Regulators Concerned With Consumer Threats Attempt Dialogue With Debt Collectors

Law enforcement officials don't like it when debt collectors pretend to be cops in order to get consumers to pay them. Case in point: federal and state regulators earlier this year sued a Buffalo, New York, firm after collectors allegedly made numerous false threats to debtors and identified themselves on phone calls with pseudonyms such as “Detective Jeff Ramsay” and “Investigator Kearns.”

Last month, the Federal Trade Commission won a temporary restraining order against an outfit operating approximately 15 miles north of Buffalo in North Tonawanda, New York. The collectors in that case, the suit alleges, claimed to be calling from “The State Officials' Office,” and threatened to dispatch a “uniformed officer” to consumers’ homes or offices, as well as advised them to “secure any large animals or firearms on the premises.”

Over the past 18 months, in fact, the FTC has filed a half-dozen cases against Buffalo-area debt collectors concerning allegations of egregious practices against consumers. New York has the nation's highest number of collection agencies, and the western corner of the state serves as a hub for the industry. And so it is that officials from four separate government agencies are convening with industry representatives Monday afternoon on the companies' home turf.

The meeting in Buffalo kicks off a nationwide series of FTC “Debt Collection Dialogue” events, as authorities continue to grapple with the buying and selling of massive amounts of consumer debt. The trend garnered attention in Jake Halpern’s 2014 caper chronicle, “Bad Paper: Chasing Debt From Wall Street To The Underworld,” which is set in Buffalo.

“It’s so easy to get into the business, and you can buy [a] debt portfolio of low quality for a relatively small amount of money,” said Christopher Koegle, assistant director for the FTC’s division of financial practices. A 2013 study done by the agency analyzed portfolios that contained 90 million consumer accounts worth $143 billion at face value. Debt buyers purchased it all for $6.5 billion. The report found few barriers to entering the market.

All you need in order to become a collector “is a couple of buddies and a couple of phone lines,” Koegle said. When one outfit sees another successfully use extortion and threats to collect, “then they learn to try to do that themselves, and it just proliferates that way,” he added.

Paul Curtin, an attorney with the Legal Aid Bureau of Buffalo, handles debt collection cases for low-income clients, often because they perceive that a collector is harassing them. He’s able to resolve a fair number amicably, by contacting the collector directly and explaining his clients’ financial situation.

But, “we do deal with some folks who are just mind-bogglingly out of line,” said Curtin, joint chief of the office's civil unit. “They either don’t know what the regulations are, or they are willing to push it until they get into trouble.”

The problem for many consumers is that they aren’t very familiar with civil law and a false threat of “debtor’s prison” can sound believable in the moment. “People can advance crazy, untrue concepts of how the law works,” Curtin said. “And someone who doesn’t have access to that information can believe, 'Oh yeah, that’s the case.'”

For others, the rapid transfer of debt in the post-recession economy creates its own kind of confusion. Clients have told Curtin that they can’t tell to whom they actually owe the money. Sometimes they are sure they have already paid off the debt in question.

“There’s the potential for a bunch of the people I’ve represented to maybe pay twice,” Curtin said.

As Jake Halpern noted in a New York Times column last year, the problem of debtor harassment extends beyond the collectors themselves. “The big banks and other creditors are unloading their unpaid accounts -- from their most destitute customers -- and selling them on the cheap to debt buyers who, in turn, push their collectors to recoup every last cent,” he wrote.

For their part, DBA International, the debt buyers' trade association, is working on guidelines that will be mandatory for members starting in March 2016. The association represents about 550 companies, ranging from major corporations to smaller, mom and pop debt buyers.

The certification includes requirements for criminal background checks and employee training and mandates policies for handling consumer disputes, maintaining accurate records and ensuring data security. “That’s what we promote: originating creditors selling their portfolios to certified debt buyers, because then they have agreed to [the industry's] best practices and standards,” said DBA International Executive Director Jan Stieger.

Threatening consumers with arrest is “categorically” a violation of the Fair Debt Collection Practices Act, she said. “Our hope," Stieger said, "is that once we do get debt in legitimate, ethical hands, then the industry really does eliminate a lot of these bad actors.”

Cindy Sebrell, vice president of public affairs at the debt collection trade group ACA International, draws a distinction between legitimate collectors and imposters who make threats. "Like any industry, there are bad apples and examples of bad behavior," she said. "We don’t make excuses for bad behavior. Those who cross the line should be held accountable, and illegitimate debt collectors should be put out of business. We would like to see the FTC focus on putting illegitimate debt collectors out of business while ensuring that legitimate and law-abiding debt collectors can do business effectively."