One of the largest debt collection companies in the country agreed on Monday to change the way it does business and pay a $2.5 million civil fine to settle charges brought by the Federal Trade Commission.
The FTC's complaint accuses Michigan-based Asset Acceptance of using a variety of "deceptive and unfair" methods to collect on old debt.
Asset Acceptance is one of a growing number of agencies that buy “charged-off” debt for pennies on the dollar. This old debt comes from credit card companies, health clubs and telecommunications companies, as well as other debt collectors, who've given up any hope of getting paid.
"The older the debt, the more likely it is that there will be problems with its accuracy because substantiation of the initial debt may be lacking, records may be less reliable and may not reflect the consumer has paid off some or all of the debt," says David Vladeck, director of the FTC's Bureau of Consumer Protection. "The quality of records may deteriorate when the debt collectors use information obtained from third parties that may concern a different person with a similar name and address."
Many states limit the number of years a debt collector can sue a debtor. After the statute of limitations is reached, they can ask for the money, but they can't sue for it.
But this "time-barred debt" can come back to life. The statute of limitations clock is reset if the debtor makes even a partial payment.
The FTC takes the position that debt collectors are required by federal law to tell people when their debt is time-barred and explain to them that making a partial payment can revive it. The FTC complaint alleges Asset did not do this.
Debt collectors often use negative credit reporting as leverage to get payment. They put this debt on the person's credit report, which drags down their credit score. This forces the person to pay off the debt to clear their credit report even if they believe they don't owe the debt.
Federal law says a consumer must know when negative information is placed in their credit file, so they can challenge it.
The FTC complaint claims Asset Acceptance not only failed to notify people in writing that it provided negative information to credit reporting agencies, but reported derogatory information it knew or should have known was inaccurate.
According to the proposed settlement in this case, Asset Acceptance will notify consumers if it plans to report the debt to a credit bureau. The company also agrees to tell people if the debt is time-barred and they can no longer be sued for it. Further, Asset promises not to sue even if the consumer makes a partial payment that would otherwise make the debt collectable again.
In a news release, Asset's president and CEO Rion Needs says, "This agreement gives consumers even more visibility into how we will work with them and sets new standards for the industry. We are pleased to have this matter behind us, and to have clarity on the FTC’s policies and expectations of the debt collection industry. As we have already implemented many of the requirements of the consent decree, we now welcome the opportunity to work with the FTC to make these measures the new standards in debt collection.”
This is the eighth debt collection action filed by the FTC in the last year. Vladeck says more are on the way.
Prosecutors at the FTC and the U.S. Department of Justice (who also worked on this case) want everyone to know that this legal action does not mean you can skip out of paying what you legitimately owe.
Tony West, assistant U.S. attorney general, says debt collectors "play a very important role in our economy." But he notes, "it's important that they engage in fair practices."
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