GAO Report Debt Collectors

A new GAO report on the debt collection industry recommends changes to the federal Fair Debt Collection Practices Act (FDCPA) to better protect consumers from unfair and abusive debt collectors and debt buyers and to clarify how those businesses can and can’t use communication technologies that did not exist when the law was enacted in 1977 to collect past due debts. Those technologies include: e-mail, voice mail, caller identification, cell phones, answering machines and faxes.
The report also asks Congress to provide the FTC with FDCPA rulemaking authority so that it can respond more effectively to an evolving marketplace and changes in technology. (The FTC has this authority in regards to all of the other consumer protection laws it enforces.) Without rulemaking authority, the FTC is hampered in its ability to regulate the practices of debt collectors and protect consumers.
The GAO report is especially timely given that consumer credit card debt has grown dramatically over the past several years, consumers are falling behind on this debt at an increasing rate, and complaints about debt collectors are rising. For example, according to the Federal Reserve, credit card delinquencies were at their highest rate in 18 years during the first quarter of 2009. In addition, the FTC now receives more complaints about the debt collection industry than any other specific industry, and between 2004 and 2008 the volume of those complaints increased by 34 percent. Based on the GAO’s analysis of the FTC’s complaint data for that time period, the most common complaints (in order of prevalence) were about debt collectors and debt buyers that:

  • Misrepresented the amount or legal status of a debt
  • Made excessive phone calls
  • Made illegal calls to other individuals about the consumers they were trying to collect from
  • Used obscene, profane, or abusive language
  • Threatened to sue consumers if they did not pay a debt when the firms were not entitled to sue.

The report spends a considerable amount of time discussing two particular problems related to debt collection. First, debt collectors and debt buyers do not always have adequate information about the past due accounts they are trying to collect. Therefore, they sometimes try to collect the wrong amounts or even try to collect from the wrong people.
Second, although consumers are entitled to receive written verification of a debt from a debt collector or debt buyer, these companies contend that they not always able to provide verification because sometimes they do not have access to a consumer’s account billing statements or other information they need to do so. The GAO report also notes that written verification is becoming more difficult now that a growing number of past due debts are being sold and then resold because each sale puts greater distance between the new owner of a debt and the original creditor -- the business with the most information about the account.
Another issue related to verification is that the FDCPA does not define exactly what verification means. Therefore, many debt collectors and debt buyers do very little to verify disputed debts. For example, they may simply send consumers who ask for proof that they actually owe a particular debt a written notice stating that the amount of the debt they are trying to collect reflects what the original creditors says is owed.
During its research for the report, the GAO contacted the National Consumer Law Center, the National Association of Consumer Advocates, Consumer Union, and legal aid clinics. These organizations stated that they had observed a number of other debt collection practices that caused them concern. They cited for example debt collectors and debt buyers who had violated the FDCPA by:

  •  Trying to collect debts that had been discharged through bankruptcy.
  • Suing or threatening to sue consumers over past due debts when the statute of limitations on those debts had expired. Although it may be legal for debt collectors and debt buyers to try to collect on debts once the statute of limitations has expired using methods like phone calls and letters, filing lawsuits at that point is prohibited.
  • Trying to revive the statute of limitations on past due debts after it’s run out or when it’s about to run out. The organizations even reported instances of companies trying to revive the statute of limitations on a debt by altering its recorded delinquency date, persuading consumers to make a very small payment on the debt, or by making unauthorized payments in the name of a debtor. has received questions from consumers about some of these same illegal practices.

Although the GAO report focuses mostly on the debt collection practices of the very largest credit card issuers—all of which are federally supervised banks -- it also expresses concern about the debt collection practices of smaller, high-fee, sub-prime credit card issuers, often local banks. Reportedly, many sub-prime issuers have been especially aggressive in their efforts to collect past due debt. believes that this aspect of debt collection merits additional study.
 hopes that Congress will act quickly on the recommendations in the GAO report. Doing so will help the debt collection system work more fairly for consumers.

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