as
"skip tracing"--the practice of searching national telephone
directories, credit reports, tax assessor and voter registration
records, and other sources, as well as contacting employers, friends,
and family members of the debtor. Collection companies sometimes use
the services of third-party vendors that specialize in skip tracing.
Third-party debt collection efforts rely primarily on a combination of
telephone and postal mail contacts. Several large debt collection
companies have multiple call centers--for example, one large collection
company told us it operates about 125 call centers throughout the
United States and overseas and employs about 15,000 collectors.
Technology fundamentally has changed the practice of debt collection.
We toured a call center at one third-party collection company and
observed that collectors had on-screen access to detailed information
about debtors and their financial histories. The software systems used
for collection can also allow supervisors to monitor the collection
activities of staff. Software applications also help manage collectors'
workflows and can help ensure compliance with federal and state law.
Predictive dialers and other telephone technology improve efficiency by
reducing the wait time for collection staff. For example, predictive
dialing systems can be programmed not to call consumers earlier, later,
or more frequently than permitted by FDCPA or applicable state law. One
large agency told us it recently designed a proprietary voice
recognition system that tries to recognize when collectors engage in
inappropriate behavior, such as speaking with an abusive tone or using
profanity. Word processing and automated mail sorting systems allow
debt collectors to send customized mass mailings relatively
inexpensively. Some collection agencies contract with third-party
vendors to handle the design and mailing of their customized FDCPA-
compliant letters.
Officials at the 12 third-party collection companies and debt buyers
with whom we spoke required their collectors to participate in training
programs that ranged in length from 1 to 4 weeks. Topics can include
debt collection techniques, negotiation skills, compliance with
applicable law, and use of desktop technologies. Some collection
companies told us they periodically retest their staff and provide
additional training to respond to changes to any applicable state fair
debt collection law. While compensation plans can vary among companies,
the incomes of collection staff are typically some combination of
hourly wage and a commission based on their performance in recovering
debts.
With the authorization of their creditor clients, collection companies
can offer a variety of repayment plans to debtors, which may include
installment payments (that is, fixed monthly payments) or settlements
for less than the amount due. If applicable, and authorized by their
creditor clients, companies can also elect to discount interest and
fees that have accumulated on the account. Options for methods of
payment have expanded in recent years and now include electronic fund
transfers, debit cards, and credit cards. Contracts between issuers and
collection agencies often specify the policies and procedures to be
used during the collection process. According to issuers and collection
agencies we met with, this can include details on how and when
cardholders may be contacted, options that can be offered for repayment
and settlement, and how consumer disputes are to be addressed. For
example, several issuers required collection agencies to forward
disputed accounts to them for investigation. Several issuers also told
us that contracts typically include data security requirements and
provisions allowing issuers to monitor and audit the collection agency.
For example, large issuers sometimes have access to the internal
communications systems of the third-party agencies, allowing them to
listen to live collection calls from a remote location. Issuers also
said they conduct regular audits of their collection vendors, which
include reviews of data security, financial records, and compliance
with applicable law and any policies specified by the issuer. While
contracts usually specify how long the account will be placed with the
agency, some collection agencies told us that early termination is
allowed if the agency is not meeting compliance or performance
standards.
Collection Law Firms:
Collection law firms specialize in collecting debts. The National
Association of Retail Collection Attorneys stated in a June 2007
comment letter to FTC that about 5 percent of delinquent accounts
(including credit card accounts) are referred to collection law firms
for possible litigation, typically after collection efforts by internal
and third-party collectors have failed. One issuer we spoke with places
certain accounts with a collection law firm as soon as the issuer
determines that a delinquent debtor has the ability to pay. Collection
law firms involved in the recovery of debt are generally paid by
contingency fee and receive a set percentage of debt recovered.
[Footnote 44] In addition to using collection law firms, officials of
some issuers and third-party collection companies told us they also
maintained their own legal staff to litigate collection cases.
Many collection law firms use traditional collection methods, such as
telephone calls and letters, before starting litigation. These firms
may collect on various types of debt, such as installment loans, credit
card, automobile, or medical debt. Some of these firms also purchase
portfolios of debt. Issuers and debt collection agencies may also
contract with a network of collection law firms to facilitate the
filing of lawsuits against debtors in multiple states. Collection
attorneys and law firms are subject to FDCPA, although some states may
exempt collection attorneys from state debt collection laws under
certain circumstances.
Credit Reporting:
Issuers and other data furnishers, such as collection agencies, can
furnish data and information about debtor accounts to consumer
reporting agencies, which maintain up-to-date, account-level
information on consumer credit histories that is used to help make
important decisions about individuals, such as eligibility for credit,
employment, or housing. Federal law requires consumer reporting
agencies and all data furnishers to take responsibility for ensuring
the accuracy of account information being reported.
Furnishing data to consumer reporting agencies is optional. While all
of the issuers we met with chose to furnish data to consumer reporting
agencies, some issuers, third-party collection agencies, and collection
law firms may choose not to. Contracts for collection services
generally stipulate each party's responsibility for credit reporting.
For example, four of the six large issuers told us that their contracts
with collection agencies generally stipulate that the issuer rather
than the collection agency retains responsibility for furnishing
account data to consumer reporting agencies. Collection companies
collecting on their own debts may choose to furnish data as a
collection tool--consumers may be motivated to repay their debts to
avoid damaging their credit records. One stakeholder told us that those
companies that choose not to furnish account data may, among other
things, want to limit their exposure to liability related to FCRA
compliance.
Consumer reporting agencies and the great majority of data furnishers
use a standard data format, known as Metro 2, to help ensure
consistency and accuracy in the reporting of information. The original
Metro format was developed in the mid-1970s and by 1996, more than 95
percent of all data were furnished using this format. The Metro 2
format was introduced in 1997. It requires furnishers to provide more
specific and complete information--such as the full account number and
other fields that further identify the account--to improve accuracy and
completeness. Consumers can dispute information in their credit reports
related to delinquent credit card accounts by contacting the issuer,
debt collector, or consumer reporting agency by telephone, mail, or
online. Data furnishers, such as card issuers or debt collectors, must
investigate disputes they receive from consumer reporting agencies and
send the results back to the agency. The consumer reporting agency has
30 days to complete its investigation and, if necessary, update the
consumer's credit report. Data furnishers and consumer reporting
agencies can use a Web-based automated system called e-Oscar to
transmit information regarding consumer disputes.
Credit Card Debt Often Is Sold and Resold:
Issuers often sell portfolios of delinquent credit card debt to debt-
buying companies. By selling accounts, issuers trade the longer-term
cash flows of collection agency recoveries for the short-term proceeds
of a sale to recover some of their losses. Credit card accounts can be
resold multiple times. Five of the six large issuers with which we
spoke currently sell at least some of their delinquent credit card debt
to debt buyers. The issuer that does not currently sell its debt told
us it had done so in the past but stopped 5 years ago because it
believes its internal collection strategies and outsourcing to third-
party collectors yield better results. Reputation risk can also be a
factor in the decision to sell debts since issuers have limited control
over the debt collection practices of new owners of the debt. Because
the price issuers receive when they sell credit card debt has declined
in recent years, at least one issuer told us it had reduced its sale of
such debt--it sold 659,000 accounts with a face value of $3.6 billion
in 2008, as compared with 750,000 accounts with a face value of $5.4
billion in 2006. Another issuer told us that in 2009 it sold
approximately 6.6 percent of the inventory of charged-off debt it had
accrued since 2001, which had been the year of its most recent prior
sale of debt. In addition, one issuer told us that it had sold a small
percentage of its charged-off debts from 2007 to 2009. Two other
issuers declined to provide us with data on their sale of credit card
debt because they considered this information proprietary.
Some debt-buying companies may purchase portfolios of debt that they
collect on themselves, while other debt buyers may outsource all of
their collections to third-party collection agencies or law firms.
According to the trade association DBA International, debt buyers that
do not collect on their own debt (sometimes called "passive" debt
buyers) are generally not subject to FDCPA since they take no action to
collect on the debt and do not communicate with the consumer.
Portfolios of credit card accounts can be sold through public or Web-
based auctions or through direct placements arranged by buyers and
sellers. A portfolio of debts can be sold in bulk for an agreed-upon
price or in a "forward flow" arrangement in which sellers agree to sell
a steady volume of accounts for a specified period of time. Forward
flow contracts provide sellers with a predictable stream of revenue for
their charged-off accounts.
In addition, sales of credit card debt can be made through debt
brokers--firms that facilitate the transaction between buyer and seller
but never themselves attempt to collect on the debt. These firms charge
a fee that may range from 6 to 8 percent of the portfolio's purchase
price. One industry publication reported that in 2007 the top three
debt brokers--National Loan Exchange, Garnet Capital Advisors, and
LoanTrade--had managed a total of $17 billion in credit card sales.
[Footnote 45] We spoke with an official at one of these three debt
brokers, who explained its process for brokering the sale of a
portfolio of credit card debt: A financial institution contacts the
broker with information on the debt portfolio it wishes to sell and the
broker analyzes the portfolio and studies market conditions to
determine an appropriate price for the portfolio. The broker then
describes the portfolio in a detailed memo that is marketed to perhaps
200 potential buyers. A smaller number of interested buyers will
receive further information and conduct their own analysis of the
portfolio. On behalf of the seller, the broker will then offer the debt
portfolio either through a sealed bidding process or an online auction.
Sellers and buyers conduct due diligence before making a bid or
completing a transaction, which can include a review of the other
party's policy and procedures regarding collection operations,
compliance with applicable state and federal laws, and professional
references. Some credit card issuers told us they sell accounts only to
debt buyers with which they are familiar because of concerns about
reputation risk; one of these issuers requires buyers to be certified
annually to be eligible to purchase its accounts. Similarly, on the
debt buyer side, some buyers require the seller to complete a survey to
provide them with more information about the accounts being sold.
According to several industry stakeholders we spoke with, when
preparing a portfolio for sale, a debt seller generally scrubs the
accounts to remove those in which the debtor has died, filed for
bankruptcy, settled the debt, or alleged fraud or identity theft. Prior
to bidding on a credit card portfolio, debt buyers typically do their
own reviews and scrubs of the accounts, according to DBA International.
They may also review the portfolio's contents to determine the
potential return on investment and if the strategies required to
collect on the accounts would be consistent with the buyer's
operations. According to ACA International's industry guidance, once a
bid has been accepted and a transaction completed, certain documents,
such as a bill of sale and a list of the accounts sold, may be used to
legally document transfer of ownership.
According to several industry stakeholders, as well as industry
guidance published by ACA International, contracts for sales of debt
portfolios can typically include provisions that specify the nature and
extent of the account data that will be provided to the buyer, as well
as the buyer's access to account media--for example, credit card
applications and billing statements--or other documentation. Some
contracts can include "buy-back" and "put-back" rights, which allow
buyers and sellers to remove and receive remuneration for certain
accounts, such as those involving evidence of fraud or deceased
debtors. The contracts also may include indemnification provisions--for
example, holding the first buyer responsible for any liability incurred
as a result of the actions of a subsequent buyer. Some contracts also
may limit the terms under which the buyer can resell the accounts. For
example, one issuer with which we spoke prohibits its debt buyers from
reselling the accounts for 1 year after purchase. Another issuer
requires the debt buyer to receive its approval to resell the accounts,
noting that the criteria for selecting the secondary buyer must be
similar to that used by the issuer.
The price of a credit card portfolio is largely driven by certain key
characteristics--most notably, the age of the debt and the number of
times it has previously been placed for collection with a third-party
agency. For example, accounts that are 91 days to 6 months past due and
never previously placed for collection generally receive the highest
prices, while older accounts and those previously placed for collection
typically receive far lower prices. Some stakeholders told us that the
geographic location of accounts can also affect pricing since state
laws on debt collection, statutes of limitation, and other issues can
affect the ability to recover on the accounts. For example, one debt
broker told us that prices may be lower in states that prohibit the
garnishment of wages in debt collection judgments. The debt broker
added that the issuer's underwriting criteria, the average account
balance, and the amount of documentation available all can affect the
price of a portfolio.
Limited publicly available data exist on the exact prices of credit
card portfolios. As shown in table 2, Kaulkin Ginsberg estimated that
in January 2009, accounts that were up to 6 months delinquent and had
not been placed with a collection agency typically sold for an
estimated 5½-7½ cents for each dollar of face value. Older debt
typically sold for much less--for example, accounts that were more than
2 years delinquent or had been previously placed with two collection
agencies sold for an estimated 1-2 cents for each dollar of face value.
Prices for all types of delinquent credit card debt have declined
significantly in recent years, which Kaulkin Ginsberg attributes
largely to a weakening economic environment that has reduced consumers'
ability to repay debts and reduced buyers' willingness to pay as much
for underperforming assets.
Table 2: Estimated Price Ranges for Credit Card Debt, Per Dollar of
Account Face Value, March 2007 and January 2009:
Type of debt: Fresh: 91 days to 6 months past due and never placed with
a collection agency;
March 2007: $0.12 - $0.17;
January 2009: $0.055 - $0.075.
Type of debt: Primary: 6 to 12 months past due and never placed with a
collection agency;
March 2007: $0.08 - $0.12;
January 2009: $0.035 - $0.05.
Type of debt: Secondary: 12 to 24 months past due and/or previously
placed with 1 collection agency;
March 2007: $0.055 - $0.09;
January 2009: $0.02 - $0.03.
Type of debt: Tertiary: More than 2 years past due and/or previously
placed with 2 collection agencies;
March 2007: $0.03 - $0.05;
January 2009: $0.01 - $0.02.
Type of debt: Quad: More than 3 years past due and/or previously placed
with 3 collection agencies;
March 2007: $0.01 - $0.025;
January 2009: $0.004 - $0.01.
Source: Kaulkin Ginsberg, InsideARM.
Note: The definitions in this table for fresh, primary, secondary,
tertiary, and quad debt are those used by Kaulkin Ginsberg, but these
definitions can vary across the debt collection industry.
[End of table]
After a debt buyer purchases a portfolio of accounts it has similar
options as an issuer in choosing how to collect on the accounts. It can
choose to collect or litigate using internal resources, contract the
collection of the account to a third-party agency or law firm, or
resell the accounts, or a portion of them, to a secondary buyer. The
resale of debt has increased in recent years, according to Kaulkin
Ginsberg, and debt can be resold multiple times. One debt buyer
estimated that almost half of all credit card accounts purchased
directly from original creditors eventually are resold. As with the
original sale of a debt portfolio, resale can occur through a public
auction, directly between debt buyers, or through a debt broker serving
as intermediary. The extent to which debt buyers resell their debt
depends to some extent on their business model. "Passive" debt buyers
do not attempt to collect debts directly, but rather resell or
outsource everything they purchase to collection agencies or law firms.
Other debt buyers purchase portfolios, attempt collection for a certain
period, and then resell accounts for which collection was not
successful. Several industry stakeholders with whom we spoke noted that
a debt buyer's due diligence becomes especially important for
portfolios that have been sold multiple times because fraud or
inaccurate account data can be more prevalent in these accounts.
Certain Issues Exist about Some Debt Collection Practices and FDCPA
Does Not Address Some Changes That Have Occurred in Technology and the
Marketplace:
State and federal enforcement actions, anecdotal evidence, and the
volume of consumer complaints to federal agencies--about such things as
excessive telephone calls or the addition of unauthorized fees--suggest
that problems exist with some processes and practices involved in the
collection of credit card debt, although the prevalence of such
problems is not known. FDCPA, which was enacted in 1977, does not
reflect certain changes that have occurred since that time with regard
to modern technology and the debt collection marketplace.
Issuers' In-house Collection Operations Have Been the Source of
Complaints, but Regulators Have Identified Relatively Few Serious
Problems:
The federal depository regulators--FDIC, Federal Reserve, OCC, and OTS--
and FTC track consumer complaints related to issuers' in-house debt
collection practices.[Footnote 46]
Complaints about Issuers:
As shown in table 3, during 2004-2008, the depository regulators
received an average of about 2,000 complaints per year about the credit
card debt collection practices of the institutions they supervise.
These complaints constituted, on average, about 12 percent of all
complaints that the depository regulators received about credit cards
and 4 percent of complaints received about any topic during that time
frame. FTC does not track whether complaints are related specifically
to credit card debt, but during the same 5-year period it received
about 22,400 complaints annually about original creditors' overall debt
collection practices. Our review of FTC complaint data indicates that
roughly 25 percent of the complaints FTC received about debt collection
were complaints about original creditors (as opposed to third-party
collectors). However, data were not available on the extent to which
the consumer complaints were against larger versus smaller creditors.
Table 3: Number of Consumer Complaints Received by Federal Depository
Regulators and FTC, 2004-2008:
Year: 2004;
Federal Depository Institution Regulators:
Total number of consumer complaints received: 44,328;
Total number of credit card complaints received: 15,229;
Total number of credit card FDCPA complaints received: 2,257;
FTC:
Total number of debt collection complaints about original creditors:
20,588.
Year: 2005;
Federal Depository Institution Regulators:
Total number of consumer complaints received: 47,714;
Total number of credit card complaints received: 16,579;
Total number of credit card FDCPA complaints received: 1,954;
FTC:
Total number of debt collection complaints about original creditors:
23,637.
Year: 2006;
Federal Depository Institution Regulators:
Total number of consumer complaints received: 43,319;
Total number of credit card complaints received: 13,502;
Total number of credit card FDCPA complaints received: 1,625;
FTC:
Total number of debt collection complaints about original creditors:
21,465.
Year: 2007;
Federal Depository Institution Regulators:
Total number of consumer complaints received: 49,727;
Total number of credit card complaints received: 17,064;
Total number of credit card FDCPA complaints received: 1,641;
FTC:
Total number of debt collection complaints about original creditors:
20,095.
Year: 2008;
Federal Depository Institution Regulators:
Total number of consumer complaints received: 63,024;
Total number of credit card complaints received: 19,023;
Total number of credit card FDCPA complaints received: 2,434;
FTC:
Total number of debt collection complaints about original creditors:
26,615.
Source: GAO analysis of FDIC, Federal Reserve, FTC, OCC, and OTS data.
[End of table]
FDIC and OTS complaint data showed that common allegations in
complaints received about issuers included attempts to collect debt not
owed and inappropriate practices such as excessive telephone calls or
harassment. Among the most common complaints that FTC received about
creditor debt collection were excessive telephone calls, creditors
misrepresenting the amount or legal status of a debt, the addition of
unauthorized fees and interest to accounts, and telephone calls from
creditors looking for other individuals. However, consumer complaints
may not be a reliable indicator of the extent of problems that may be
occurring, for several reasons. Many consumers who experience problems
with debt collection likely do not complain to any government agency--
in many cases because they may not know to which agency to complain or
because they do not know that their rights have been violated.
Additionally, FTC has noted that a complaint does not necessarily
indicate that a violation of law has occurred--either because the
complaint is inaccurate or, if accurate, does not represent an actual
violation.
Enforcement Actions against Issuers:
As discussed earlier, federal depository regulators conduct
examinations of the entities they supervise and may take formal or
informal enforcement actions when they find noncompliance with
applicable laws and regulations. From 1999 to 2008, OCC, OTS, and
Federal Reserve did not find any problems in their bank examinations
related to credit card debt collection that resulted in a formal
enforcement action. FDIC took formal enforcement action during that
time frame against three issuers related, among other things, to their
oversight of CompuCredit Corporation, a third-party vendor used to
market, service, and collect debt on some of the issuers' credit card
accounts.[Footnote 47] The issuers themselves were not alleged to have
engaged in improper debt collection, but they were each found to have
had inadequate compliance systems to conduct proper oversight of
CompuCredit, which was accused of engaging in deceptive collection
practices.[Footnote 48] The issuers entered into a consent agreement,
in which they agreed to a cease and desist order and to pay restitution
and civil money penalties, without admitting or denying the alleged
violations.[Footnote 49]
Depository regulators also can take informal enforcement actions--such
as commitment letters, memorandums of understanding, and board
resolutions--when they find weaknesses that are more technical in
nature, but for which corrective action still is needed. From 1999
through 2008, OCC told us it took one informal enforcement action
against an issuer that related to credit card debt collection, and the
Federal Reserve, FDIC, and OTS told us they did not take any.
In addition to the enforcement actions taken by the federal depository
regulators, in the late 1990s FTC reached settlements with four
department stores related to the collection practices of their private-
label credit cards.[Footnote 50] FTC alleged that the stores had
induced cardholders who filed for bankruptcy protection to "reaffirm"
their credit card accounts and falsely represented that these
"reaffirmation agreements" would be filed with the bankruptcy courts.
[Footnote 51] The resulting consent agreements with the four department
stores ensured that at least $183 million would be returned to
consumers whose debts had been collected illegally.
The Department of Justice's U.S. Trustee Program has taken one
enforcement action against an issuer related to credit card debt
collection. In November 2008, the program settled with Capital One for
allegedly collecting on credit card debts that had been discharged in
bankruptcy, which is a violation of the U.S. Bankruptcy Code.[Footnote
52] According to the Trustee Program, Capitol One did not have
effective procedures for identifying customers who had filed for
bankruptcy. As a result, the issuer had improperly filed proof of
claims in approximately 5,600 cases when it knew or should have known
that the debt had been discharged, and the issuer improperly collected
approximately $340,000 from debtors' Chapter 13 bankruptcy estates
nationwide in violation of federal bankruptcy law.
The scope of this report is largely on the debt collection practices of
the very largest credit card issuers--all of which are federally
supervised banks--but it should be noted that concern about debt
collection practices has often focused on the smaller, subprime credit
card issuers. Representatives of the National Consumer Law Center told
us that subprime issuers, which are often small, local banks, have been
very aggressive in their debt collection efforts, and a report by the
center alleged that some high-fee subprime card issuers frequently
employ abusive debt collection practices.[Footnote 53] FDIC staff told
us that to the extent that debt collection abuses occur, they may be
more common among smaller issuers, particularly subprime issuers, since
large issuers tend to have more compliance resources and may be more
mindful of the collection practices they use since they are sensitive
to preserving their reputations in a mature credit card marketplace.
Data on the proportion of consumer complaints on debt collection
practices that were made against larger versus smaller issuers are not
readily available.
Some consumer group representatives have raised concerns about some
issuers'--including large issuers--debt collection practices, such as
the use of arbitration in resolving debt collection matters. Cardmember
agreements sometimes require that disputes about a cardholder's account
be handled through arbitration, a form of alternative dispute
resolution in which disputes are resolved by an independent arbitrator,
rather than by a judge in a formal court. Some consumer advocates
expressed concern that requiring arbitration is unfair because they
believe the arbitration system can be biased against consumers. A
September 2007 report by Public Citizen that reviewed arbitration cases
in California found that business entities prevailed in about 94
percent of debt collection cases.[Footnote 54] In July 2009, the
Minnesota Attorney General announced that it had reached a settlement
with the National Arbitration Forum--the country's largest
administrator of credit card and consumer collections arbitrations--in
which the company agreed to permanently stop administering arbitrations
involving consumer debt. The representatives of the large issuers with
whom we spoke said that they rarely or never engage in arbitration
involving delinquent or charged-off accounts.
Some Debt Collection Industry Practices Have Been the Source of Much
Concern, but the Extent of Problems Is Unknown:
No comprehensive data exist on the extent to which abusive practices
may be occurring among third-party debt collectors and debt buyers.
Nevertheless, FTC, state agencies, and consumer groups have expressed
concerns in recent years that abusive practices are occurring. Although
the extent of problems is not known, several indicators--primarily
complaint data, government enforcement actions, private lawsuits, and
anecdotal evidence--suggest they may not be uncommon.
Complaints about Third-party Collectors:
FTC receives more complaints about the debt collection industry than it
does any other specific industry. In 2008, the agency received about
79,000 complaints on third-party debt collectors, which represented
almost 19 percent of all consumer complaints it received on any topic.
These figures are for complaints related to the collection of any debt-
-not just credit card debt--because FTC does not track complaints by
type of debt. Complaints about debt collection have increased in recent
years and grew 34 percent from 2004 through 2008. Our analysis of FTC
complaint data found that the most common complaints from 2004 through
2008 related to debt collectors were, in order of prevalence, (1)
misrepresentation of the amount or legal status of a debt; (2)
excessive telephone calls; (3) telephone calls from collectors looking
for other individuals; (4) use of obscene, profane, or abusive
language; and (5) threatening to sue if payment was not made.
The Better Business Bureau, which also collects consumer complaints,
reported receiving about 16,000 complaints about debt collection
companies in 2008. These companies represented the sixth most common
source of complaints received during 2005-2008. Some state agencies
also collect consumer complaints about debt collection practices. The
National Association of Attorneys General found that debt collection
complaints were the number one topic of complaints received by state
Attorneys General in 2008. Representatives from three state agencies
also told us that they receive more complaints about the debt
collection industry than any other topic.
As noted earlier, complaint data may not be an accurate gauge of the
extent of problems. One debt collection industry representative noted
that because of the nature of their work, it is unsurprising that large
numbers of people have grievances with them. Moreover, consumers'
complaints are not always valid. Industry representatives also point
out that the number of complaints against the debt collection industry
represents a very small fraction of the more than 1 billion consumer
contacts the industry makes each year. Furthermore, increases in
consumer complaints may result, in part, from the ease with which
technologies such as the Internet allow consumers to file a complaint.
These effects would tend to overstate the number of actual problems; on
the other hand, consumer complaints are self-reported and there are
likely to be a number of complaints that are unreported.
Enforcement Actions against Third-party Collectors:
Since FDCPA was enacted in 1977, FTC has taken at least 60 enforcement
actions alleging violations related to debt collection.[Footnote 55] We
analyzed the 24 actions initiated in 1998-2008 against collection
companies and found that 13 of them involved or may have involved the
collection of credit card debt (as opposed to other forms of debt).
[Footnote 56] In these actions, FTC alleged violations of FDCPA and/or
the FTC Act, which included, among other activities, harassing and
abusing consumers, communicating with the consumers' employers and co-
workers about their debts, threatening to initiate lawsuits or criminal
actions against consumers if they failed to pay, and failing to notify
consumers of their right to dispute and obtain verification of their
debts. FTC reached a settlement agreement with the defendant in all 13
cases, and penalties included requiring collectors and debt buyers to
pay civil monetary penalties and return wrongfully collected funds to
consumers. In some cases, FTC also required debt collection agencies to
develop procedures to address the alleged abusive practices. For
example, one collection agency had to develop a comprehensive consumer
complaint and resolution program and implement a training program that
had to be approved by FTC.
Examples of FTC's actions against third-party debt collection companies
include the following:
* In March 2004, FTC alleged that Capital Acquisitions & Management--a
debt buyer that purchases credit card debt--violated FDCPA by
threatening and harassing numerous consumers to get them to pay debts
they did not owe or that were beyond the statute of limitations.
[Footnote 57] According to FTC, the firm bought lists of debts that
were outdated and frequently contained no documentation about the
original debt and in many cases inadequate information about the
original debtor. In its press release, FTC alleged that the firm made
efforts to find people with the same name in the same geographic area
and tried to collect the debts from them, whether or not they were the
actual debtor. The firm would tell these consumers that they were
legally obligated to pay the debt and, if they failed to, could be
arrested, jailed, or have their property seized, FTC alleged. Capital
Acquisitions & Management settled with FTC in March 2004, without
admitting liability for any matter alleged in the complaint, and paid a
civil penalty of $300,000. In the 8 months following the settlement,
FTC reported receiving more than 2,000 consumer complaints against the
firm and filed another complaint about the firm's practices. A second
enforcement action against this company and other named defendants
resulted in a $1 million judgment as equitable monetary relief and
permanently barred the corporate defendants and some of the company's
management from engaging in debt collection activities.[Footnote 58]
* In June 2008, FTC alleged that Jefferson Capital Systems, LLC, a debt
collection company, and CompuCredit Corporation violated the FTC Act
and Jefferson Capital Systems, LLC also violated FDCPA by engaging in
deceptive marketing and abusive collection practices.[Footnote 59]
According to FTC, the firms marketed a preapproved credit card to
consumers with charged-off debt, telling them that their old debt
balance immediately would be transferred to the new credit card and
reported as paid in full to consumer reporting agencies. However,
consumers who accepted the offer immediately were enrolled in a debt
repayment plan and did not receive a credit card until they paid 25 to
50 percent of their charged-off debt. Additionally, FTC alleged that
Jefferson Capital used obscene or profane language in debt collection
and caused telephones to ring or engaged persons in telephone
conversation repeatedly with the intent to annoy, abuse, or harass. The
settlement prohibited Jefferson Capital from engaging in the alleged
conduct and required it to comply with FDCPA.
* In November 2008, FTC settled with the debt collection agency Academy
Collection Service, Inc. and its owner for $2.25 million, which FTC
said was the largest civil penalty FTC assessed in a debt collection
action.[Footnote 60] Academy's collectors allegedly engaged in false
threats of wage garnishment, arrest, and legal action; communicated
with third parties about consumers' debts; and called consumers at
their workplace when employers prohibited such calls. Other practices
included unauthorized withdrawals from consumers' bank accounts and the
early deposit of consumers' postdated payment checks. According to its
press release, FTC also alleged that Academy dismissed consumers'
complaints without sufficient investigation or did not properly
discipline collectors who were found to have violated FDCPA. In
addition to the civil money penalty, FTC also required Academy to make
certain disclosures, such as consumers' right to have the company stop
contacting them about their debt.
FTC also has taken enforcement actions against debt collection
companies for allegedly violating FCRA by reporting inaccurate
information to consumer reporting agencies. In 2000, FTC alleged that
Performance Capital Management maintained old, inaccurate information
and failed to report disputes to consumer reporting agencies. The
consent decree settling this action imposed a civil penalty of $2
million, which was waived because of the company's poor financial
condition.[Footnote 61] In 2004, FTC alleged that NCO Group reported
accounts using incorrect delinquency dates, which can cause negative
information to remain on a consumer's credit report beyond the 7-year
reporting period permitted under FCRA. NCO Group paid a $1.5 million
civil penalty to settle FTC's charges.[Footnote 62]
State Enforcement Actions and Private Lawsuits:
While comprehensive data on state actions are not available, our
analysis of information provided by the National Association of
Attorneys General found at least 60 enforcement actions were taken by
state attorneys general against debt collection companies from January
2006 through May 2009, of which 28 involved or may have involved the
collection of credit card debt. These actions alleged a variety of
illegal debt collection practices, such as deducting money from
consumers' bank accounts without authorization, operating in states
without proper licenses, and refusing or failing to provide consumers
with proof of their debts. Generally, state attorneys general either
negotiated a settlement with the debt collection company or brought a
court action against the company. Settlements included penalties such
as refunds to consumers, cancellation of consumers' debts, civil
penalties, and injunctive relief aimed at preventing future collection
violations.
Among these state enforcement actions were the following:
* In 2006, the Massachusetts Office of the Attorney General settled
with a debt collection law firm for allegations of unfair debt
collection practices that violated state and federal debt collection
laws. According to the state's office, representatives of the firm,
among other violations, used obscene language, harassed and embarrassed
consumers, exceeded the number of permissible calls, placed calls to
consumers at improper hours, disclosed debts to persons other than the
consumer, and failed to provide proof of the validity of debts. Under
the settlement, the firm is required to pay a total of $75,000,
including $20,000 in consumer restitution, and agreed to implement new
policies and procedures.
* In 2007, the Office of the Illinois Attorney General sued a debt
buyer for violations of the Illinois Consumer Fraud and Deceptive
Business Practices Act. According to the Illinois office, the company
used abusive practices to attempt to collect on time-barred debts more
than 10 years old, debts that had been discharged in bankruptcy, and
debts that had been settled. Additionally, the company allegedly
refused or failed to provide proof of debts, illegally contacted
consumers' family members and workplaces, and withdrew money without
authorization from consumers' bank accounts. Under the stipulated final
judgment, the company paid $100,000 to the state.
As noted earlier, FDCPA provides consumers with a private right of
action, allowing them to bring civil actions against debt collectors
that violate its provisions and be awarded monetary damages. The Senate
report that accompanied FDCPA indicates that Congress intended these
private lawsuits to provide an important incentive to debt collection
companies to comply with the act. While the exact number of private
lawsuits for violations of FDCPA is not known, representatives of the
debt collection industry told us that such suits were relatively
common. The FDCPA Case Listing Service, LLC--a private firm that tracks
such litigation--reported that 5,383 cases were filed against
collection agencies, collection law firms, and debt buyers in U.S.
District Court in 2008 for alleged violations of FDCPA. A
representative of the firm noted that this figure does not include
FDCPA lawsuits filed in state courts, of which there are also believed
to be a substantial number.
While consumers' private right of action can provide an incentive for
debt collectors to comply with FDCPA, representatives of the debt
collection industry told us that many of the FDCPA lawsuits filed are
for what they consider to be technical violations of the statute that
have caused no actual harm to the debtor. For example, the National
Association of Retail Collection Attorneys believes that a significant
burden has been placed upon debt collectors that have been forced to
defend FDCPA suits that claim that the collectors' validation notice is
somehow confusing or misleading. Industry officials told us they
believe that some consumer attorneys file FDCPA lawsuits largely for
their own personal gain, taking advantage of the attorneys' fees
awarded under FDCPA for attorneys who prevail against collection
agencies. Representatives of several debt collection companies told us
that in many instances they choose to settle FDCPA cases even when they
believe they have done no wrong to avoid the expense of bringing the
cases to trial.
FDCPA provides that collectors that violate the law are liable to an
individual consumer for any actual damages suffered by the consumer,
plus any additional damages allowed by the court, not to exceed $1,000
per violation. The court also may award reasonable attorneys' fees to a
consumer who prevails in the action. Damages for class actions are set
at the lesser of $500,000 or 1 percent of the debt collector's net
worth. In its 2009 workshop report, FTC proposed that Congress, at a
minimum, update these damages to reflect inflation since 1977.[Footnote
63] Some consumer attorneys with whom we spoke said the amounts were
too low to serve as a meaningful deterrent for collection companies. In
contrast, one industry representative expressed the view that the
amounts paid for attorney fees often far exceed the damage award to the
consumer, particularly for technical violations of FDCPA that, in their
view, caused no actual consumer harm.
Debt Collection Litigation:
FTC's workshop report noted that lawsuits seeking to collect on credit
card debt are usually filed in state court and, depending on the amount
of the debt, may be filed either in small claims court or civil court
of general jurisdiction. Courts typically apply state contract law to
decide collection cases and use state rules of civil procedure and
local court rules, the report noted, and state rules of civil procedure
require that after filing the debt collector serve the debtor with
notice of the action, which can include the date and time the debtor
must appear in court. If the debtor does not appear in court to respond
to the lawsuit, the judge can generally enter a default judgment in
favor of the creditor. Once the owner of a debt receives a favorable
judgment, the owner can generally collect on that judgment or award,
and in some states can seek to put a lien on the debtor's property or
garnish the debtor's wages or bank accounts.
While no national figures are readily available on the number of debt
collection lawsuits filed in the United States--involving credit card
or any other form of debt--the numbers are widely recognized to be very
large. FTC's 2009 workshop report noted that the majority of cases on
many state court dockets on any given day are debt collection cases. A
report by the Urban Justice Center estimated that in 2006, 320,000 debt
collection cases were filed just in New York City's Civil Court.
[Footnote 64] In Chicago's Cook County Circuit Court, more than 119,000
civil debt collection lawsuits were pending as of June 2008, according
to a review by the Chicago Tribune. State officials in Ohio told us
that municipal court judges there handle as many as 1,000 debt
collection cases per week. A review by the Boston Globe found that at
least 60 percent of small claims cases filed in Massachusetts in 2005
were filed by debt collectors. Consumer groups, attorneys, and FTC all
acknowledge that the number of these state court cases has increased in
recent years and is putting a strain on the state court systems.
Kaulkin Ginsberg and the National Association of Retail Collection
Attorneys have noted that the growth of the debt-buying industry has
resulted in increases in collection lawsuits because entities that
purchase delinquent debt often use collection law firms as their
primary tool for recovery.
FTC's workshop report highlighted concerns related to the prevalence of
default judgments in debt collection litigation. For example, in Cook
County, Illinois, it is estimated that debt collectors obtained a
default judgment in more than 45 percent of debt collection lawsuits
filed in 2007. The Urban Justice Center estimated that 80 percent of
the debt collection cases it reviewed for 2006 in New York City
resulted in default judgments. When a consumer does not show up in
court to respond to the suit, a default judgment generally may be
entered against them. Consumer advocates and consumer attorneys have
raised concerns that debt collectors often file suits with weak
evidence supporting the alleged debt, knowing that most likely the
consumer will not appear in court and they will receive a default
judgment. Moreover, advocates say consumers often do not appear to
contest a debt collection lawsuit because they have not been properly
served with notice of the lawsuit.[Footnote 65] In response to concerns
about the number of default judgments, representatives of the debt
collection industry say that in many debt collection cases, defendants
may legitimately owe the debt but do not appear in court because they
want to avoid the associated costs of offering a defense that they know
will be unsuccessful.
Other Concerns:
Representatives of the National Consumer Law Center, the National
Association of Consumer Advocates, Consumer Union, and attorneys at
legal aid clinics have stated that they have observed a number of other
debt collection practices that raise concern. Because there is limited
information about the extent to which these practices occur, most of
the evidence remains anecdotal.
* Collection of debt discharged in bankruptcy. Under the federal
Bankruptcy Code, creditors are prohibited from taking any form of
collection action on debts discharged in bankruptcy, including legal
action and communications with the debtor, such as telephone calls and
letters.[Footnote 66] As noted earlier, federal agencies have reached
settlement with companies alleged to have engaged in collection
activities on discharged debt. In addition, at least one debt buyer we
identified purchases discharged bankruptcy debt. There may be instances
in which debts that have been initially designated as discharged can
later become collectable--such as cases where the courts discover
additional assets that can be divided among creditors or where debtors
may choose to repay discharged debts out of a sense of moral duty.
However, some consumer representatives have expressed concerns that the
purchase and sale of discharged debt may foster improper collection
practices.
* Collection of time-barred debt. As noted earlier, while it is
generally illegal to sue or threaten to sue to recover debt that is
beyond the statute of limitations (time-barred debt), FDCPA does not
prohibit other attempts to collect on such debt, such as through
telephone calls or letters. Some consumer advocates have reported to
FTC that some collectors still make false threats of suit or actually
sue on time-barred debts--and in some cases obtain a default judgment
on time-barred debts from consumers who may be unaware that a collector
may not lawfully sue on debt over a certain age. FTC addressed this
issue in a recent roundtable it held in August 2009 on debt collection
litigation and arbitration issues. FTC plans to hold two other
roundtables on these issues later this year.
* Revival of time-barred debt. Some consumer attorneys have also
reported that some debt collectors have used unlawful tactics in an
attempt to revive a time-barred debt--that is, to extend the time
available to sue a debtor if the statute of limitations has past or is
approaching. Consumer representatives have alleged that some companies
have unjustly sought to extend the limitations period by altering a
debt's recorded delinquency date or by persuading consumers to make a
very small payment or making unauthorized payments in the debtor's
name.
Debts May Not Always Be Adequately Verified:
Having adequate information is a key element in ensuring a fair and
efficient system for collecting debt. According to FTC and other
stakeholders, collection agencies and debt buyers sometimes may not
have adequate information about their accounts and may not always have
access to documentation needed to verify the debt.
Amount of Information Transferred to Collection Companies Varies:
The flow of information plays an important role in the process of debt
collection. Credit card issuers provide their third-party collection
agencies with information about the debtor--including name, address,
telephone number, date of birth, Social Security number, and employer--
and about the debt itself, including account number, balance, date of
first delinquency, and date of charge off. Additional information that
may be provided by issuers includes the last date of payment; a
breakout of the principal, interest, and fees that compose the amount
due; monthly payment date; minimum payment amount; and any notes
describing the issuer's internal collection efforts on the account.
Some issuers allow third-party agencies to access account information
through the issuer's own data system during the collection process.
FTC, state agencies, consumer advocates, and others have expressed
concerns that debt collection companies sometimes have inadequate
information about the accounts for which they are collecting--
increasing the likelihood that the collector reaches the wrong consumer
or tries to collect the wrong amount. Consumer groups and others note
that this problem appears to be most acute when debt is sold and the
transfer of information between seller and buyer may not be complete.
It is common for a debt buyer to receive only a computerized summary of
the issuers' business records, and the specific account data
transferred to a debt buyer varies with each sale. Problems with the
sufficiency of data that are transferred can be exacerbated when
accounts are sold multiple times, and there are numerous areas in which
account integrity could be compromised, according to industry data
specialists with whom we spoke. For example, important account
information--such as results of disputed account investigations,
consumer complaints about billing errors, and information on settlement
agreements and identity theft--may not always be transferred to debt
buyers.
To help improve information flows, FTC's 2009 workshop report proposed
that Congress modify FDCPA to require that the initial validation
notices provided to consumers include three additional pieces of
information. First, the agency recommended that validation notices
notify consumers of two significant rights they have under FDCPA: the
right to have collection efforts suspended prior to debt verification
and the right to require collectors to cease contact upon written
request.[Footnote 67] Second, FTC recommended that validation notices
include the name of the original creditor. FTC and consumer groups have
noted that this would benefit consumers as well as collectors by making
it easier for consumers to recognize their debts when they have been
sold to a debt buyer under a different name than that of the original
creditor. Third, FTC recommended that validation notices include not
just the total amount of the debt, but also an itemization of
principal, interest, and fees, which it said would allow consumers to
determine if any charges being demanded by a debt collector were
erroneous or subject to dispute.
A related area of concern has been the availability of account media--
that is, billing statements, credit card agreements, card applications,
or other items that help substantiate the validity of the debt.
Contracts between issuers and debt buyers usually specify the terms of
the account media provided to the buyer. For example, in our
discussions with issuers and debt buyers and our review of sample
contracts, we found that oftentimes, buyers will have the right to
request media either for a certain period of time subsequent to the
purchase of a portfolio or for a certain number of accounts in the
portfolio. Debt buyers may use such media to support a lawsuit or to
address a consumer dispute. Some contracts between primary debt buyers
and secondary debt buyers provide that if the secondary debt buyers
request account media, the primary debt buyers will attempt to obtain
them from the original creditor. Similarly, contracts between secondary
debt buyers and tertiary debt buyers provide that the tertiary buyer
can request media from the secondary buyer--which then requests them
from the primary buyer, which requests them from the issuer (see figure
3).
Figure 3: How Account Information Is Passed among Debt Buyers:
[Refer to PDF for image: illustration]
Current owner of debt submits request for account media (such as
billing statements, cardmember agreements, card applications) to the
previous owner. The request is passed along until it reaches the
issuer.
Third buyer, to:
Second buyer, to:
First buyer, to:
Credit card issuer.
Upon request, issuer provides account media to the initial debt buyer,
who passes it on to subsequent buyers until it reaches the current
owner.
Credit card issuer, to:
First buyer, to:
Second buyer, to:
Third buyer, to:
Current owner.
Source: GAO.
[End of figure]
This process can be problematic because if any company in the chain
fails to respond (or goes out of business), it can be difficult to
obtain the media needed to document and verify an account. The credit
and collection industry trade association ACA International has
suggested that Congress require by statute that creditors and debt
buyers maintain specific account documentation until the time they
sell, forward, or assign a debt to another entity, at which time the
documentation would be required to be made available to that entity.
Some industry representatives have noted that improving information
flows in the debt collection process would have costs as well as
benefits. For example, they note that requirements for maintaining and
transferring media (such as credit card agreements) for all accounts
would impose financial costs to creditors and collectors. Moreover,
industry representatives say that the need for account media is
relatively rare--for example, one collection attorney estimated that
such media from issuers or previous debt buyers would be relevant to
fewer than 1 percent of his firm's collection disputes. In addition,
representatives of the credit card industry have said that the transfer
of more account information can raise privacy and data security
concerns--for example, by allowing more parties to hold sensitive
account information there may be an increased risk for data breaches
and identity theft. While these issues would need to be considered, FTC
and consumer advocates maintain that it remains important nonetheless
to find ways to better ensure that debt collectors have adequate
information about the accounts for which they are collecting.
Adequacy of Verification Has Been a Concern:
FDCPA requires that, if a consumer disputes the validity of a debt in
writing, the debt collection agency must provide the consumer with
documented verification of the debt.[Footnote 68] However, the statute
does not precisely set out what constitutes verification of the debt.
Collection companies' policies for responding to requests for
verification vary. In many cases, contracts between issuers and
collection agencies stipulate how the agency responds to requests for
verification. FTC, consumer advocates, and state agencies have said
that, in practice, many debt collectors and debt buyers do very little
to verify debts that consumers dispute. In particular, they say that
the verification provided by debt buyers sometimes consists of little
more than a written statement that the amount being demanded is what
the creditor claims is owed. Collection agencies' ability to provide
adequate documentation to verify a debt may be limited if they do not
have access to account media, as is sometimes the case.
Debt collection industry representatives claim that considerable
confusion exists about what constitutes adequate verification under
FDCPA, and collectors largely have had to rely on case law. In one key
case, the Fourth Circuit of the U.S. Court of Appeals found in 1999
that while the debt collector must obtain verification from the
creditor for the amount demanded, the collector is not required to keep
detailed files of the alleged debt.[Footnote 69] To clarify and improve
the debt verification process, FTC's 2009 workshop report proposed that
FDCPA be amended to require debt collection agencies to conduct
reasonable investigations that are responsive to the specific disputes
consumers have raised. FTC points out that such a requirement would be
comparable to the "reasonable investigation" standards for addressing
consumer disputes that are imposed by FCRA and Regulation Z, which
implements the Fair Credit Billing Act.[Footnote 70] FTC officials told
us that what constitutes a reasonable investigation would depend on the
specific facts of the dispute, including the type of debt and the cost
of obtaining information. Some debt collection industry participants
say that because the circumstances of a dispute can vary, any new
statute or implementing regulations should avoid requiring a specific
checklist of items required for verifying a debt. However, in general,
FTC, consumer representatives, and industry participants agree that
clarification is needed on what constitutes adequate verification of a
debt under FDCPA.
Most Stakeholders Believe That FDCPA Needs Updating:
FDCPA was enacted in 1977. While some sections have been amended, it
has not been substantially revised to reflect changes that have
occurred in technology and in the debt collection marketplace. Most
stakeholders involved in the process of debt collection with whom we
spoke--representing consumers, state and federal agencies, credit card
issuers, debt collectors, and debt buyers--have expressed support for
updating FDCPA.
FDCPA Does Not Address Some Key Modern Technologies:
Communication technologies that are ubiquitous today--mobile
telephones, e-mail, caller identification, answering machines, and fax
machines--were not prevalent when FDCPA was enacted in 1977. Collection
companies sometimes have faced difficulties in trying to use these
technologies while remaining in compliance with the act:
* Answering machines and voice mail. FDCPA requires that a collection
agency identify itself as such to a debtor and also not state that a
debtor owes any debt to any other party who might answer the telephone.
[Footnote 71] A debt collector may violate FDCPA if the collector
leaves a message on a consumer's answering machine or voice mail that
fails to disclose that the collector is calling in an attempt to
collect a debt. However, the debt collector may also violate FDCPA if
someone other than the debtor overhears a telephone recording revealing
the debt collection effort. One court acknowledged the difficulty a
debt collector has in complying with all of the provisions of FDCPA at
the same time when leaving voice mail, and inferred that debt
collectors may need to reach debtors by postal mail, in-person contact,
or by speaking directly to them via telephone instead of using voice
mail.[Footnote 72]
* Mobile telephones. FDCPA restricts the hours in which debt collectors
can call consumers and prohibits collectors from imposing additional
telephone charges on consumers. However, because mobile telephone users
may not be, at a given time, in the geographic location indicated by
the telephone's area code, debt collectors calling a mobile telephone
cannot be certain they are calling within the permitted hours.
Furthermore, unlike users of land lines, mobile telephone users often
incur charges of some sort whenever they receive a call.
* Caller identification. When debt collectors call consumers who have
caller identification on their telephones, the collectors may be
disclosing their names and telephone numbers, which could be construed
as a violation of FDCPA if a third party sees that a debt collector is
calling. However, some stakeholders have questioned if conveying false
or blocked information through caller identification would be a
violation of FDCPA's and the FTC Act's prohibitions on making a false
or misleading representation, as well as FDCPA's prohibition of making
telephone calls without meaningful disclosure of the caller's identity.
* E-mail and faxes. Debt collection agencies have been reluctant to use
e-mail and faxes to communicate with debtors because of the risk that
someone other than the debtor may read the transmission, which could
violate FDCPA's prohibition on disclosure to third parties.
* Predictive dialers. Predictive dialers--which are used heavily in the
debt collection industry to efficiently manage high call volumes--
sometimes can result in inadvertent hang-ups or dead air, which could
be a violation of FDCPA's prohibition on causing a telephone to ring
repeatedly with intent to annoy, abuse, or harass a consumer.[Footnote
73]
Because FDCPA does not address these technologies, collectors often
have had to rely on case law to determine their appropriate use, and
this has created challenges for debt collection industry participants
wanting to comply with the law. In a comment letter to FTC, ACA
International stated that "conflicting court decisions make it
challenging to comply with all applicable laws" and that without
guidance on the application of FDCPA to these new methods of
communication, debt collectors are without a reference point to assess
the legality of using these technologies to communicate with consumers.
Similarly, the National Association of Retail Collection Attorneys
noted in a comment letter that "conflicting court decisions have made
regulatory compliance a guessing game, rather than a predictable
endeavor."
FTC Lacks Rulemaking Authority for FDCPA:
FDCPA requires FTC to provide Congress with an annual report describing
its FDCPA enforcement efforts and provide any recommendations for
statutory changes. However, FDCPA does not authorize FTC or any other
agency to issue rules to implement the act.[Footnote 74] The
legislative history of the act indicates that rulemaking authority was
not provided to any agency because the relevant committee regarded the
legislation as comprehensive and believed it would fully address all
collection abuses.[Footnote 75] However, because no administrative
agency can promulgate rules for FDCPA, limited means exist for
clarifying ambiguities or filling gaps in the statute and addressing
issues that arise as technology and the marketplace evolve. As we have
seen, the advent of the debt-buying industry has created new challenges
with regard to information flows that were not envisioned when FDCPA
was drafted. FTC officials noted that if FDCPA were amended to require
collectors to respond to consumer disputes with reasonable verification
measures, a rulemaking would be the appropriate method for determining
what constitutes a "reasonable" verification process. Similarly, FTC
and some industry representatives note that rulemaking authority would
allow the agency to address current and future technologies in the
marketplace.
Representatives of some consumer groups and state agencies told us that
they support providing FTC with rulemaking authority for FDCPA. Among
debt collection trade associations, the National Association of Retail
Collection Attorneys has supported giving FTC rulemaking authority,
which it says would help resolve potentially conflicting court
interpretations and help ensure industry compliance. ACA International
has not explicitly called for amending FDCPA to give FTC rulemaking
authority, but has recommended that FTC "make regulatory changes" as it
deems necessary. Officials from DBA International, a trade association
for debt buyers, told us it had not taken a position on FTC rulemaking
authority. FTC already has rulemaking authority to implement other
consumer protection statutes--for example, the agency issued the
Telemarketing Sales Rule in 1995, revised in 2003, to respond to
changes in telephone technologies and the marketplace. FTC has issued
four FDCPA "advisory opinions," which protect debt collectors from
liability for actions taken in good faith reliance on the opinions.
[Footnote 76] In addition, FTC staff have issued a commentary on FDCPA
and also have issued a number of "staff opinions," but the commentary
and these opinions are not legally binding and have not always carried
much weight in the courts, according to FTC staff. As a result, debt
collectors have often had to rely on case law--which they note has
sometimes been ambiguous or contradictory--in interpreting how to
comply with FDCPA, and there has been no regulatory process to help
address the changing marketplace for debt collection.
Conclusions:
The rise in credit card delinquencies and charge offs that has
accompanied the current economic recession has focused new attention on
the practices of creditors and third-party companies in collecting on
delinquent credit card debt. FDCPA, enacted in 1977, has been an
important tool in addressing unfair third-party debt collection
practices, but it has not kept up with the evolving marketplace or with
changes in technology, and FTC has previously recommended that Congress
make certain changes to the statute. We believe that in at least three
areas, FDCPA would benefit from modification to provide needed clarity
for industry and to enhance consumer protections.
First, FDCPA is limited in addressing problems associated with
information flows. With the advent of debt buying has come the repeated
resale of accounts--making it more difficult to verify debts and obtain
appropriate documentation as credit card accounts get further from
their original owner. FDCPA does not, for example, address the account
information that should be provided when a debt is sold nor does it
address the procedures and information that constitute "verification"
of the debt. Statutory changes to better address these issues could
help ensure that participants in the debt collection industry have
clear guidelines on what information they must provide to each other
and to consumers, and could help reduce instances where collectors seek
payment from an incorrect party or for an incorrect amount.
Second, because FDCPA was enacted prior to the advent of technologies
such as mobile telephones, e-mail, and voice mail, its provisions on
communicating with consumers are outdated. This has resulted in
considerable ambiguity and confusion on using these technologies in
compliance with the law, and collection companies have been reluctant
to use some modern technologies. Statutory changes to ensure technology
issues are addressed could benefit both industry and consumers,
allowing the industry to more efficiently conduct its operations and
consumers to receive information expeditiously and with appropriate
protections. Finally, because FTC does not have rulemaking authority
under FDCPA, there is no regulatory process to keep up with an evolving
marketplace and changes in technology. With rulemaking authority, FTC
could better regulate the practices of debt collectors and ensure that
consumers are protected from unfair and abusive practices.
Matter for Congressional Consideration:
To help ensure that the debt collection system better protects
consumers without unduly burdening the legitimate process of
collection, Congress should consider modifying the Fair Debt Collection
Practices Act to account for changes in the marketplace that have
occurred in recent years. Among such modifications, Congress should
consider, in particular, options for modifying FDCPA to:
* help ensure that debt collectors and debt buyers have adequate
information about the debts transferred and adequate documentation to
verify the debts they seek to collect from consumers,
* reflect technologies that were not prevalent when the act was
originally enacted, and:
* provide FTC with the authority to issue rules to implement the act.
Agency Comments:
* We provided a draft of this report to FDIC, Federal Reserve, FTC,
OCC, and OTS for comment. FDIC, Federal Reserve, FTC, and OTS provided
technical comments that we incorporated as appropriate. In addition,
FDIC and FTC provided written responses, which are reprinted in
appendixes II and III, respectively. In its response, FDIC noted that
it takes seriously its responsibilities to enforce consumer protection
laws and regulations related to debt collection and that it has taken
formal enforcement actions and assessed civil money penalties against
financial institutions to address noncompliance with these laws and
regulations. In FTC's response, it noted that its February 2009
workshop report, Collecting Consumer Debts: The Challenge of Change,
concurred with our view that Congress should consider amending FDCPA to
give FTC the authority to issue implementing rules.
* As agreed with your offices, unless you publicly announce its
contents earlier, we plan no further distribution of this report until
30 days from the report date. At that time, we will provide copies to
other interested congressional committees, as well as the Chairman of
the Board of Governors of the Federal Reserve System, the Chairman of
the Federal Deposit Insurance Corporation, the Chairman of the Federal
Trade Commission, the Comptroller of the Currency, and the Acting
Director of the Office of Thrift Supervision. In addition, the report
will be available at no charge on GAO's Web site at [hyperlink,
http://www.gao.gov].
* If you or your staff have any questions about this report, please
contact me at (202) 512-8678 or cackleya@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. GAO staff who made key contributions
to this report are listed in appendix IV.
Signed by:
Alicia Puente Cackley:
Director, Financial Markets and Community Investment:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
Our report objectives were to examine (1) the protections provided
consumers under federal and state laws related to credit card debt
collection, and the roles and responsibilities of federal and state
agencies in enforcing these laws; (2) the processes and practices
involved in collecting and selling delinquent credit card debt; and (3)
any issues that may exist related to some of these processes and
practices. The focus of our report was on the collection of consumer
credit card debt as opposed to other forms of debt. However, because
collection agencies may collect on multiple kinds of debt, it was not
always possible to isolate debt collection processes related
specifically to credit card debt. We indicate in the report whether
data that we present are specific to credit card debt or may include
other types of debt. Our report also focuses on the largest credit card
issuers and debt collection companies that ranged in size from medium
to very large; therefore, the collection processes and practices
described in this report may not be representative of smaller credit
card issuers or debt collection companies.
To address our first objective, we reviewed and analyzed relevant
federal laws, rules, and guidance and we interviewed officials from the
Federal Trade Commission (FTC) and the federal depository institution
regulators--Board of Governors of the Federal Reserve System (Federal
Reserve), Federal Deposit Insurance Corporation (FDIC), Office of the
Comptroller of the Currency (OCC), Office of Thrift Supervision (OTS),
and the National Credit Union Administration. We reviewed the
procedures the federal regulators use in their bank examinations to
review issuers' debt collection policies and practices. We also
reviewed two compendiums that summarized state laws applicable to debt
collection--the National Consumer Law Center's Fair Debt Collection and
Collection Actions legal practice guides and ACA International's Guide
to State Collection Laws and Practice. We did not conduct our own
review of all state fair debt collection statutes, but we did review
the statutes of selected states--California, Colorado, Massachusetts,
and Texas--which we selected because they included provisions that
differed in some ways from the Fair Debt Collection Practices Act. We
interviewed staff with the office of the attorney general in these four
states and relied upon them for the analysis of and information about
the meaning and scope of their state debt collection laws. In addition,
we conducted a group interview, coordinated by the National Association
of Attorneys General, with staff from the office of the attorney
general of 15 additional states who chose to participate. We also met
with staff from state and local agencies responsible for regulating the
collection industry in a group meeting that was coordinated by the
North American Collection Agency Regulatory Association to learn about
state and local agencies' activities, roles, and responsibilities.
Seventeen of the group's 24 U.S. members elected to participate in this
meeting.
To address our second objective, we interviewed representatives of the
six largest credit card issuers as measured by total outstanding credit
card loans, as of December 31, 2007, in the Card Industry Directory.
[Footnote 77] These issuers, which represented about 83 percent of
total outstanding U.S. credit card debt, were American Express, Bank of
America, Capital One Financial Corp., Citigroup Inc., Discover
Financial Services Inc., and JPMorgan Chase & Co. We reviewed the
internal collection department policies of one issuer and the internal
collection training materials used by three issuers, as well as several
sample contracts between issuers and debt collection agencies and
between issuers and debt buyers. We also reviewed the Securities and
Exchange Commission filings of selected issuers and publicly held debt
collection companies. In addition, we met with six third-party debt
collection agencies, six companies that purchase credit card debt, one
law firm that specializes in debt collection, and one collection
attorney. We chose these entities because some or a significant portion
of their business included the collection or purchase of credit card
debt and because they ranged in size from medium to very large. These
companies included some of the largest industry players, although data
are not available on the share of the respective markets that they
represent. We made several attempts to meet with at least one small
debt collection agency--fewer than 20 employees--but were unsuccessful
in gaining the cooperation of any such companies that we contacted.
Additionally, we met with trade associations that included ACA
International (which represents creditors, third-party collection
agencies, collection attorneys, and debt buyers), DBA International
(which represents debt buyers), the National Association of Retail
Collection Attorneys, the American Bankers Association, and the
Consumer Data Industry Association (which represents consumer reporting
agencies). We also reviewed the guidance and other information that ACA
International provides to its members. Finally, we toured the
collection facilities of one card issuer and one large debt collection
agency and listened in on a number of calls to consumers made by
collections staff.
To address our third objective, we reviewed FTC's annual reports to
Congress on the Fair Debt Collection Practices Act from 1998 to 2009,
as well as its consumer education materials and other relevant
documents. We also reviewed the transcript, report, and public comments
resulting from the workshop on debt collection that FTC hosted in
October 2007.[Footnote 78] We obtained and analyzed consumer complaint
data from 2004 to 2008 that FTC maintains in its Consumer Sentinel
database. Additionally, we reviewed all of the enforcement actions that
FTC filed against debt collection agencies from 1998 to 2008 and
examined their associated complaints, press releases, consent orders
and agreements, and permanent injunctions. We did not include cases
that clearly did not involve debt specific to credit cards. However,
sometimes the type of debt involved could not be determined from the
documents, and in those cases we included the case but specified that
it was not known if credit card debt was involved. We also received
information from the Department of Justice's U.S. Trustee Program on
its role in taking enforcement action related to the collection of
credit card debt in cases involving bankruptcy filings. In addition, we
collected and analyzed data from FDIC, Federal Reserve, OCC, and OTS on
consumer complaints submitted in 2004-2008 related to credit card
issuers' debt collection activities. We also gathered information from
these agencies on the informal and formal enforcement actions, if any,
they had taken against issuers for violations identified during bank
examinations in 1999-2008. We reviewed bank examination reports and
relevant documents associated with enforcement actions, such as orders
to cease and desist. We did not gather complaint data or information on
enforcement actions from the National Credit Union Administration
because officials told us credit unions represent a very small share of
the credit card market. To assess the reliability of FTC's Consumer
Sentinel database as well as the consumer complaint data provided by
the four federal depository regulators, we reviewed these data for
obvious errors in consistency and completeness and we interviewed
agency staff responsible for maintaining the data. We determined that
the data were sufficiently reliable for the purposes of this report.
However, complaint data may both over-and underestimate the number of
actual problems in the industry because complaints may not be accurate
or they may not represent a law violation. Consumer complaints are also
self-reported and there are likely to be a number of complaints that
are unreported.
We identified enforcement actions related to debt collection at the
state level by reviewing the National Association of Attorneys
General's biweekly Consumer Protection Reports from January 2006
through May 2009, which compile information on state and federal
enforcement of consumer protection laws, legislative initiatives, and
consumer education efforts. These reports may not be representative of
all state attorney general enforcement actions because they are a
compilation of press releases from their offices' Web sites, not all of
which may publish such press releases. To the extent feasible, we
identified those enforcement actions related to credit card debt and,
as available, reviewed related press releases and other documents. We
also reviewed and analyzed consumer complaint data related to debt
collection agencies that had been collected by the national Better
Business Bureau and the National Association of Attorneys General. We
reported these data because they provided information relevant to our
review, but we did not test the reliability of these data because they
appeared to corroborate FTC's consumer complaint data. We also reviewed
studies and reports by consumer organizations, such as the Urban
Justice Center and Public Citizen, related to debt collection. In
addition, we met with attorneys who represent consumers in debt
collection cases and with representatives of consumer organizations,
including the National Consumer Law Center, Consumers Union, and the
National Association of Consumer Advocates.
Because the debt collection industry is mostly composed of privately
held companies, the amount of publicly available data about the
industry is limited. To identify information on the industry, we
conducted a literature search and we talked with a researcher from the
Federal Reserve Bank of Philadelphia and officials from ACA
International and DBA International, as well as other industry
participants. We reviewed two industry surveys commissioned by ACA
International, as well as reports published by Kaulkin Ginsberg and the
Nilson Report. To determine the reliability of industry data in the
Kaulkin Ginsberg reports, we interviewed company representatives about
their methodology. They told us their estimates are developed from
discussions with industry participants, financial statements, and other
data obtained in the firm's capacity as an industry advisor. We could
not assess the reliability of the firm's data, but our review of its
methodology indicates that their data may not be representative of the
entire debt collection industry. Officials from the Nilson Report
declined our request to discuss the methodology used in their reports.
We reviewed the descriptions of the survey methodologies contained in
the ACA reports and determined that while their methodology was
generally sound, because of the low response rate and the absence of
nonresponse bias analysis, and the wide confidence intervals around key
estimates due to the small number of responses, the resulting survey
data may not be reliable for making precise quantitative estimates.
However, we report some of the results from these reports because
limited other publicly available sources of such data exist. During the
course of our review, we also found several companies on the Internet
that said they provided debt collection industry research and
statistics for a fee, but we did not pursue these because their
methodology suggested they faced potentially severe risks to
reliability.
We conducted this performance audit from July 2008 to September 2009 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
[End of section]
Appendix II: Comments from the Federal Deposit Insurance Corporation:
FDIC:
Federal Deposit Insurance Corporation:
Division of Supervision and Consumer Protection:
550 17th Street NW:
Washington, D.C. 20429-9990:
September 1, 2009:
Mr. Richard J. Hillman:
Managing Director, Financial Markets and Community Investment:
U.S. Government Accountability Office:
Washington, DC 20548:
Dear Mr. Hillman:
The FDIC has reviewed the U.S. Government Accountability Office (GAO)
report titled Credit Cards: Fair Debt Collection Practices Act Could
Better Reflect the Evolving Debt Collection Marketplace and Use of
Technology (GAO-09-748). We appreciate the opportunity to discuss with
your team the strengths and weaknesses of the regulatory framework for
credit card debt collection practices.
The FDIC takes seriously its responsibilities to enforce consumer
protection laws and regulations, including those that implement the
Fair Debt Collection Practices Act, the Federal Trade Commission Act,
and the Fair Credit Reporting Act. As indicated in this GAO report, the
FDIC has issued formal enforcement actions and assessed civil money
penalties to address instances of financial institution noncompliance
with these consumer protection laws and regulations.
Thank you for the opportunity to review and comment on the GAO report.
Sincerely,
Signed by:
Sandra L. Thompson:
Director:
[End of section]
Appendix III: Comments from the Federal Trade Commission:
United States Of America:
Federal Trade Commission:
Office Of The Secretary:
Washington, D.C. 20580:
September 2, 2009:
Alicia Puente Cackley:
Director, Financial Markets and Community Investment:
United States Government Accountability Office:
441 G Street, N.W.
Washington, D.C. 20548:
Dear Ms. Cackley:
The Government Accountability Office ("GAO") recently forwarded for the
Federal Trade Commission's ("FTC" or "Commission") review and comment a
draft of a GAO report entitled Credit Cards: Fair Debt Collection
Practices Act Could Better Reflect the Evolving Debt Collection
Marketplace (GAO-09-748). The Commission staff has provided GAO with
information about the FTC's debt collection program in connection with
the preparation of the draft report, and the Commission appreciates the
opportunity to have assisted GAO in its work. The Commission also
appreciates having this chance to provide views about the
recommendations set forth in the draft report.
The draft report recommends that Congress consider modifying the FDCPA
to account for changes in the debt collection marketplace that have
taken place in recent years. In particular, the draft report recommends
that Congress amend the Fair Debt Collection Practices Act ("FDCPA") to
give the FTC the authority to issue implementing rules. The draft
report explains that, because the Commission does not have rulemaking
authority under the FDCPA, there is no regulatory process to keep up
with an evolving marketplace and changes in technology. With rulemaking
authority, according to the draft report, the FTC would be more
effective in protecting consumers from the unfair, deceptive, and
abusive practices of debt collectors.
In a report issued earlier this year, the Commission as well
recommended that Congress amend the FDCPA to give the Commission the
authority to issue implementing rules. Federal Trade Commission,
Collecting Consumer Debts: The Challenges of Change: A Workshop Report
(Feb. 2009) ("FTC Debt Collection Workshop Report"). Similar to the
views expressed in the draft report, the Commission stated:
Many of the complex issues arising in contemporary debt collection
could be addressed with enhanced consideration and expertise if they
were resolved through a process of seeking comment, researching
particular issues, and proposing and revising necessary and appropriate
regulations. Making changes periodically through such a process would
help ensure that the law continues to further Congress's intent to
protect consumers from abusive, deceptive, and unfair debt collection
practices, while also ensuring that debt collectors who refrain from
such practices are not competitively disadvantaged.
The Commission therefore believes that consumers and debt collectors
would benefit if the agency were given the authority to issue rules to
implement the FDCPA.
FTC Debt Collection Workshop Report at 70. The FTC is pleased that the
GAO draft report likewise recognizes that consumers and collectors
would benefit if the Commission had the authority to issue rules to
implement the FDCPA, and, therefore, recommends that Congress amend the
law to give the FTC that authority.
By direction of the Commission.
Signed by:
Donald S. Clark:
Secretary:
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
Alicia Puente Cackley, (202) 512-8678 or cackleya@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, Jason Bromberg (Assistant
Director), Anthony Bova, Christine Houle, Tiffani Humble, Marc Molino,
Carl Ramirez, Linda Rego, and Barbara Roesmann made key contributions
to this report.
[End of section]
Footnotes:
[1] This report uses "debt collection industry" to describe businesses
that engage in the collection of debt for which the business is not the
original creditor. The industry often refers to itself as the "accounts
receivable management industry," although that term sometimes
encompasses the collection practices of original creditors as well.
[2] Includes both consumer and commercial credit card charge volume.
See Card Industry Directory: The Blue Book of the Credit and Debit Card
Industry in North America, 20th ed. (Chicago, Ill., 2008). SourceMedia,
the publisher of the Card Industry Directory, told us that the 20th
edition is the last edition that will be published and that its
information has migrated into a Web-based product called
PaymentsSource.
[3] FDIC-insured institutions file financial data quarterly reports,
often known as "Call Reports" for banks and "Thrift Financial Reports"
for thrift institutions, which provide details on income and certain
financial condition information. However, these reports do not include
detailed information on credit card balances that an institution may
have sold to other investors through a securitization--the sale of
credit card receivables as part of pools of securitized assets to
investors. Credit card-issuing banks generally securitize more than 50
percent of their credit card balances.
[4] Bank regulatory accounting requirements state that the accounts
must be charged off after 180 days of delinquency for an open-end
(revolving) account or 120 days for a closed-end (installment) account.
Uniform Retail Credit Classification and Account Management Policy, 65
Fed. Reg. 36903 (June 12, 2000).
[5] Fraudulent charges must be charged off within 90 days of discovery,
or within the time frames generally established in the Uniform Retail
Credit Classification and Account Management Policy. Id. at 36905.
[6] The Federal Reserve measures charge-off rates as the value of loans
removed from the books and charged against loss reserves net of
recoveries as a percentage of average loans and annualized.
[7] U.S. Census Bureau, "Statistics of U.S. Businesses: 2006: NAICS
56144 - Collection Agencies."
[8] Representatives of Kaulkin Ginsberg told us they developed their
estimates from discussions with industry participants as well as from
financial statements and other data obtained in the firm's capacity as
an industry advisor. We could not assess the reliability of Kaulkin
Ginsberg's estimates, and our review of its largely qualitative and
unstandardized methodology indicates that the potential for error may
be large in its estimates about the overall industry.
[9] PricewaterhouseCoopers, LLP, The Value of Third-Party Debt
Collection to the U.S. Economy in 2007: Survey and Analysis, June 12,
2008, study commissioned by ACA International. While the methodology of
this survey was generally sound, because of the low response rate and
the absence of nonresponse bias analysis, and the wide confidence
intervals around key estimates due to the small number of responses,
the resulting survey data may not be reliable for making precise
quantitative estimates.
[10] Figures represent face value of debt sold.
[11] The Nilson Report, Issue 901, April 2008.
[12] Pub. L. No. 90-321, title VIII, as added Pub. L. No. 95-109, 91
Stat. 874, codified at 15 U.S.C. §§ 1692 - 1692p.
[13] FDCPA does apply to original creditors in cases where a creditor
collects its own debts using a different name that would indicate a
third party is collecting its debt.
[14] S. Rep. No. 95-382, at 2 (1977).
[15] 15 U.S.C. § 1692l(b). These agencies are FDIC, Federal Reserve,
OCC, OTS, the National Credit Union Administration, the Department of
Transportation, and the Department of Agriculture. These seven agencies
are authorized to enforce FDCPA under their authorities: section 8 of
the Federal Deposit Insurance Act for the federal depository regulators
and the Federal Credit Union Act for the National Credit Union
Administration. 12 U.S.C. §1818; 12 U.S.C. § 1751 et seq.
[16] Disgorgement is having to give up profits or other gains illegally
obtained. 15 U.S.C. § 45(m)(1)(a); 16 C.F.R. § 1.98(d).
[17] Pub. L. No. 63-203, ch. 311, 38 Stat. 717 (1914), codified at 15
U.S.C. §§ 41 - 58.
[18] Federal depository institution regulators, but not FTC, have
authority to enforce the FTC Act against depository institutions. 15
U.S.C. §§ 45(a)(2), 57a(f).
[19] 15 U.S.C. § 53(b).
[20] Pub. L. No. 90-321, title VI, as added Pub. L. No. 91-508, title
VI, § 601, 84 Stat. 1128 (1970), codified at 15 U.S.C. §§ 1681 - 1681x.
[21] 15 U.S.C. §§ 1681c; 1681s-2(a).
[22] Procedures to Enhance the Accuracy and Integrity of Information
Furnished to Consumer Reporting Agencies Under Section 312 of the Fair
and Accurate Credit Transactions Act, 74 Fed. Reg. 31484 (July 1,
2009), to be codified at 12 C.F.R. pts. 41 (OCC), 222 (Federal
Reserve), 334 (FDIC), 571 (OTS), 717 (NCUA), and 16 C.F.R. pt. 660
(FTC). The effective date for these final rules and guidelines is July
1, 2010.
[23] 47 U.S.C. § 227. Predictive dialers are automated computer systems
that determine the number of calls to make based on the time of day,
the number of call-center staff logged onto the system, and the average
length of time staff speak with consumers.
[24] 15 U.S.C. §§ 6801-6809.
[25] Robert J. Hobbs et. al. National Consumer Law Center, Fair Debt
Collection, App. E , p. 731 (6th ed., 2008). FDCPA does not preempt
state law as long as the state law is not inconsistent with the federal
law. Explicitly, state law is not inconsistent if it provides
protections greater than those of FDCPA. 15 U.S.C. § 1692n.
[26] As noted above, FDCPA does apply to a creditor collecting its own
debt if the creditor uses a different name that would indicate a third
party is collecting its debt. 15 U.S.C. § 1692a(6).
[27] Cal. Civ. Code § 1788.2(c) (2009), which provides further that,
"[t]he term includes any person who composes and sells, or offers to
compose and sell, forms, letters, and other collection media used or
intended to be used for debt collection, but does not include attorney
or counselor at law."
[28] Cal. Civ. Code § 1812.700(a) (2009).
[29] Colo. Rev. Stat. § 12-14-105(3)(c) (2009).
[30] Mass. Regs. Code tit. 940, § 7.05(3)(d) (2009).
[31] Tex. Finance Code § 392.403(a)(1) (2009).
[32] Kansas law explicitly states that an action may be brought within
the statutory period after a payment on, or a signed written
acknowledgment of, or promise to pay the debt is made by the debtor
when a consumer makes a payment toward the debt or acknowledges in
writing owing the debt. Kan. Stat. Ann. § 60-520(a) (2008).
[33] See for example Wis. Stat. § 893.05 (2008), which states "[w]hen
the period within which an action may be commenced on a Wisconsin cause
of action has expired, the right is extinguished as well as the
remedy." Robert J. Hobbs et. al. National Consumer Law Center, Fair
Debt Collection, p. 222 (6th ed., 2008).
[34] Section 184 of the proposed Consumer Financial Protection Agency
Act of 2009, H.R. 3126, 111th Cong. § 184, would create a new Consumer
Financial Protection Agency, which would have primary enforcement
authority for FDCPA, among other consumer protection laws. The bill was
introduced on July 8, 2009, and was referred to the Committee on
Financial Services and the Committee on Energy and Commerce.
[35] FTC updated this brochure in February 2009 and renamed it Debt
Collection FAQs: A Guide for Consumers.
[36] An American Express savings bank that issues credit cards is
overseen by OTS.
[37] The Federal Reserve also serves as the consolidated supervisor for
bank holding companies, within which national banks, among certain
other types of entities, may be housed.
[38] FTC lacks jurisdiction under the FTC Act over banks, thrifts, and
federal credit unions.
[39] One regulator told us it has never exercised this authority.
[40] Recovery of debt from debtors who have died or filed for
bankruptcy generally involves a different legal framework from typical
debt collection and is not the focus of this report.
[41] For example, see Board of Governors of the Federal Reserve System
Supervisory Letter SR 03-1 on Account Management and Loss Allowance
Guidance (Jan. 8, 2003).
[42] Under federal depository regulators' guidelines, an account should
exhibit certain criteria to be eligible for re-aging, such as the
borrower having demonstrated a renewed willingness and ability to repay
the loan, the account has existed for at least 9 months, and the
borrower has made at least three consecutive minimum monthly payments
or the equivalent cumulative amount. Issuers may not re-age an account
more than once within any 12 month period and no more than twice within
any 5 year period. Different limits apply to accounts that have entered
into work out programs. Uniform Retail Credit Classification and
Account Management Policy. 65 Fed. Reg. 36903, 36905 (June 12, 2000).
[43] FTC staff guidance has indicated that if the debt collector's
first communication with the consumer is oral (e.g., a telephone
conversation), the debt collector may make the required disclosure at
that time and need not send a written notice. However, if the notice is
not included in the initial communication with the consumer, the
notification must be provided in writing within 5 days after the
initial communication in connection with the collection of any debt.
See FTC Statements of General Policy or Interpretation Staff Commentary
on the Fair Debt Collection Practices Act, 53 Fed. Reg. 50097, 50108
(Dec. 13, 1988) and 15 U.S.C. 1692g(a).
[44] In addition to taking legal action for the recovery of debt on
behalf of creditors, some firms also provide more traditional legal
services for creditors, such as representing clients in bankruptcy
filings, against class action lawsuits, or in the sale of debt
portfolios. These services are typically billed on an hourly basis
rather than paid through a contingency fee, according to firms with
which we spoke.
[45] The Nilson Report, Issue 901, April 2008.
[46] We did not include the NCUA in the scope of our review of consumer
complaints because officials told us that credit unions represent a
very small share of the credit card market.
[47] FDIC issued cease and desist orders in the following cases: In the
Matter of Columbus Bank and Trust Company, Columbus, Georgia, FDIC Nos.
08-033b and 08-034k (June 9, 2008); In the Matter of First Bank &
Trust, Brookings, South Dakota, FDIC Nos. 07-228b and 07-260k (Mar. 26,
2009); and In the Matter of First Bank of Delaware, Wilmington,
Delaware, FDIC Nos. 07-256b and 07-257k (Oct. 9, 2008).
[48] In the Matter of CompuCredit Corporation Atlanta, Georgia, FDIC
Nos. 08-139b and 08-140k (Dec. 19, 2008). FDIC issued a cease and
desist order in the case.
[49] Columbus Bank and Trust Company agreed to pay a total of $9.9
million in civil penalties and restitution; First Bank & Trust agreed
to pay a total of $285,000 in civil penalties and restitution; First
Bank of Delaware agreed to pay $1.04 million; and CompuCredit
Corporation agreed to pay civil penalty of $2.4 million and restitution
of not less than $100 million.
[50] In the Matter of Sears, Roebuck and Co., FTC No. C-3786 (Feb. 20,
1998) (relevant consent agreement reserved a right for FTC to file
another action if the settlement in a separate class action suit
totaled less than $100 million); In the Matter of Montgomery Ward
Credit Corporation, and General Electric Capital Corp., FTC No. C-3839
(Dec. 11, 1998) (relevant consent agreement reserved a right for FTC to
intervene in related lawsuits if aggregate settlement amounts therein
were less than $60 million); In the Matter of The May Department Stores
Company, FTC No. C-3848 (Jan. 20, 1999) (relevant consent agreement
required the company to refund at least $15 million to consumers who,
having had their credit card account debts discharged in bankruptcy
proceedings, continued to make payments or faced illegal collection
efforts); and In the Matter of Federated Department Stores, Inc., FTC
No. C-3893 (Aug. 20, 1999) (relevant consent agreement ensured that the
company made full refunds totaling up to $8 million to consumers who,
having had their account debts discharged in bankruptcy proceedings,
continued to make payments or faced illegal collection efforts). The
issuance of private-label cards by retail stores has declined in
popularity in the current credit card market. It is more common today
for such stores to have an agreement with a large bank to issue cards
in their name.
[51] Bankruptcy filers may voluntarily reaffirm--that is, agree to pay-
-certain debts with creditor firms in an effort to retain assets.
However, the U.S. Bankruptcy Code requires that such agreements be
filed with the bankruptcy courts, and in the case of debtors not
represented by legal counsel, reaffirmation agreements must be approved
by the court. 11 U.S.C. § 524(c). FTC alleged that these stores did not
file the agreements or the bankruptcy courts did not approve them and,
therefore, the agreements were unenforceable and the stores unfairly
collected many of these debts.
[52] Galley v. Capital One Bank (USA), N.A., No. 06-12142-JNF (Bankr.
E.D. Mass. 2008).
[53] National Consumer Law Center, Fee Harvesters: Low-Credit, High-
Cost Cards Bleed Consumers (Boston, Mass., November 2007).
[54] Public Citizen, How Credit Card Companies Ensnare Consumers
(Washington, D.C., September 2007). Public Citizen examined 33,948
National Arbitration Forum arbitration filings in California, nearly
all of which related to collection matters.
[55] The number of FTC enforcement actions should not be seen as a
proxy for the extent of problems or violations in the law in any given
industry.
[56] Three of these 24 enforcement actions specified credit card debt,
10 did not specify the type of debt collected, and 11 clearly involved
debt other than credit card debt, such as mortgage and payday loans.
[57] United States v. Capital Acquisitions & Management Corp., No. 04 C
50147 (N.D. Ill. filed Mar. 24, 2004).
[58] FTC v. Capital Acquisitions & Management Corp., No. 04 C 7781
(N.D. Ill. filed Apr. 11, 2005).
[59] FTC v. CompuCredit Corp., No. 1:08-CV-1976 (N.D. Ga. Dec. 19,
2008) (stipulated order without the defendants admitting liability for
any violation alleged in the complaint).
[60] United States v. Academy Collection Service, Inc., No. 2:08-cv-
01576-KJD-GWF (D Nev. Nov. 19, 2008). Defendants did not admit to the
matters alleged in the complaint.
[61] United States v. Performance Capital Management, Inc., No. 2-01-
cv-01047TJH-E (C.D. Cal. 2001) (consent agreement without adjudication
of any issue of fact or law and without defendants admitting liability
or fault).
[62] United States v. NCO Group, Inc., No 04-2041 (E.D. Pa. 2004)
(consent decree without adjudication of any issue of fact or law and
without defendants admitting liability).
[63] FTC, Collecting Consumer Debts: The Challenges of Change: A
Workshop Report (Washington, D.C., February 2009).
[64] Urban Justice Center, Debt Weight: The Consumer Credit Crisis in
New York City and Its Impact on the Working Poor (New York, N.Y.,
October 2007).
[65] A party in a civil action is generally served (delivered) legal
papers in lawsuits, either by mail or by a professional process server
or a government official, such as a deputy sheriff, marshal, or
constable. According to a press release, in April 2009, the New York
State Attorney General filed criminal charges and a civil suit against
a legal process server and its chief executive officer and president
for allegedly failing to provide proper legal notification to thousands
of New York residents facing debt-related lawsuits. See Office of the
New York State Attorney General, "Attorney General Cuomo Announces
Arrest of Long Island Business Owner for Denying Thousands of New
Yorkers Their Day in Court," [hyperlink,
http://www.oag.state.ny.us/media_center/2009/apr/apr14a_09.html]
(accessed July 1, 2009).
[66] 11 U.S.C. § 524.
[67] Specifically, FTC's workshop report recommended that validation
notices be required to inform consumers of their rights under (1)
section 809(b) of FDCPA, which provides that if a consumer disputes a
debt or requests verification of the debt in writing within 30 days of
receiving the validation notice, the debt collector must suspend
collection efforts until it obtains verification of the debt and mails
it to the consumer; and (2) section 805(c) of FDCPA, which requires
debt collectors to cease contacting a consumer about a debt if the
consumer requests it in writing. 15 U.S.C. §§ 1692c(c) and 1692g(b).
[68] DBA International stated that, in practice, many debt buyers
provide verification to consumers who dispute a debt even when the
dispute is oral or is not received within the 30-day period required
under FDCPA.
[69] Chaudhry v. Gallerizzo, 174 F.3d 394, 406 (4th Cir. 1999).
[70] 15 U.S.C. §§ 1681s-2, 1666: Regulation Z, 12 C.F.R. § 226.13(f)
(2009).
[71] 15 U.S.C. §§ 1692c(b), 1692e(11).
[72] Berg v. Merchants Ass'n Collection Div., Inc., 586 F. Supp. 2d
1336, 1344 (S.D. Fla. 2008).
[73] 15 U.S.C. § 1962d(5).
[74] 15 U.S.C. § 1692l(d) specifically prohibits FTC and other agencies
from promulgating rules concerning the collection of debts by debt
collectors.
[75] S. Rep. No. 95-382, at 6 (1977).
[76] 15 U.S.C. §1692k(e).
[77] Card Industry Directory: The Blue Book of the Credit and Debit
Card Industry in North America, 20th ed. (Chicago, Ill., 2008).
[78] Federal Trade Commission, Collecting Consumer Debts: The
Challenges of Change: A Workshop Report (Washington, D.C., February
2009).
[End of section]
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