Firm Also Will Notify Consumers with “Time-Barred” Debt That It Will Not Sue to Collect
One of the nation’s largest consumer debt buyers has agreed to pay a $2.5 million civil penalty to settle Federal Trade Commission charges that it made a range of misrepresentations when trying to collect old debts. In addition, the company, Asset Acceptance, LLC, has agreed to tell consumers whose debt may be too old to be legally enforceable that it will not sue to collect on that debt.
The proposed settlement order resolving the agency’s charges also requires that when consumers dispute the accuracy of a debt, Asset Acceptance must investigate the dispute, ensuring that it has a reasonable basis for its claims the consumer owes the debt, before continuing its collection efforts. The proposed order also bars the company from placing debt on consumers’ credit reports without notifying them about the negative report. The U.S. Department of Justice filed the proposed settlement order this week at the FTC’s request.
“Most consumers do not know their legal rights with respect to collection of old debts past the statute of limitations,” said David Vladeck, Director of the FTC’s Bureau of Consumer Protection. “When a collector tells a consumer that she owes money and demands payment, it may create the misleading impression that the collector can sue the consumer in court to collect that debt. This FTC settlement signals that, even with old debt, the prohibitions against deceptive and unfair collection methods apply.”
The FTC’s action – alleging that Asset Acceptance violated the FTC Act, the Fair Debt Collection Practices Act, and the Fair Credit Reporting Act – is part of the FTC’s continuing efforts to protect consumers adversely affected by the struggling economy. The agency today also issued a new publication for consumers, “Time-Barred Debts: Understanding Your Rights When It Comes to Old Debts”.
Michigan-based Asset Acceptance buys unpaid debts from credit originators such as credit card companies, health clubs, and telecommunications and utilities providers, as well as other debt buyers, and attempts to collect them. Asset Acceptance has purchased tens of millions of consumer accounts for pennies on the dollar. It targets accounts that other collectors have pursued and are more than a year past due, and in some cases attempts to collect debt that is more than 10 years old. Some of this debt is too old to be legally enforceable – state statutes of limitations cut off the right to sue to collect the debt after some period of time has passed, depending on the state and the type of debt. And many consumers do not know that making a partial payment of a debt may reset the state law’s clock on the collector’s ability to take legal action.
The FTC’s nine-count complaint charged Asset Acceptance with:
- misrepresenting that consumers owed a debt when it could not substantiate its representations;
- failing to disclose that debts are too old to be legally enforceable or that a partial payment would extend the time a debt could be legally enforceable;
- providing information to credit reporting agencies, while knowing or having reasonable cause to believe that the information was inaccurate;
- failing to notify consumers in writing that it provided negative information to a credit reporting agency;
- failing to conduct a reasonable investigation when it received a notice of dispute from a credit reporting agency;
- repeatedly calling third parties who do not owe a debt;
informing third parties about a debt;
- using illegal debt-collection practices, including misrepresenting the character, amount, or legal status of a debt; providing inaccurate information to credit reporting agencies; and making false representations to collect a debt; and
- failing to provide verification of the debt and continuing to attempt to collect a debt when it is disputed by the consumer.
The proposed settlement requires that when Asset Acceptance knows or should know debt may not be legally enforceable under state law – often referred to as “time-barred” debt – it must disclose to the consumer that it will not sue on the debt and, if true, that it may report nonpayment to the credit reporting agencies. Once it has made that disclosure, it may not sue the consumer, even if the consumer makes a partial payment that otherwise would make the debt no longer time-barred.
The order also prohibits the company from:
- Making any material misrepresentation to consumers and making any representation that a consumer owes a particular debt, or as to the amount of the debt, unless it has a reasonable basis for the representation. To ensure it has such a basis, the order requires Asset Acceptance to investigate consumer disputes before continuing collection efforts;
- “Parking” – or placing – debt on a consumer’s credit report when it has failed to notify the consumer in writing about the negative report, and;
- Violating the Fair Credit Reporting Act and the Fair Debt Collection Practices Act, in the ways alleged in the complaint.
The FTC has issued a new publication to help consumers understand how debt collectors attempt to collect old debts, along with their rights in these cases. “Time-Barred Debts: Understanding Your Rights When It Comes to Old Debts” provides information on when a debt is too old for a collector to sue, what consumers should do if a debt collector calls about a time-barred debt, and whether a consumer should pay a debt that’s considered time-barred. It also provides advice on what consumers should do if they are sued for a time-barred debt, including defending themselves in court and asserting their rights under the Fair Debt Collection Practices Act. Finally, it has links to other FTC publications and videos about dealing with debt.
The Commission vote authorizing the staff to refer the complaint to the Department of Justice was 4-1, and the vote to approve the proposed consent decree, was 3-1, with Commissioner J. Thomas Rosch voting no for both. The DOJ filed the complaint and proposed consent decree on behalf of the Commission in U.S. District Court for the Middle District of Florida today. The proposed consent decree is subject to court approval.
NOTE: The Commission authorizes the filing of a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. This consent decree is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent decrees have the force of law when signed by the District Court judge.
Story Source from: Under FTC Settlement, Debt Buyer Agrees to Pay $2.5 Million for Alleged Consumer Deception
Hackensack law firm Forster, Garbus & Garbus has agreed to pay $35,000 to settle claims that it filed hundreds of debt collection suits against consumers without individual attorney review.
The firm allegedly violated the federal Fair Debt Collection Practices Act, 15 U.S.C. 1692e(3), by giving a false impression that an attorney was involved in the filing of those complaints, when in fact they were mass-produced.
The suit, Krug v. Forster, Garbus & Garbus, 10-cv-1844, touches on an inchoate area of law — namely, how much investigation an attorney must perform to determine the validity of an alleged debt before filing a collection suit.
“It’s a new area and the case law hasn’t developed yet,” says the named plaintiff’s lawyer, Philip Stern, head of a Maplewood firm.
A joint motion filed Monday in District Court in Newark seeks approval of the settlement, which calls for Forster Garbus to pay $7,500 to class members and $27,500 in legal fees.
The plaintiffs are debtors who were served with complaints filed by Forster Garbus on behalf of Arrow Financial Services in Special Civil Part in Cumberland County for a one-year period starting in April 2009.
Named plaintiff Karl Krug, of Millville, was alleged to have defaulted on a $4,947 credit card bill to Washington Mutual Bank. The bank sold the debt to Arrow Financial Services of Nile, Ill., which, in turn, retained Forster Garbus in an attempt to collect from Krug.
In April 2009, Forster Garbus sent Krug a dunning letter which stated, in part, that “at this time, no attorney with this firm has personally reviewed the particular circumstances of your account.” In June of that year, a nonattorney at the firm left two phone messages on Krug’s answering machine. On June 5, the firm sued Krug on behalf of Arrow. Partner Glen Garbus signed the complaint.
Krug retained Stern, who won dismissal of the collection case in April 2010 after Arrow was unable to present business records to show the debt was valid. The current suit was filed that month.
Stern says a ruling in the Eastern District of New York, a few months before Krug’s suit was filed, was the first to hold that an attorney violated the FDCPA by filing a collections suit without anything more than a cursory inquiry into whether the debt is valid. In Miller v. Upton, Cohen & Slamowitz , 687 F. Supp. 2d 86 (E.D.N.Y. 2009), which stemmed from an alleged default on a Lord & Taylor charge account, the court rejected the lawyer’s assertions that his general knowledge of credit practices at the retailer and its national collections counsel were a substitute for specific knowledge of an individual file.
Krug’s complaint cited New Jersey Court Rule 1:4-8, which requires a lawyer signing a complaint to have read it and to have conducted a reasonable inquiry that the allegations of the case have factual support.
The suit also claimed that Forster Garbus placed telephone calls to class members that falsely conveyed the impression that the person calling was an attorney, and those calls failed to provide meaningful disclosure of the law firm’s identity as caller or to disclose that the firm is attempting to collect a debt and that any information obtained will be used for that purpose — all in violation of the FDCPA.
Of the $7,500 payable to class members under the settlement, $2,500 is to go to Krug and the rest will be distributed among the roughly 200 class members, who stand to receive around $25 each. Stern says that although the recovery may seem modest, it’s more than the class members would get as damages under the FDCPA if the case were tried.
The pool of $5,000 distributed to class members is greater than would be available if the case was tried, says Stern. The FDCPA limits recovery in such cases to the 1 percent of the defendant firm’s net worth, but Forster Garbus agreed in the settlement to go over the 1 percent limit, says Stern. He is bound to keep the firm’s net worth confidential.
Forster Garbus was represented in the case by Gregg Kahn of Wilson Elser in Newark, who did not return a call. Garbus, a named defendant, also did not return a call.
Source: New Jersey Law Journal
Collection Calls are always a nuisance, but they are even more annoying when they involve a debt that is too old to be collected through a lawsuit. These old debts are the ones where the statute of limitations has long since passed, making them “stale debts” as the biz refers to them. Such debt is big business for the debt collectors however, as they are purchased for pennies on the dollar from the creditor who has already written the off the debt. And it is sold super cheap because the party buying the debt knows that collecting it must be done by means other than filing suit, usually involving some type of harassment or deception towards the consumer. These debts are in large part virtually worthless but the prospect of receiving payment can mean huge returns for the collector. Greater risk means greater returns. For example, if the account totals $5,000, the collector may buy a stale debt for $20 and if it collects even a part of the total owed, can make extreme profits.
Once the collector purchases a debt, it will proceed to contact the debtor – even though that person can no longer be legally forced to pay if the statute of limitations has passed and it is raised as ad defense.. Collection calls and emails then come pouring in as the collector tries anything that will work ,to get the consumer to agree to pay something, then ratchet up the demands to push for as much as can be obtained. If the consumer makes payments, whatever is received is found money because there is no way, other than empty threats and harassment, to force payment. Even the smallest payment results in substantial profit for the debt collector when the debt is stale.
The Fair Debt Collection Practices Act protects consumers who have been harassed or deceived into paying stale debts. An important thing to remember however is that the consumer must not give in to threats and must know how to assert the statute of limitations as a defense. The best way to start is with a cease and desist letter sent to the collector by certified mail, retaining copies for record-keeping purposes. Such a letter forces the collector to quit harassing you and if they fail to do so, a violation of the FDCPA results.
Want to know more? Call us today for advice on how to deal with collection agencies that won’t play by the rules regarding your debts.
It may be time to score one for the little guys. The largest purchaser of consumer debts in the United States, Encore Capital Group, is under investigation by regulatory authorities in North Carolina. A recent securities filing by the San Diego-based company revealed that the North Carolina Department of Justice “issued an investigative demand…to produce documents and answer interrogatories concerning [Encore's] debt collection practices.”
Countless consumers are hounded by unfair debt harassment practices every day. While no action has been taken by the authorities yet, regarding Encore Capital, the accusations are precisely the type of type that we stop here at Credit Law. Of note is that Encore recently settled a similar suit in Texas after the state’s Attorney General alleged that the agency violated the law and falsified documents in lawsuits used it had filed against Texas residents. The agency has since agreed to settle by paying an undisclosed amount of money.
We wish these sorts of business practices by debt collectors were uncommon, but the reality is that many debt collectors across the country see only the profit potential collecting old debt, even if it means violating consumer rights on a widespread basis. We’ve heard every horror story there is, from debt collectors who call neighbors and relatives of debtors, to others that collect far in excess of the amounts actually owed, if the consumer can be convinced to pay it.
Don’t let creditors and collection agencies push you around with unfair debt harassment practices. Get in touch with us today to find out what your rights are as a consumer. We’ll fight for you, and put an end to those annoying calls.
Debt collectors have been known to use various techniques to secure payment, some of which violated the Fair Debt Collection practices act (FDPCA). This can include pestering debtors, their friends, relatives and co-workers with calls at inappropriate times and places. In other cases, debt collections for debts of the dead, can rise from the grave too, but in ways that they shouldn’t. Debt collectors have been known to call loved ones and others to pay off the debts of their dearly departed. Is this outrageous? We think so.
Aside from being callous, post-mortem debt collector calls are deceptive as relatives of the deceased are typically not responsible for the debts, unless the debt was joint among the deceased and the living. Playing on the lack of knowledge of the average consumer, and perhaps believing that the memory of the deceased would be tarnished in some way, debt collection agencies will call relatives and try sympathy tactics to convince the living that they should or must pay off a debt. The debt collector may not actually inform the bereaved that they have to pay the debt, but they will read from a script that is convincing enough to give that impression and to omit the fact that the living are not required to pay it.
Debt collection agencies justify such tactics with a cold heart and insensitive mentality, taking advantage of loved ones still saddened by the passing. Consumers beware: in the vast majority of cases, you need not pay the debt of someone who has passed. Check with a good consumer lawyer and find out how to protect yourself and to stop this practice.
A NJ man recently received phone calls from someone claiming to be a debt collector. As it turns out, he paid his loan back months ago but the phony collection calls still tried to scam him out of hundreds of dollars. He’s telling his story to warn others of the threatening calls and collection harassment he is experiencing over a debt he does not owe. Experts say be careful leaving your personal information on any website, and contact the proper authorities if you are the victim of such calls – including an attorney who will fight for your rights.
Debt Collectors can be nasty and have earned their reputation for not being easy to deal with. It is easier it seems to avoid them altogether, hoping that the problem will go away on its own. Unfortunately, collection agencies have a hard time giving up. They know they are supposed to work within the rules set forth in the FDCPA and yet they often continue to violate them one way or another. They know that a debt collector can do more to make life difficult and aggravating for consumers when it comes to student loans, than other collections, and can take a judgment against you without even filing a complaint. Federal loans also carry with them the opportunity for debt collectors to have employment wages garnished or have a tax refund paid to the lender directly.
If you have a Federally sponsored student loan and cannot pay, and wish to avoid debt collectors, either write a letter demanding the collector to cease contact; or, ask in writing for a deferment on your loan; or better yet, negotiate the balance, perhaps through an attorney (not a “debt settlement company”). Because student loans are different types of debt than typical consumer purchases, debt collectors are often instructed by the lender to agree to deferments or in some cases a reduction of the entire amount, payable over time. Whether it is because of a difficult economy, finding and keeping a job, a disability, care for a family member, personal illness or military service, these options can be very helpful and make things easier for you to handle.
Any type of debt harassment is a pain. But what about debts that have literally risen from the dead? Zombie debt is a debt that is old and often forgotten, or is a settled debt being brought back by a creditor or a collection agency claiming that it has no record of payment. Old debt is often sold by the original creditor to a different company (called a “debt buyer” who is also a debt collector) at a substantial discount, usually pennies on the dollar, where it can then be collected at obscene profit. It is this financial incentive that makes collectors greedy and abusive. Many consumers fall victim to this type of debt harassment.
Zombie debts are difficult to get rid of because it is so much more profitable to resell than to keep good records of paid accounts. In many cases, a debt will be sold without any information to the buyer other than how much the debt was for and the identity of the concerned parties. The debt buyer/debt collector may not know that a customer has already dealt with previous agencies and/or resolved the matter. This is all too common. There are several things that a consumer can do to stop zombie debt harassment, however. First, find out when the statute of limitations expires on the debt. If the debt is too old, the consumer may have an absolute defense to the claim, preventing the debt collector from winning in a court battle. However, just because the debt is old, does not mean the debt collector will stop trying to collect, so be aware that the defense must be raised in response to a court action, and that the debt does not disappear on its own just because it is old. If the debt collector is misrepresenting the age of the debt in some way or deceives the consumer in speaking of it, the collector has violated the FDCPA and is liable to the consumer. Also, ask for proof of the debt in writing, as well as ask the company to cease contact if they are being abusive. Don’t let zombie debt harassment ruin your life.
Graduation season is upon us. On campuses around the country the sights of robes and graduation caps, the sounds of “Pomp and Circumstance,” and the photos of loved ones celebrating the day fill the senses of graduates, friends, and families as one chapter comes to an end and they embark on a new one. Unfortunately, as the excitement calms, many recent graduates are confronted with the harsh reality of overwhelming amounts of debt. Most will then truly enter the world of responsibility by having to come up with ways of paying down their debt and fielding the phone calls from debt collectors. So, how can they pay down debt and stop collection calls?
Inevitably, that credit card is the main source of problems. Students spend more than they can afford and as they transition to their adult lives, and the interest payments alone can be overwhelming. It doesn’t take long after graduation for the bills to start coming in. Just as they congratulate their kids on a job well done, parents undoubtedly ask their children in shock, “You owe how much?”
A blog post on Forbes.com says that credit card companies want college students to be in debt because, frankly, that’s how they make money, pointing out that “students are easy targets” because they live in the moment, and are “deluded into thinking the credit card won’t present a problem when it comes time to pay.” Just when it couldn’t get any worse, the collection calls begin.
Even grads who have secured a job in this difficult economy may find it all too easy to fall behind on their bills. Defaults and past-due balances go from being something on paper to something they are confronted with in their lives. The same students that were “easy targets” for credit card companies now are “easy targets” for collectors and their tactics. They must come up with a plan to address their immediate financial well being and their long term needs, and they must learn what rights they have to stop the collection calls once and for all. Here are some tips for the indebted and the frustrated grad:
1. Take any job. You may not find your dream job right way, but you will be making money and creating networking opportunities.
2. Learn to save. Throwing away money at the club like you did in college has to become a thing of the past.
3. Deal with student loans NOW if at all possible. Pay what you can. If you don’t have a job, contact the lender and work out a plan.
4. Stop collection calls. This is easy. Consumer lawyers can stop the collection calls quickly and without charge. Learn your rights under the FDCPA and hire an attorney if you are experiencing debt harassment.
5. Pay off credit card debt and stop using that card! Spend only what you can pay in a 30 days cycle and don’t overdo it. Come up with a payment plan to get out of the red and into the black.
Beginning on July 21, the debt collection industry will be monitored closely by two regulatory agencies– the Fair Trade Commission (FTC) and the newly formed Consumer Financial Protection Bureau (CFPB). The FTC has been around for many years but the CFPB was created to reform the financial industry and better protect consumers, resolve widespread consumer complaints, and tighten debt collection laws. Here are a few ways consumers can hope for positive changes affecting the collection industry, including putting a stop to debt harassment.
Enforce the Fair Debt Collection Practices Act (FDCPA)
The Consumer Financial Protection Bureau will be able to enforce federal consumer financial laws, including the FDCPA. The purpose of the Act is to eliminate abusive debt collection practices such as contacting consumers outside of specified hours and using profane language in communication related to the debt. The CFPB will have the power to penalize companies that fail to comply with the FDCPA and can enforce violations of the Fair Credit Reporting Act and the Truth in Lending Act.
Review Debt Collectors’ Practices
Many Americans, as well as those in federal government, believe that financial institutions, the debt collection industry, and credit reporting companies are in need of reform to better protect consumers. The CFPB will review debt collector practices for example, and determine if their methods are abusive or unfair, but will still leave to private law firms the ability to pursue claims on behalf of individual consumers for monetary damages and private enforcement. If the Bureau deems necessary, businesses could be forced to tighten collection practices and reduce debt harassment at the hands of overly aggressive debt collectors.
