Debt Collectors Battling State Regulations Aimed at Stopping Abuse

According to the U.S. Federal Trade Commission (FTC), the number of consumer complaints against third-party debt collectors rose to 108,997 in 2010, up from about 90,000 in 2009. Federal Reserve data show that complaints rose even though consumer debt for the country overall fell to its lowest levels since 2005.

Debt collection companies have gotten more aggressive in their collection efforts in recent years. Complaints of creditor harassment have prompted many states to pass laws to regulate the industry more to prevent abuse.

In response, debt collection companies have begun organizing to fight such legislation. These companies, who often purchase credit card debt and other unsecured debt for pennies on the dollar, do not want to lose profits.

Tougher State Laws

Many states have tried to pass more stringent laws governing what debt collectors need to do before they can sue to collect a debt. One of the most notable examples is a 2009 North Carolina law requiring debt collectors to provide the original contract for the debt and the entire account history when bringing a lawsuit to collect on a debt. The law provides for penalties of $10,000 for those who bring suits without the proper documentation.

Massachusetts, Florida, Oregon and California have also proposed similar laws.

Minnesota does not have any legislation governing purchased debt. In 2009, a bill was proposed in Minnesota that would have required debt collectors to provide either a copy of the original agreement signed by the debtor or an affidavit substantiated by the creditor selling the debt accompanied by an affidavit of the date and time the debt was last received. The bill became engrossed in the house in March of 2010. No action has been taken on it since that time.

Reasons for the Laws

Consumer advocate groups cite the number of mistakes and fraudulent acts that debt collectors commit when pursuing debtors as reasons for the laws. When consumers cannot see documentation of the debt, they have no idea where the debt collection companies are getting their information about the debt and cannot refute false allegations.

Many consumers end up paying just to stop creditor harassment. For example, the FTC alleged that a debt collection company, Capital Acquisitions and Management (CAMCO), collected 80 percent of its money from people who never incurred the debt. The FTC fined the company $300,000 in 2004 but the company continued its fraudulent practices and the FTC eventually shut down the company.

People facing debt problems in the Twin Cities have a number of options, including bankruptcy. Bankruptcy can stop collection calls permanently. In addition to offering protection from creditors, bankruptcy has a number of other advantages, which may make it an attractive option.

Debt Collectors Mobilizing

Debt collection was a $17 billion in the U.S. in 2010, according to the consulting firm Kaulkin Ginsberg. Debt collection companies fear that stricter regulations will eat into their profit margins, and many in the industry believe that if states pass laws similar to North Carolina's many of the smaller debt collection firms will go out of business.

Debt collection companies have rallied together to stop new state laws. They lobbied against proposed bills in Oregon and Florida, helping to kill both of the proposals in committee. The debt collection company trade association, DBA International, hired former Georgia attorney general Thurbert Baker to build relationships with state regulators in the larger states in order to be involved in the legislative drafting processes when state legislatures reconvene in 2013.

Debt collection companies are doing all they can to prevent stricter regulations of their activities. Many of the companies have demonstrated that they stoop to unscrupulous activities to get money, if not outright fraud. If you are facing creditor harassment, contact an experienced Twin Cities debt problems lawyer today who can advise you of your options.