cqr debt collectors · 2018-04-04 · 624 cq researcher representations, including misleading...

Debt CollectorsDo consumers need additional safeguards?

Lawsuits filed against debt collectors multiplied in recent

years, as have complaints to regulators about abusive

collection tactics. Indeed, the Federal Trade Commis-

sion (FTC) receives more consumer complaints against

debt collectors than any other industry. Collection companies,

which recover billions of dollars in delinquent debt for creditors

annually, defend their practices and challenge the validity of many

of the lawsuits and consumer complaints. Nevertheless, over the

past 18 months, the FTC and state attorneys general have stepped

up enforcement against collection agencies they believe are break-

ing consumer-protection laws. Meanwhile, the Internal Revenue

Service has drafted rules aimed at curbing aggressive collection

methods at nonprofit hospitals, including dunning sick patients for

payment in the emergency room. At the same time, the collection

industry is bracing for tighter regulation from the newly created

Consumer Financial Protection Bureau.

I

N

S

I

D

E

THE ISSUES ....................623

BACKGROUND ................630

CHRONOLOGY ................631

CURRENT SITUATION ........636

AT ISSUE........................637

OUTLOOK ......................639

BIBLIOGRAPHY ................642

THE NEXT STEP ..............643

THISREPORT

Lung transplant recipient Tom Fuller testifies at apublic hearing in St. Paul, Minn., on May 30, 2012,about high-pressure debt collection at a FairviewHealth Services hospital. A scathing report by

Minnesota’s attorney general documents tactics such asasking patients to pay while lying in pain on a gurney.

CQResearcherPublished by CQ Press, an Imprint of SAGE Publications, Inc.

www.cqresearcher.com

CQ Researcher • July 20, 2012 • www.cqresearcher.comVolume 22, Number 26 • Pages 621-644

RECIPIENT OF SOCIETY OF PROFESSIONAL JOURNALISTS AWARD FOR

EXCELLENCE � AMERICAN BAR ASSOCIATION SILVER GAVEL AWARD

622 CQ Researcher

THE ISSUES

623 • Are stronger consumerprotections needed?• Has federal law laggedbehind advances in tech-nology?• Do consumers behindon medical bills deservespecial protection?

BACKGROUND

630 Early BorrowersMost Americans relied oncredit in the early 19thcentury.

632 Credit TransformedInstallment buying becamecommonplace in the early20th century.

634 Revolving CreditIn 1938 Bloomingdale’schanged the way Americansborrowed.

634 Regulating Debt CollectorsLegislation passed in 1977curbed abusive practices.

634 Democratizing CreditCredit cards became widelyavailable to the poor in the1980s and ’90s.

CURRENT SITUATION

636 Protecting ConsumersState attorneys general areincreasing enforcementagainst abusive practices.

638 Legislative ActionState legislatures are alsotargeting debt collectors.

638 Statute of LimitationCollectors are not permittedto sue over old debts.

OUTLOOK

639 New Rules?Disclosure requirements arelikely for collection agencies.

SIDEBARS AND GRAPHICS

624 Medical Bills Pose BurdenOne-third of Americans infamilies are affected.

625 Medical Bills Are Half ofDebt CollectedStudent loans accounted forabout 6 percent.

628 Suits Against Collectors RiseTwelve thousand federal suitswere filed in 2011.

630 Do’s and Don’ts for Debt CollectorsNo calls after 9 p.m.

631 ChronologyKey events since 1833.

632 Emergency Room PatientsPressed for PaymentOfficials decry “aggressive”hospital debt collection.

636 Repeat Calls Top Complaint ListConsumers also cite falsethreats, calls at work.

637 At IssueShould the Department ofEducation stop using debtcollectors?

FOR FURTHER RESEARCH

641 For More InformationOrganizations to contact.

642 BibliographySelected sources used.

643 The Next StepAdditional articles.

643 Citing CQ ResearcherSample bibliography formats.

DEBT COLLECTORS

Cover: AP Photo/The Star Tribune/Richard Tsong-Taatarii

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Debt Collectors

THE ISSUESI t’s not uncommon for

debt collectors to pres-sure consumers to pay

their bills, but Frank E. Lind-strom Jr. and Kevin Medleycrossed the line into harass-ment and abuse, accordingto government regulators.

The pair, along with sev-eral colleagues, allegedlyasked one consumer whowas behind on funeral pay-ments for her son how shewould feel if his body wasdropped outside her door.They allegedly threatened tokill another consumer’s dog.The debt collectors werealso accused of failing toturn over collected money toclients, threatening supposeddebtors with lawsuits neverintended to be filed, andharassing them with re-peated phone calls and ob-scene language.

In March, the FederalTrade Commission (FTC)banned Lindstrom and Med-ley from the debt-collectionbusiness. The two did notadmit guilt in the case, butas part of a settlement they agreed toa combined judgment of more than$1 million. They will surrender justunder $50,000, however, because oftheir inability to pay. 1

The FTC says debt collectors areinstrumental in helping creditors col-lect what they are owed and thus helpto keep credit widely available to con-sumers at low costs. 2 An industry-commissioned study estimates that so-called third-party debt-collection agencies— companies hired by merchants, hos-pitals, credit-card issuers, utilities andother creditors to collect on past-dueaccounts — recovered and returned to

creditors more than $40 billion in delin-quent debt in 2010. 3

Still, the FTC has stepped up en-forcement against collectors it be-lieves have violated the key law gov-erning debt collectors: the 35-year-oldFair Debt Collection Practices Act(FDCPA).

The law applies to third-partydebt-collection agencies and to com-panies that buy old consumer debtfor pennies on the dollar and col-lection agencies those companiessometimes use. The law does notapply to original creditors’ in-housedebt-collection staff.

The FDCPA:• Prohibits abusive lan-

guage, harassing phone callsand deceptive threats of law-suits;

• Limits the hours thatcollectors can contact peoplewho owe money;

• Requires collectors toprovide consumers with val-idation of the debt owed uponrequest; and

• Allows consumers to sueand collect damages for vio-lations of the law. (See box, p.630.)

In the first three months of2012, about 14 percent of Amer-icans faced collection actionfor an average $1,500 per per-son, according to the FederalReserve Bank of New York. 4

“Protecting consumers fromdeceptive or abusive debt col-lectors is one of the most im-portant things the FTC does,”David Vladeck, director of itsBureau of Consumer Protec-tion, said last March. Over theprevious 12 months, the FTChad filed or resolved sevendebt-collection cases affectinghundreds of thousands of con-sumers, the highest number ofcases in a single year. 5

Two cases involved record civil penal-ties. In March 2011, West Asset Man-agement, a major debt collector basedin Omaha, Neb., agreed to pay $2.8 mil-lion to settle an FTC complaint accus-ing it of calling consumers “multipletimes each day, often regarding ac-counts that did not belong to them,and sometimes using rude and abusivelanguage.” West Asset Management didnot admit or deny wrongdoing. 6

In January 2012, Warren, Mich.-based Asset Acceptance, one of the na-tion’s largest buyers of bad consumerdebt, agreed to pay $2.5 million afterthe FTC accused it of a series of mis-

BY BARBARA MANTEL

AP Photo/C

huck

Burton

Eleanor Chittum, a convalescent-home resident inWinston-Salem, N.C., fought for a year and a half to stopa collection agency from collecting a $1,439 debt she

had already paid. North Carolina law now requires debtbuyers — purchasers of older, uncollected debt — to

offer more proof they are owed the money before filing collection lawsuits.

624 CQ Researcher

representations, including misleadingconsumers about the legal status of olddebt. 7 Debt collectors may not threat-en to sue or sue on debt that is pasta state’s statute of limitations. Asset Ac-ceptance did not admit or deny theFTC’s claims.

In the past few years, the FTC hasrepeatedly called for tightening ofconsumer-protection laws and civilcourt procedures. But consumer ad-vocates, collection agencies and regu-lators disagree about what reforms arenecessary. They debate, for example,whether patients behind on medicaldebts need special protections, whetherdebt collectors are bringing bogus law-suits against consumers and whetherconsumer attorneys accusing collec-tors of violations are doing the same.And they disagree on the extent ofthose violations.

After one FTC enforcement actionin April, DBA International, a Sacra-mento, Calif.-based trade association

for the debt-buying industry, said thecase “highlights the kind of illegal tac-tics a few companies employ that givethe entire industry a black eye.” Theassociation applauded the government“for targeting companies like these thatprey on consumers.” 8

But consumer advocates contendthe problem extends far beyond a fewrogue operators. “This is an industry,according to the FTC, that generatesmore consumer complaints than anyother,” says Tena Friery, research di-rector for the Privacy Rights Clearing-house, a group in San Diego that ad-vocates on behalf of consumers.

Last year the FTC received 142,743debt-collection complaints, about one-fourth of all complaints to the agency.The top gripe against debt collectorswas repeated calls. Misrepresentingthe character, amount or status of debtwas second, and falsely threatening anillegal or unintended act, such as alawsuit, was next. 9

The FTC has said that the numberof complaints may actually understatethe extent to which debt collectors vi-olate the law. Suzanne Martindale, astaff attorney in the San Francisco of-fice of the advocacy group ConsumersUnion, agrees. “There are probably alot of people out there who don’t knowhow to complain or who don’t botherto but have nonetheless been harmed.”

On the other hand, the FTC ac-knowledges that it does not verify theaccuracy of the vast majority of com-plaints or whether they involve viola-tions of law. “You could pick up thephone tomorrow and say, ‘I have acomplaint. Mark’s collection agencycalled me at 9 a.m., and I don’t likeit.’ But that’s not a violation,” saysMark Schiffman, vice president ofpublic affairs for ACA International, adebt-collection trade association, basedin Minneapolis, Minn.

Third-party debt collectors are paidon a contingency basis; they receivean average 25-30 percent of the debtrecovered, according to one recent re-port. 10 The industry employs ap-proximately 148,300 people, and morethan half of the debt they collect ishealth-care related, according to a re-cent survey. Credit card and other fi-nancial debt account for about 20 per-cent of the debt collected. 11

The entire industry — third-partycollection agencies, debt buyers andlaw firms in the collection business —“was a boom industry for about 15 years,from around 1993 until 2008 or 2009,driven in large part by the proliferationof credit cards,” says Mike Ginsberg,president and CEO of Kaulkin Gins-berg, an industry adviser in Rockville,Md. But the industry was “hit squarein the mouth” by the recession, saysGinsberg, as credit-card loans dried upand more consumers began paying offcard balances. Just over 11 percent oftotal credit-card balances were 90 daysor more delinquent in the first quarterof this year, down from about 14 per-cent in early 2010. 12

DEBT COLLECTORS

Medical Bills Burden Families

About one in three Americans lives in a family weighed down by medical bills. A fifth are in families that had problems paying such bills during the previous year, and a one-fourth are in families that are making payments over time.

Source: Robin A. Cohen, et al., “Financial Burden of Medical Care: Early Release of Estimates From the National Health Interview Survey, January-June 2011,” Centers for Disease Control and Prevention, March 2012, p. 1, www.cdc.gov/nchs/data/nhis/earlyrelease/financial_burden_of_medical_care_032012.pdf.

Persons in Families Burdened by Medical Bills, January-June 2011

05

1015202530

35%

Any financialburden of

medical care

Have medicalbills they areunable to pay

at all

Have medicalbills being paid

over time

Problems payingmedical bills

in past12 months

20%26.2%

10.5%

32.4%

Percentage with problems


The industry also has a new, morepowerful regulator. The 2010 Dodd-Frank Wall Street Reform and Con-sumer Protection Act created the Con-sumer Financial Protection Bureau(CFPB), which will share enforcementof the debt-collection law with theFTC. But unlike the FTC, the bureaucan issue regulations clarifying the lawand, for the first time, supervise andexamine “larger” debt-collection anddebt-buying companies as well as thoseit views as a risk to consumers.

“One of the industry’s frequent ar-guments is that violations of the laware not representative of the industry,but you can’t really resolve that ques-tion through enforcement actions,” saysDelecia Reynolds Hand, legislative di-rector for the Washington-based Na-tional Association of Consumer Advo-cates, whose members are consumerattorneys. “Now CFPB supervision willprovide a whole lot of informationabout policies and procedures acrossthe industry.”

It’s not clear yet what supervisionwill mean: Will the bureau be able tolisten in on phone calls to consumers,inspect debt-collectors’ scripts or beable to review collectors’ proceduresfor verifying a consumer’s identity anddelinquency status?

The bureau has preliminarily defined“larger” to capture approximately 175 firms— or 4 percent of companies — thataccount for 63 percent of the debt-collection market. 13 The industry, how-ever, thinks that is too many firms, whileconsumer advocates say it is too few.

The CFPB’s final decision will comein late July. In the meantime, here aresome of the questions that creditors,debt collectors, consumer advocates,regulators and politicians are debating:

Are stronger consumer protectionsneeded?

Karen Stevens, a 42-year-old resi-dent of Hagerstown, Md., paid off adelinquent credit-card bill in 2006, butwhen her bank mistakenly sold her

debt soon after a new set of debt col-lectors began pursuit.

Stevens sent proof that the debtwas paid, but “that just didn’t seemto be good enough for them,” shetold American Banker. “They stillended up taking me to court.” Herdebt was sold again, and Stevens endedup countersuing the last debt buyerfor violating state and federal debt-collection laws. They settled out ofcourt in 2009. 14

Debt buying has become one of thefastest-growing parts of the collectionbusiness, and “it can be much moreprofitable” than collecting debt on acontingency basis, according to indus-try adviser Kaulkin Ginsberg. Debt buy-ers purchase portfolios of older debt forcents on the dollar, then collect whatthey can — sometimes “up to threetimes or more of the original purchaseprice,” Kaulkin Ginsberg said. 15 Whena debt buyer cannot collect, it can repack-age the debt and sell it to another.

The industry says debt buying is awin for creditors and consumers:Creditors receive money for debt they’ve

written off as uncollectible, and con-sumers benefit from the low price thatdebt buyers paid to the original cred-itors. “Debt buyers are usually muchmore willing to work out more cre-ative solutions than the original cred-itor,” says Barbara Sinsley, general coun-sel at DBA International.

But consumer advocates contendthat the rapid growth in debt buyinghas led to an increase in collectionactions against the wrong person orinvolving debts in the wrong amountor that were already settled, and to asurge in poorly documented lawsuitsagainst consumers.

“It’s garbage in, garbage out,” saysMartindale of Consumers Union. “It isall too common for debt buyers to ac-quire spreadsheets containing inade-quate or absent records of payments,disputes or prior exchanges with theconsumer — and these spreadsheetsare sold and resold repeatedly,” Con-sumers Union told the FTC. 16

Sinsley disagrees that the problemsare widespread. “Debt buyers, whenthey buy debt, spend a lot of resources

Medical Bills Are Half of Debt Collected

Medical bills comprised more than half of the debt collected by collection agencies in 2010. Credit card and other financial debt made up one-fifth of the total.

Source: “The Impact of Third-Party Debt Collection on the National and State Economies,” Ernst & Young, February 2012, p. 8, www.acainternational.org/files.aspx?p=/images/21594/2011acaeconomicimpactreport.pdf

Debt Recovered by Third-Party Collection Agencies, 2010

Utility/telecom7.5%

Health care52.2%

Credit card/financial

20%

Commercial3.4%

Government2.1%

Student loan5.7%

Other9.1%

626 CQ Researcher

on checking the accuracy and integrityof the information,” she says. “Debtbuyers do not want to be buying orcollecting on disputed debt.”

Consumer advocates are not con-vinced and have a laundry list of de-sired reforms, either through new CFPBrules or federal or state legislation. Chiefamong them is requiring more and bet-ter documentation — such as the nameof the original creditor, a copy of thesigned contract orcredit application, abreakdown of theclaimed debt includ-ing any interest orfees, and proof ofownership of thedebt — before acollection agency ora debt buyer at-tempts to collect ona consumer debt.And advocates saythe informationshould be given toconsumers. 17

But the industrysays the fault is withthe original creditors.“At the end of theday, if the bank is notproviding the kind ofdocumentation that isneeded in the original sale, it’s not goingto be available later on,” says industryadviser Mike Ginsberg. “That’s where theregulation needs to be.” ACA Interna-tional wants the federal Truth in Lend-ing Act amended to require original cred-itors to maintain consumer accountinformation for at least seven years aftera debt is written off. 18

But the chief problem, accordingto many consumer advocates, is aflood of debt-collection lawsuits. That’sa direct result of the proliferation ofdebt purchasers, according to a U.S.Government Accountability Office re-port, because they “often use col-lection law firms as their primary toolfor recovery.” 19

“A million or more consumers aresued each year by debt collectors instate courts,” says Robert Hobbs, deputydirector of the Boston-based Nation-al Consumer Law Center, and a sub-stantial portion of those suits have in-sufficient evidence, he says. The FTChas called debt-collection litigation “abroken system.” 20

The problems start with processservers,* who may not always prop-

erly notify consumers of a lawsuit, ac-cording to the FTC. From there, theproblems build, as many consumersfail to respond to the notices they doreceive. While the FTC says there isno empirical data explaining the lowresponse rate, advocates say it is be-cause many indebted consumers arepoor and lack access to lawyers.They often are confused about howto navigate the legal system, espe-cially if the notice comes from a debtbuyer and not the original creditor,advocates say. 21

“They may not understand thateven if you don’t recognize the nameof the plaintiff and you think it is amistake, you still must respond,” saysMartindale. “If you don’t, you will de-fault, and [collection agencies] can stillget a court order to take your moneyaway, even if it is a mistake.” Between60 and 95 percent of consumer debt-collection lawsuits result in default judg-ments, according to the FTC. 22

Those judgments, saysHobbs, can be based onflawed affidavits — writ-ten sworn statements offact — submitted by thedebt owner to the court.“They can be robo-signedand based on no per-sonal knowledge and noreview of the debt be-cause, for the most part,there is no documenta-tion for them to check,”says Hobbs.

Sinsley dismisses thatargument, however. “Ithink robo-signing is notthe problem it is portrayedto be,” she says. “DBAmembers hire experi-enced local counsel toassist with local stateguidelines.”

One year ago, debt buyer EncoreCapital Group, based in San Diego,settled a class action lawsuit for $5.2 mil-lion in which two subsidiaries were ac-cused of robo-signing affidavits to but-tress collection lawsuits. In testimony,an employee was said to be signinghundreds of affidavits a day.

As the case made its way throughthe courts, Encore amended its meth-ods in 2009 with what it described as“simple process improvements and lan-guage changes.” After the settlement, itsaid the “alleged defects in the affidavitshad no impact on whether or not thedebt was owed.” 23

Consumer advocates would like tosee states require debt buyers to pro-

DEBT COLLECTORS

* Process servers deliver notifications, sum-monses and other relevant paperwork to thosewho are being sued.

Credit counselors seek to help consumers with unmanageable debts bynegotiating with creditors to establish a plan that may allow forreductions in debt payments, interest and late fees. The Minnesota

attorney general recommends finding a reputable counselor through the National Foundation for Credit Counseling.

bethsreversemortga

geblog.wordpress.com


vide greater evidence and documenta-tion in court when suing consumersover delinquent debt. In 2009, after NorthCarolina adopted such a law, collectionlawsuits dropped significantly, garneringpraise from consumer advocates andprotests from the industry that legitimatedebts were going uncollected.

Has federal law lagged behindadvances in technology?

Collection agencies and debt buy-ers should be able to contact bor-rowers more easily on their cellphonesand through text messaging and email,the debt collection industry says. But,it complains, outdated federal law, passedlong before cellphones and the Inter-net became standard ways of commu-nicating, hobble debt collectors andhurt consumers. “If you can communi-cate with a consumer about a debt andunderstand what they have the abilityto pay, I think you would see a de-crease in litigation and an increase inpayment plans,” says Sinsley of DBAInternational.

“It has become harder to get holdof consumers who have shifted to cell-phones and, in many cases, go with-out a landline at all,” says Schiffmanof ACA International. To reach con-sumers on their landlines, debt col-lectors routinely use recorded messagesand automated dialers programmed topredict when a consumer will be home.But the 1991 Telephone ConsumerProtection Act does not allow collec-tors to use predictive dialers to callcellphones unless the consumer hasgiven prior consent — for instance, byputting down a cellphone number asthe point of contact in the originalcredit application.

“We want it to be equal to how Ican contact you on a landline phone,”says Schiffman. The industry support-ed a bill introduced in the U.S. Houseof Representatives last year by Rep.Lee Terry, R-Neb., called the MobileInformation Call Act that would haveloosened restrictions on cellphone calls.

But 54 state and territorial attorneysgeneral opposed the bill, and it neverleft committee. (See “Current Situa-tion,” p. 636.)

The law could result in “a flood ofsolicitation, marketing, debt collectionand other unwanted calls and texts”to consumers’ cellphones, they saidin a letter to Congress, and “shift thecost of these calls . . . to consumers,placing a significant burden on low-income consumers.” 24

The industry also wants the Con-sumer Financial Protection Bureau towrite specific language that it canuse to leave messages on consumers’answering machines and voice mail,technology not much in use whenthe Fair Debt Collection Practices Actwas passed in 1977. Courts have con-firmed that collectors must identifythemselves when leaving phone mes-sages, but that puts them at risk ofdisclosing information about the debtto third parties who might overhearthe message, something that the FDCPAprohibits.

“It’s a huge Catch-22,” said ChrisMorris, a Minneapolis lawyer who de-fends collectors accused of violatingthe FDCPA. 25 As a result, many col-lectors are no longer leaving messages.When they do, ACA International rec-ommends that they name the partythey are trying to reach, instruct any-one else to hang up, and only thenproceed to identify themselves as adebt collector.

But, says Sergei Lemberg, a Stam-ford, Conn., lawyer whose firm spe-cializes in suing collectors for allegedlegal violations, “Is there a constitu-tional right to leave messages? Just be-cause somebody owes a debt doesn’tmean that they then have to exposethemselves to being embarrassed infront of their roommates or spousesor family members.”

Without clarification from regulators,however, collectors say they must callconsumers more frequently, risking alawsuit alleging harassment. Schiffman

says consumer attorneys don’t wantthe CFPB to write an allowable scriptfor messages because then theywouldn’t be able to sue debt collec-tors for technical violations of the law.

The number of lawsuits accusing col-lection agencies, debt buyers and col-lection law firms of violating the FDCPAhas risen steadily, to 12,018 in 2011,nearly four times the total in 2005, ac-cording to WebRecon, which tracks suchlawsuits and provides the industry withthe names of the most litigious con-sumer lawyers and consumers. (Seegraph, p. 628.) Most cases are settledbefore trial.

Because consumers do not have toshow they were harmed to prove aviolation of the FDCPA, many lawsuitsare over minor technical violations,such as “calling five minutes after call-ing is allowed,” or that arise from am-biguities in the law, says Jack Gordon,WebRecon’s CEO. “Maybe the con-sumer had their cellphone in a dif-ferent time zone and the collector hadno way to know,” leading to a callduring prohibited hours.

The Internet has fueled the increasein lawsuits, says Gordon. “There areads from consumer attorneys implor-ing you not to pay debt collectors apenny until they give you a free casereview,” and websites that instruct con-sumers how to entrap a collector onthe phone, says Gordon.

But consumer attorneys say it is theindustry’s behavior that drives suchsuits. “The economy is so bad that it’sgetting more and more difficult forthese debt collectors to get moneyfrom people who just don’t have it,”said Tammy Hussin, a Carlsbad, Calif.,consumer attorney. “So the collectorsare more frustrated, and they’re gettingmore aggressive.” 26

Lemberg agrees. “We don’t needmarginal cases,” he says. “We have dozensof people every day complaining aboutharassment, abuse, third-party disclosure,getting seven to 10 calls a day and dis-respectful collectors.”

628 CQ Researcher

Consumer attorneys typically takesuch cases on a contingency basis. Ifa debt collector is proven to have vio-lated the FDCPA, a consumer can claimreasonable attorney fees, which canbe several thousand dollars, statutorydamages of up to $1,000 per violationand actual damages, if any.

The industry complains that the con-sumer lawyers benefit the most fromsuch lawsuits. “Are consumers better offthan they were two or three years agobecause of all this litigation?” asked Char-ity Olson, a Michigan attorney who de-fends debt collectors. “Sadly, I don’tthink they are. But there are a lot ofattorneys who are a lot better off.” 27

“We’re not going to deny that thereare litigation shops out there that arenot very selective,” says Reynolds Handof the National Association of Con-sumer Advocates. “But our members arenot those guys. Our members are con-tacted by consumers about behavior thatis crossing the line, behavior that is out-lined in the FDCPA.”

To make it more worthwhile for con-sumers to sue, consumer attorneys andadvocates have been asking Congressfor years to raise the $1,000 statutorydamage award to reflect inflation; ithasn’t changed in 35 years. “We’ve got-

ten very close in negotiations with theindustry to them agreeing to that in ex-change for something they wanted,” saysHobbs of the National Consumer LawCenter. “But it hasn’t happened.”

Do consumers behind on medicalbills deserve special protection?

This spring, in an investigation of thecollection practices of Carolinas Health-care headquartered in Charlotte, N.C.,the Charlotte Observer found that thenonprofit health-care system sued morethan 12,000 patients over a five-yearperiod for bad debt. An in-depth lookat some cases found most of the pa-tients in those cases were uninsured and“a significant number of them shouldhave qualified for free hospital care,” thenewspaper said. 28

Consumer advocates are pushing forspecial protections for uninsured andunderinsured patients who are behindon their medical bills. “This is not astore credit card that’s been overdrawnfor consumer goods. This is a vital ser-vice,” says Mark Rukavina, executivedirector of The Access Project, an ad-vocacy group in Boston that works toimprove health-care access.

Moreover, says Rukavina, “Unlikeyour mortgage, your monthly credit-

card payment and your utility bill,medical bills are “significant expensesthat are unanticipated. Generally speak-ing, you can’t predict when you’regoing to get sick.”

Medical debt is a growing problem,according to a survey by The Com-monwealth Fund, a New York founda-tion. Twenty-nine percent of adults ages19 to 64 — 53 million people — hadproblems paying or were unable to paymedical bills in 2010, up from 23 per-cent five years earlier. Sixteen percent,or 30 million people, had been con-tacted by a collection agency for unpaidmedical bills, up from 13 percent in 2005.While the uninsured are most affected,insured patients are increasingly strug-gling with rising copayments, coinsur-ance and unaffordable deductibles. 29

The Affordable Care Act (ACA), whichthe Supreme Court largely upheld inJune, will partly address the problemby increasing the number of Americanswith health insurance. In addition, Con-gress placed rules governing billing andcollection in the law, in response totroubling reports of aggressive debtcollection at nonprofit hospitals. 30

The ACA requires nonprofit hospi-tals to develop and publicize writtenfinancial-assistance policies that pro-vide free or partially free care to unin-sured or underinsured low-income pa-tients, and to charge those who qualifyfor partial assistance the same discountedrates for medical care given to insuredpatients. 31

“The common practice has been thatpeople who are uninsured are chargeda rate that can be three to four timesas high,” says Jessica Curtis, project di-rector of the Hospital AccountabilityProject at Community Catalyst, a Boston-based patient-advocacy group.

In addition, the law directs non-profit hospitals to make a reasonableeffort to determine whether a patientqualifies for financial assistance beforetaking “extraordinary collection actions.”

“We supported the law. We thoughtit made sense,” says Melinda Hatton,

DEBT COLLECTORS

Suits Against Debt Collectors on Rise

Consumer attorneys filed 12,018 federal lawsuits against debt collec-tors in 2011 under the Fair Debt Collection Practices Act, nearly four times the total in 2005.

Source: “2011 Litigation Statistics Revised Upward, FDCPA Suits Surpass 12,000,” WebRecon LLC, February 2012, www.collectionindustrynews.com/FOR%20IMMEDIATE%20RELEASE%2020120224%202011%20revision.pdf

Suits Against Debt Collectors in Federal Courts,

2005-2011

3,000

6,000

9,000

12,000

15,000

2011201020092008200720062005

No. of suits


general counsel at theChicago-based Amer-ican Hospital Associ-ation, a trade group.But Hatton takes issuewith the way it isbeing implemented.

Last month the In-ternal Revenue Ser-vice (IRS) issued draftrules on the law’sbilling and collectionrequirements. For ex-ample, the rules layout detailed proce-dures for notifyingpatients of financial-assistance policies.Hatton says they aretoo rigid.

“You’re going tobe so focused onmaking sure thatyou’ve got it plasteredon the wall in a con-spicuous place, thatyou’ve got a summary in every singlebill, that you’ve got it available in placesthat visitors can find it and that you’vegot it on your website. And as a result,new and better ideas about how toreach patients may fall by the wayside,”says Hatton.

The IRS also says debt collectors can-not garnish the wages of patients eli-gible for financial help, place liens ontheir property or foreclose on their hous-es, seize their bank accounts or reporttheir bad debts to credit bureaus. 32

The IRS will hold nonprofit hospi-tals responsible if third-party collec-tion agencies they hire violate any ofthese rules, and Hatton says that isnot fair. “If hospitals make their bestefforts to ensure that third-party col-lectors comply with their policies andprocedures, and those third-partiesmake a mistake, then the hospitalshouldn’t be in danger of losing itstax exemption,” says Hatton.

In addition, the IRS says nonprofithospitals must wait up to 240 days to

determine whether a patient behind onpayments qualifies for financial assis-tance, during which time it can takeno collection action. That’s too longand will place a financial burden onnonprofits already squeezed by reducedreimbursement rates and rising costs,says Jeffrey Hausfeld, a physician andmanaging director of FMS Financial So-lutions, a debt-collection agency inGreenbelt, Md. During the five or sixor eight months that hospitals’ billingstaffs are chasing delinquent patients toget them to apply for financial assis-tance, “they are not working current ac-counts to get the money in to keepthe hospital functioning,” says Hausfeld.

Patient advocates, however, arepleased with the ACA’s billing and col-lection requirements but say they goonly so far. “It only pertains to non-profit hospitals,” says Rukavina. Abouthalf the nation’s hospitals are nonprofit,according to the hospital association.

Last month Sen. Al Franken, D-Minn.,introduced legislation to extend ACA

provisions to all hospi-tals, and CommunityCatalyst has writtenmodel state legislationthat would go even abit further. While thefederal law allowshospitals to set theirown eligibil i ty re-quirements for finan-cial assistance, themodel state legislationexplicitly spells outthe eligibility rules. 33

About a half-dozenstates have such laws,including California,Maryland and NewYork.

But Hatton is not infavor of extending ACArequirements to all hos-pitals. “Tax-exempt hos-pitals have a differentkind of obligation totheir community be-

cause of the basis of their tax ex-emption,” she says.

The model state legislation wouldalso require hospital governing boardsto expressly approve any extraordinarycollection actions, such as placing alien on a patient’s property, garnishingwages or seizing a bank account. 34

“That is way too onerous,” saysHausfeld. “Boards would never get any-thing else done.”

Curtis and Community Catalyst pro-pose that states, or even Congress, banthe sale of medical debt. “You have athird party, possibly a for-profit group,that is profiting from someone’s painand sickness,” says Curtis.

But Jim Richards, president and CEOof Capio Partners, a medical-debt pur-chaser in Sherman, Texas, disagrees.“We most definitely do not believe sell-ing patient debt should be prohibit-ed,” he says. “Legislators need to fullyunderstand the negative effect on ahospital’s revenue before pursuing suchlegislation.”

Richard Cordray heads the new Consumer Financial ProtectionBureau, created by the 2010 Dodd-Frank Wall Street Reform and

Consumer Protection Act. The bureau can issue regulations clarifyingthe Fair Debt Collection Practices Act and supervise and examine

big debt-collection and debt-buying companies as well as those it views as a risk to consumers.

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DEBT COLLECTORS

BACKGROUNDEarly Borrowers

I n the early 19th century, nearly three-quarters of Americans resided on

farms, and most “lived and died by cred-it,” wrote historian Louis Hyman in Bor-row: The American Way of Debt. “Theharvest came but once a year, but theyneeded goods — farm equipment,clothing, groceries — year-round.” 35 Sofarmers bought from merchants on cred-it at inflated prices, repaying after theharvest, occasionally in cash, but mostoften in crops or livestock. For Westernfarmers, that meant wheat, eggs andhogs. For Southerners, it meant cotton.

The merchant, then, became the mid-dleman, selling the farmer’s products inthe city and turning a profit. With thedevelopment of railroads in the mid- tolate 19th century, getting agriculturalproducts to market became much eas-ier, and the number of merchants infarm towns multiplied. The resultingcompetition drove down the inflatedprices farmers had to pay merchants forgoods on credit.

Western farmers benefited, but inthe South, where control of the landand stores after the Civil War remainedconcentrated in the hands of a few,the story was different. “Debt kept ten-ant farmers and sharecroppers in thrallto monopolistic country stores whereeach year’s crop never quite madeenough to free them from last year’sdebt,” wrote Hyman. 36

The Industrial Revolution and a waveof immigration pulled workers to thecities, and by the end of the 19th centu-ry, fewer than half of working Americanslived on farms. But many urban workerswere poor and could not make endsmeet, and they increasingly borrowedmoney from pawnbrokers and small

Continued on p. 632

Do’s and Dont’s for Debt Collectors

The Fair Debt Collection Practices Act applies to collection agencies, debt buyers and debt-collection law firms. Under the law:

Source: Federal Trade Commission, www.ftc.gov/bcp/edu/pubs/consumer/credit/cre27.pdf

Debt collectors may not:• Reveal that a consumer owes a debt when communicating with others

to learn the consumer’s location. Debt collections also may not contact others more than once to learn the consumer’s whereabouts.

• Contact the consumer before 8 a.m. or after 9 p.m. local time without the consumer’s permission.

• Contact the consumer at work if the debt collector knows or has reason to know that the employer prohibits such communication.

• Contact a consumer known to be represented by an attorney.

• Harass, oppress or abuse any person in connection with the collec-tion of a debt, including causing the telephone to ring repeatedly.

• Use false, deceptive or misleading information or representation.

• Collect amounts other than authorized by the credit agreement creating the debt.

Debt collectors must:• Identify themselves as a debt collector in every communication with

the consumer.

• Cease communication if the consumer notifies the debt collector in writing that the consumer refuses to pay a debt or wants communica-tion to stop, except to notify the consumer of future remedies, such as a lawsuit.

• Within five days of initial communication, send the consumer a written notice containing the debt amount; creditor’s name (or the name of the debt buyer if the debt was sold); a statement that the debt will be assumed valid unless the consumer disputes it within 30 days; a statement that if disputed the collector will mail the consumer verification of the debt; and a statement that the consumer may request the name of the original creditor.

• At the consumer’s request, provide verification of the debt, including the amount owed and the name and address of the original creditor.

In addition:• Consumers may sue a debt collector they believe has violated the law.

• Any debt collector found guilty of a violation is liable to the consumer for any actual damages sustained as a result of the viola-tion, additional damages up to $1,000 to be determined in court, and court costs and reasonable attorney fees.


Chronology1800s-1920sStores and manufacturers ex-tend installment credit to con-sumers, and small collectionagencies proliferate.

1833Federal law eliminates imprison-ment for debt. Most states follow.

1911Sears, Roebuck & Co. allows con-sumer installment payments.

1920sStates raise interest rates lenderscan charge consumers for smallloans in effort to provide incentiveto legitimate lenders and drive outloan sharks. Small lenders thrive,and small collection agencies pro-liferate. . . . General Motors ex-tends installment credit to car buy-ers. Ford follows eight years later.By decade’s end most goods canbe bought on an installment plan.

•

1930s-1950sDepartment stores introduce re-volving credit and charge in-terest on balances due. Banksbegin issuing credit cards.

1938Bloomingdale’s is first to offer re-volving credit to customers, bundlingpurchases into one bill and charginginterest on overdue balances.

1949Seventy-five percent of majorstores have revolving-credit pro-grams, charging an annual interestrate of 13 percent.

1951Franklin National Bank in Long Is-land, N.Y., is first bank to issue a

universal credit card, to be usedanywhere it is accepted.

1958Bank of America introduces uni-versal credit card.

•

1970s-1980sCongress regulates debt-collectionindustry; Supreme Court indi-rectly dismantles usury laws.

1977Fair Debt Collection Practices Act(FDCPA) prohibits abusive, decep-tive or unfair collection practicesand allows consumers to sue debtcollectors for violations.

1978Middle Income Student AssistanceAct expands student loan eligibilityto middle- and upper-income stu-dents. . . . Supreme Court saysbanks can charge credit-card cus-tomers nationwide the interest ratein the banks’ home state, encour-aging banks to flock to states withno interest-rate caps. Credit cardinterest rates quickly rise.

1979J.C. Penney is first national depart-ment store to accept Visa and thenMasterCard. Other stores follow asthey realize banks can shoulder baddebts more easily than they can.

1983Recession ends, and credit card in-terest rates remain above 18 per-cent while all other interest ratesfall. Banks issue credit cards toriskier consumers.

1986Tax Reform Act of 1986 phases outdeductibility of consumer credit,except mortgages.

1990s-PresentAmericans borrow at recordlevels, and collection industrybooms. Credit shrinks in after-math of 2008 recession.

1990Newly created Resolution Trust Corp.auctions off nearly $400 billion inassets of failed savings and loan in-stitutions in decade’s first half, help-ing to establish debt-buying industry.

1993Debt buyers purchase about $6 bil-lion of debt, mostly for credit-cardtransactions.

2000Americans’ household debt equalspersonal disposable income for thefirst time since data collection began.

2003About one in 10 consumers facescollection action for overdue debt.The average collection amount perperson is $900.

2005Bankruptcy Abuse Prevention andConsumer Protection Act makes itmore difficult for consumers toshed bad debts through bankruptcy.. . . Debt buyers purchase morethan $110 billion in debt.

2011Debt collector West Asset Managementagrees to pay a record civil penalty of$2.8 million to settle an FTC com-plaint that it violated the FDCPA.

2012Bank credit-card balances are 28 per-cent below their peak of January2009, but about 14 percent of con-sumers face collection action, andthe average collection amount hasalmost doubled from nine yearsearlier to more than $1,500.

632 CQ Researcher

lenders — loan sharks — charging il-legally high interest rates. For thosewho fell behind in their weekly pay-ments, loan sharks would contact thedelinquent borrower first through let-ters, if possible by telephone, and fi-nally through personal visits. Those vis-its were made by a female “bawlerout,”an employee who trapped “the delin-quent borrower before co-workers and

family in order to browbeat him pub-licly for being a sorry deadbeat,” wrotehistorian Lendol Calder in Financingthe American Dream. 37

Credit Transformed

I n 1928, the Russell Sage Foundation,which worked to improve social and

living conditions in the United States,

found that licensed pawnbrokers chargedannual interest rates of up to 60 per-cent and loan sharks up to 480 per-cent, according to economist CharlesGeisst in Collateral Damaged: The Mar-keting of Consumer Debt to America. 38

To drive loan sharks out of businessand encourage legitimate lending to mid-dle- and lower-income consumers, thefoundation sponsored the UniformSmall Loan Law, which would waive

DEBT COLLECTORS

Continued from p. 630

S ome patients were asked to pay while hooked to heartmonitors, morphine drips and IVs. Others were dunnedwhile lying naked and in pain on a gurney.

Minnesota attorney general Lori Swanson made those alle-gations in federal court in June against Chicago-based Accre-tive Health, one of the nation’s largest collectors of medicaldebt. The complaint accuses Accretive of aggressively collect-ing late payments and current bills from emergency room pa-tients who, in some cases, had not yet seen a doctor or beenstabilized, a violation of the federal Emergency Medical Treat-ment and Active Labor Act. 1

“Accretive used ‘bedside collection visits’ in other patient hos-pital rooms besides the emergency room,” according to the com-plaint, pressuring patients scheduled for medically necessary treat-ment, including time-sensitive surgeries, to pay outstanding bills. 2

Experts say it is rare — but not unprecedented — for healthcare companies to pursue bedside payment from emergency-room patients, especially before they’ve been stabilized and re-ceived any treatment, making the allegations against Accretiveparticularly noteworthy.

“We’ve certainly heard that this happens anecdotally fromsome of our state partners, but I am not aware of other ac-tive investigations going on at this time,” says Jessica Curtis, di-rector of the Hospital Accountability Project at Community Cat-alyst, a Boston-based advocate for health-care access nationwide.

Swanson’s accusations against Accretive are not new. Shehad made them in a scathing six-volume report in April thatdocumented a culture of high-pressure collection tactics atMinneapolis-based Fairview Health Services, which runs eightnonprofit hospitals. Fairview had turned over its billing andcollection to Accretive in 2010. 3

Swanson also accused Accretive and Fairview employeesunder Accretive supervision of leading patients to believe thattreatment would be withheld if they did not pay.

Alluding to the Accretive investigation, the Internal RevenueService last month drafted a rule that prohibits debt collection

at nonprofit hospitals “in the emergency department or in otherhospital venues where collection activities could interfere withtreatment.”

“In recent months, we have heard concerns about aggres-sive hospital debt-collection activities, including allowing debtcollectors to pursue collections in emergency rooms. Thesepractices jeopardize patient care, and our proposed rules willhelp ensure they don’t happen in charitable hospitals,” saidEmily McMahon, acting assistant secretary for tax policy at theU.S. Treasury Department. 4

In an April statement, as well as in a 29-page document inMay, Accretive denied all accusations and said the Minnesotaattorney general’s report was full of “inaccuracies, innuendoand unfounded speculation.” The company called any sugges-tion that it put bedside pressure on patients to pay their med-ical bills out of pocket “a flagrant distortion of fact.” The com-pany said, instead, it worked with insured patients to makesure they were not being over-billed for their share and withuninsured patients to find coverage, including Medicaid, dis-ability or auto insurance and charity.

In addition, “The very serious allegation of denying accessto patient care is flatly untrue,” said Accretive. 5

Accretive’s contract with Fairview was not its most important.Its biggest is with Missouri-based Ascension Health, the nation’slargest Catholic and nonprofit health system. In response to aninquiry from stltoday.com, the online news site of the St. LouisPost-Dispatch, neither company would say how many of Ascen-sion’s 80 hospitals across the country use Accretive’s services. Ina written statement provided to the news site, Ascension Healthsaid it “has policies regarding patient accounts that reflect ourcommitment to recognize the human dignity of our patients andtreat them with respect and compassion.” 6

Swanson began investigating Accretive after suing the com-pany in January 2012 for allegedly failing to protect the con-fidentiality of patient information, as required by state and fed-eral privacy laws. Five months earlier, an employee’s laptop

Emergency Room Patients Pressed for PaymentOfficials decry “aggressive” hospital debt collection.


state usury laws and allow state-licensedpersonal-finance companies to chargeas much as 42 percent annual intereston loans of less than $300. By 1932,25 states had adopted a version of thelaw, “a giant step forward toward thecreation of a legitimate consumer-loanindustry,” wrote Calder. 39

In July of that year, the number ofstate-licensed personal finance compa-nies totaled 3,667, up from 600 in 1923.

Their loans outstanding reached near-ly $400 million, compared to $8 mil-lion in 1916. 40

Consumers often used these loansto pay off other debts. But rather thanwiping the slate clean with doctors,druggists and grocers as before, con-sumers were increasingly using theloans to pay off “automobiles, radios,refrigerators, and other goods sold onthe installment plan,” wrote Calder. 41

In fact, the nature of consumercredit was rapidly changing in the early20th century. Buying goods with asmall amount of money down and therest in fixed, monthly installments be-came acceptable and widespread. Be-fore 1919, cars, for example, werebought with cash. But that year, Gen-eral Motors created a financial sub-sidiary to lend money to car dealersand soon began to extend installment

computer containing the unencrypt-ed medical records of 23,500 Min-nesota patients was stolen from arental car. 7 The latest charges wereadded to that lawsuit. Accretive hasasked the court to dismiss the en-tire suit.

The fallout this year has been swift.In January 2012, Fairview droppedAccretive as its debt collector. Thatdecision followed mounting concernsamong Fairview employees and of-ficials about Accretive’s practices atbedsides and in back offices. For ex-ample, in mid-2011, Fairview’s chieffinancial officer, Daniel Fromm, hadobjected to Accretive’s motivationalpractice of awarding gift cards to topcollectors: “Do you also understandthat this practice violates our corpo-rate policy?” he asked. AnotherFairview official asked Accretive tostop posting employee names withthe amounts they collected. 8

In April 2012, Fairview severed the last of its ties to Ac-cretive, and, in May Fairview’s Board of Directors failed torenew the contract of CEO Mark Eustis, who was instrumentalin hiring Accretive. A week later, Charles Mooty, Fairview’sboard chairman and interim CEO, apologized to patients andoffered a “firm commitment on behalf of the entire organi-zation to regain your trust.” 9

Mooty spoke at a congressional hearing held in Minneapo-lis by Sen. Al Franken, D-Minn., to investigate the Accretivecharges. In June, Franken reintroduced an expanded versionof his 2011 End Debt Collector Abuse Act. The legislation wouldrestrict the use of patient medical information for debt-collection

purposes and apply the consumer pro-tections of the Fair Debt Collection Prac-tices Act to hospital staff.

The Federal Trade Commission, Min-nesota Department of Commerce andthe federal Centers for Medicare andMedicaid Services are also scrutinizingAccretive for possible violations of stateand federal law.

— Barbara Mantel

1 “State of Minnesota, by its Attorney GeneralLori Swanson, Plaintiff, v. Accretive Health, Inc.,Defendant,” Second Amended and Supplemen-tal Complaint, U.S. District Court of Minnesota,June 19, 2012, p. 41, www.ag.state.mn.us/PDF/Consumer/SecondAmendedSupplementaComplaint.pdf.2 Ibid.3 “Compliance Review of Fairview Health Ser-vices’ Management Contracts With Accretive HealthInc.,” Office of Attorney General Lori Swanson,April 2012, www.ag.state.mn.us.4 “Treasury Releases Proposed Guidance to En-sure Patient Access to Financial Assistance from

Charitable Hospitals,” U.S. Department of the Treasury, June 22, 2012, www.treasury.gov/press-center/press-releases/Pages/tg1621.aspx.5 “Statement from Accretive Health,” April 29, 2012, http://phx.corporate-ir.net/phoenix.zhtml?c=234481&p=irol-newsArticle&ID=1688694&highlight=.6 Jim Doyle, “Ascension Health’s ties to embattled debt collector,” April 27,2012, www.stltoday.com/business/local/ascension-health-s-ties-to-embattled-debt-collector/article_6304c69a-8fe2-11e1-b74e-0019bb30f31a.html.7 “Attorney General Swanson Sues Accretive Health for Patient Privacy Viola-tions,” The Office of Attorney General Lori Swanson, Jan. 19, 2012, www.ag.state.mn.us/Consumer/PressRelease/120119AccretiveHealth.asp.8 Maura Lerner and Tony Kennedy, “ ‘Money-hungry’ tactics raised alarms,”Star Tribune (Minneapolis), July 9, 2012, www.startribune.com/lifestyle/health/151639735.html?page=2&c=y.9 “Senator Grills Collection Agency, Health System Executives,” Collections &Credit Risk, May 31, 2012, www.collectionscreditrisk.com/news/franken-grills-health-care-collection-executives-3010834-1.html.

Sen. Al Franken, D-Minn., introducedlegislation in June that would restrict theuse of patient medical information for

debt-collection purposes.

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credit to consumers as well. Henry Fordresisted the trend, but his Ford MotorCo. eventually followed. By the late 1920s,nearly everything could be bought onan installment plan, from radios to clothes.

With installment credit came delin-quencies, and small collection agen-cies proliferated in the 1920s and ’30s.Debt collectors, usually with just a fewclients and employees, used phoneand mail to reach debtors and if nec-essary made personal visits, becomingknown as “door knockers,” accordingto Kaulkin Ginsberg, the industry ad-viser. Collectors kept hand-writtenrecords on index cards. 42

Collection industry giant NCO Fi-nancial Systems got its start in 1926.The Horsham, Pa.-based company nowemploys approximately 30,000 peoplein 11 countries.

Revolving Credit

While most merchants offered cus-tomers installment credit, large

department stores offered charge ac-counts to their customers, mostlymiddle-class consumers. Monthly billshad to be paid promptly and in full.The accounts were not intended as asource of revenue for the store but asa convenience for customers.

In reality, however, many depart-ment store customers did not paypromptly, and credit departments be-came a money pit. Collecting on past-due accounts was a public relationsnightmare for department store creditmanagers, who had to tread carefullybetween mailing letters asking for pay-ment and making sure not to alienateregular customers, who might com-plain to friends. “Slow pays and no-pays were all too common but hadto be endured for the sake of cus-tomer relationships,” wrote Hyman. 43

Then in 1938, Bloomingdale’s insti-tuted a new kind of charge account thatchanged the way Americans borrowed.The New York City department store al-

lowed payment over a six-month peri-od, essentially institutionalizing the ex-isting payment practices of many cus-tomers. But for the first time, in exchangefor this flexibility, the store charged asmall amount of interest on the unpaidbalance. Revolving credit was born.

As families moved to the suburbsafter World War II, they shopped atnewly opened branches of urban de-partment stores in order to fill theirempty houses. According to Hyman,revolving credit “bound customers tothe stores.” Tight budgets “did not haveto mean going without.” 44 But manyconsumers were unable to make theirmonthly payments, and debt collectorsfollowed them to the suburbs. By out-sourcing collections to agencies thatwere paid on a contingency basis, thedepartment stores “could keep annoy-ing debt collectors at arm’s length. Noself-respecting person would complainabout a debt collector coming to herhouse, even if she might complain aboutBloomingdale’s refusing her credit.” 45

Soon banks across the countrywere offering credit cards that couldbe used at any establishment that ac-cepted them. In the 1960s, BankAmeri-card — today’s Visa — alone claimed30 million cardholders, who charged$1.7 billion in 1969 and $2.7 billionjust a year later. Like the departmentstores, which gradually came to ac-cept these universal cards in additionto their own store cards, banks wouldturn to collection agencies when theyhad no success convincing cardhold-ers to pay their balances. 46

Regulating Debt Collectors

H ealth-care practitioners, small busi-nesses, credit-card companies and

department stores all used collectionagencies to try to recover bad debt.But the industry was largely unregu-lated when, in 1974, the Chicago Tri-bune sent reporters to work in eightdebt-collection agencies during a six-

week investigation. In April of thatyear, the newspaper published a se-ries of stories exposing abuses.

Under headlines such as “Bill Col-lection Terror Tactics,” “Bill CollectorsHere Show No Fear of the Law,” and“They Try Anything to Catch a Debtor,”the Tribune described collectors who“posed as police or lawyers, forged courtorders and sent collection notices on thefabricated letterhead of a non-existentlaw firm,” noted the National ConsumerLaw Center. 47 One story focused on adebt collector’s harassing phone callsto the workplace of a woman whosehealth-insurance plan was late in pay-ing a $195 medical bill. Her boss threat-ened to fire her because the calls wereso disruptive. 48

The Tribune exposé had a direct im-pact. In October 1975, Rep. Frank An-nunzio, D-Ill., proposed legislation tocurb abusive practices by collection agen-cies, and in 1977 Congress held hearingsin which it found “abundant evidence ofthe use of abusive, deceptive, and unfairdebt collection practices by many debtcollectors. Abusive debt-collection prac-tices contribute to the number of per-sonal bankruptcies, to marital instabili-ty, to the loss of jobs, and to invasionsof individual privacy.” 49

Annunzio’s Fair Debt Collection Prac-tices Act was signed into law by Pres-ident Jimmy Carter on Sept. 20, 1977,with the FTC charged with enforcingthe measure. The FDCPA has remainedlargely unchanged since then.

Democratizing Credit

T he nature of credit continued tochange after passage of the FDCPA.

In the early 1980s, banks found theirmodest credit-card profits squeezed.To fight inflation, the Federal Reservehad raised interest rates, and bankshad to pay a much higher interest rateto borrow money from the Federal Re-serve than state usury laws allowedthem to charge on credit cards.

DEBT COLLECTORS


However, a 1978 Supreme Courtdecision, little-noticed at first, allowedCitibank to sidestep state usury laws.The result: a transformation in thecredit-card business.

The court ruled that a bank couldcharge customers nationwide the in-terest rate in its home state. NorthDakota, in search of jobs, repealedits usury law, and Citibank movedits credit-card op-erations there fromNew York. ChaseManhattan Bankpersuaded Delawareto el iminate i tsusury law, andChase, Manufactur-er’s Hanover andChemical Bank aswell as other banksr e loca t ed the i rcredit-card opera-tions there. Banksraised their credit-card rates, and keptthem there, charg-ing interest ratesover 18 percentlong after inflationhad subsided andother rates had de-clined.

Meanwhile, “competition amongthe credit-card companies led to toomany cards being offered and mount-ing debt by consumers who could notafford to pay it back,” wrote Geisst.“The most surprising phenomenon toarise from the democratization of cred-it cards was the amount of credit madeavailable to the poor. In 1983, one inthirty poor families had a credit card.By 1995, the number had risen to onein eight.” 50 Not surprisingly, the per-centage of credit-card debt that bankscharged off as a loss began to risesharply that year, reaching 6 percentin 1997, the highest in 25 years. 51

Still, the bulk of household debt,about 70 percent, was in the form ofmortgages in the late 1990s. Credit-

card debt accounted for 10 percent,the next largest category; auto loansfor 8 percent, and student loans for2 percent. 52

As credit was expanding, the debt-collection business was also undergo-ing significant change. After a crisis inthe nation’s savings and loan industry leftmany S&Ls insolvent, the government-owned and newly created Resolution

Trust Corp. auctioned off nearly$400 billion in S&L assets in the late1980s through the mid-1990s. In-cluded in the sales were portfoliosof delinquent credit-card debt.These auctions helped to establishthe debt-buying industry.

Credit-card companies, hospitals,and other issuers of credit that wereowed money could not only hiredebt collectors on a contingencybasis but also sell portfolios of theirmost delinquent debt to a growingnumber of debt purchasers. Debtbuyers purchased $12 billion in facevalue of debt in 1995. More than adecade later, that figure had grownto an estimated $215 billion, mostof it credit-card debt. 53

Debt buyers pay pennies on the dol-lar for delinquent debt. They provide aninfusion of cash to creditors and, ac-cording to the debt-buying industry, areable to offer consumers more affordablepayment plans than the original credi-tors. But consumer advocates assert thatthe growth in debt buying has actuallyled to more aggressive collection tactics,a surge in litigation against consumers

and an increase in vio-lations of federal law.

In September 2010,Sens. Franken, the Min-nesota Democrat, andGeorge LeMieux, R-Fla.,introduced the End DebtCollector Abuse Act. Itrequired debt collectorsto provide information toconsumers within fivedays of first contact tohelp them identify thedebt as legitimate; thor-oughly investigate con-sumers’ disputes over thedebt; and increase penal-ties on debt collectorswho violate the law. 54

The bill died in the Sen-ate Committee on Bank-ing, Housing, and UrbanAffairs.

However, that same year Congresspassed the Dodd-Frank Wall Street Re-form and Consumer Protection Act,which created the Consumer FinancialProtection Bureau. The bureau, alongwith the FTC, enforces federal consumer-protection laws and has the authorityto periodically examine the practicesof the larger debt-collection agenciesor those it considers a risk to con-sumers. That kind of supervision,which has yet to begin, is unprece-dented, and the industry is anxiouslywaiting to see how the CFPB carriesout its authority.

On June 27, 2012, Franken reintro-duced his bill, expanded to include newprotections for consumers struggling withmedical debt.

A sign identifies the still-standing colonial-era house in Accomack, Va.,that served as a “gaol” for debtors for several years. Imprisonment for

debt was outlawed by federal law in 1833, and most states eventually followed suit.

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DEBT COLLECTORS

CURRENTSITUATION

Protecting Consumers

A s the debt-collection industryevolves, the nation’s attorneys gen-

eral are stepping up their efforts toprotect consumers against unscrupu-lous or abusive collection practices.And as they do, industry officials are

watching legislative and regulatory de-velopments carefully.

Rozanne Andersen, chief complianceofficer at Muncie, Ind.-based Ontario Sys-tems, which creates debt collection soft-ware, is among them. “Perhaps the mostalarming news in 2011” for the indus-try was the joint opposition by 54 U.S.state and territorial attorneys general tothe Mobile Information Call Act, whichwould have loosened restrictions on callsto consumers’ cellphones, according toAndersen. 55 “That was unheard of forthem to be so organized,” she says.

That has not been the only coor-dinated action of state attorneys gen-

eral against the debt-collection indus-try. Thirty-eight attorneys general, alongwith the FTC, opposed the $5.2 mil-lion settlement approved last Augustbetween debt buyer Encore CapitalGroup and 1.4 million consumers inclass action lawsuits accusing the com-pany of unfair practices, including usingfalse affidavits to collect on debt.

“Under any interpretation, the ten-dollar-per-class-member settlement is notfair, reasonable, or adequate to addressthe harm incurred,” the attorneys gener-al said in a brief filed in federal court inOhio. 56 Seven individuals who were partof the class action suits have appealedthe settlement to the Sixth U.S. CircuitCourt of Appeals in Cincinnati. 57

Texas, West Virginia and Minnesotafiled their own lawsuits against Encore.The company announced last Octoberthat it had reached a settlement withTexas but, at the same time, disclosedthat North Carolina’s attorney generalhad begun an investigation into Encore’sdebt-collection practices in that state. 58

This past February, 19 attorneys gen-eral announced they had reached asettlement with NCO Financial Systems,the nation’s largest debt collector, overcharges of misleading and deceptivedebt-collection practices. As part of thesettlement, NCO agreed to change cer-tain collection practices, pay $575,000to the states for consumer enforcementand education efforts and set aside$950,000 to refund customers with validclaims against the company. 59

A multi-state working group formedby the attorneys general in 2008 “re-ceived nearly two thousand com-plaints from consumers about [NCOFinancial’s] collection practices,” NewMexico Attorney General Gary Kingsaid when the settlement was an-nounced. “They include almost everypossible violation of the federal FairDebt Collection Practices Act.” 60

The company did not admit wrong-doing. “We are pleased to resolve theMulti-State Group’s concerns, as well

Continued on p. 638

Repeat Calls Top Consumer Complaint List

More than 47,000 complaints of repeated calls by debt collectors were made to the Federal Trade Commission under the Fair Debt Collection Practices Act in 2011, surpassing all other complaint categories. Other common consumer complaints include misrepre-sentation of debt, false threats and failure to provide written notice.

Note: Callers can make more than one complaint in a single call.

Source: “Fair Debt Collection Practices Act,” Consumer Financial Protection Bureau, 2012, Appendix C, files.consumerfinance.gov/f/201203_cfpb_FDCPA_annual_report.pdf

Complaints Under Fair Debt Collection Practices Act, 2011

Repeated calls 47,362Misrepresents debt character, amount or status 46,482Falsely threatens illegal or unintended act 35,473No written notice 30,742Falsely threatens arrest or property seizure 27,027Fails to identify self as debt collector 20,781Repeated calls to third parties 20,519Improperly calls debtor at work 16,895Uses obscene, profane or abusive language 16,576Reveals debt to third party 12,636Calls at inappropriate or inconvenient times 10,488Refuses to verify debt after written request 10,000Collects unauthorized fees, interest or expenses 9,314Calls debtor after getting “cease communication” notice 5,922Uses or threatens violence 3,977

no


At Issue:Should the Department of Education stop using debt collectors?Yes

yesDEANNE LOONINDIRECTOR, STUDENT LOAN BORROWERASSISTANCE PROJECT, NATIONALCONSUMER LAW CENTER

WRITTEN FOR CQ RESEARCHER, JULY 2012

t he reliance on private collection agencies has been a dis-aster for financially distressed borrowers who are desper-ate for help. Dispute resolution is, obviously, not the pri-

mary mission of loan collection agencies. Debt collectors arenot adequately trained to understand and administer the com-plex borrower rights available under the Higher Education Act,and the government does not provide sufficient oversight oftheir activities.

There are certainly times when a borrower is uncooperativeor has exhausted all options. In those cases, the loan holdermay have no choice but to focus on collection efforts. Yetthere are many borrowers who want to find a solution butare stymied because they cannot get past the rude, harassingand often abusive behavior of a collection agent.

At a minimum, until the government identifies viable alter-natives to private collection agencies, it should bring all ac-counts in-house (and away from collection agencies) for low-income borrowers who are already subject to extremecollection programs such as Social Security seizures. The gov-ernment should also immediately take the file in-house if aborrower informs a collection agency that he believes he hasa defense to the debt, that the amount is wrong or that hewants to request a hardship reduction or waiver.

This will not only help borrowers but also save money.There are significant costs involved in pursuing even the mostvulnerable borrowers until they die. Under the current system,lenders and collectors profit as the government pays higherand higher collection fees.

Student borrowers attempting to better their lives face se-vere consequences if they default on federal student loans.The government has nearly boundless powers to collect stu-dent loans, far beyond those of most unsecured creditors.Even in bankruptcy, most student loans must be paid. Un-like any other types of debt, there is no statute of limita-tions. We see and hear the human toll of the tattered stu-dent loan safety net every day from the low-incomeborrowers we represent.

There comes a point of no return where the government’sceaseless efforts to collect make no sense, monetarily or other-wise. Balancing collection for taxpayers and relief to borrowerscan be difficult, but the reality is that the government hasconsistently favored school, lender and collection industryprofits over the needs of struggling borrowers. It is time to dowhat is right for borrowers.no

SHELLY REPPPRESIDENT, NATIONAL COUNCIL OF HIGHEREDUCATION LOAN PROGRAMS

WRITTEN FOR CQ RESEARCHER, JULY 2012

f or more than three decades the U.S. Department ofEducation and the guaranty agencies that help it ad-minister the federal student loan programs have utilized the skills and technical expertise of debt collectors to

assist in recovering defaulted student loans. The success of thispublic-private partnership is undeniable — $75 billion recoveredin the past decade with more than $12 billion recovered in fis-cal 2011. This is reason enough to conclude that the depart-ment should continue using private debt collectors, but thereare other compelling reasons to maintain this partnership.

Consumer advocates have stated that there should be a bal-ance between the need to collect student loans and the needto assist borrowers. We agree. Average borrower indebtednesshas more than doubled in the past decade, and student loandefaults are also on the rise. Congress has provided a numberof ways to help defaulted borrowers. Private collection agen-cies (PCAs) are well-trained to help borrowers find the rightsolution for their unique financial situations. PCAs invest signif-icant resources to comply with the Fair Debt Collection Prac-tices Act and other applicable laws and use the latest tech-nologies to promote borrower repayment.

The department provides monetary incentives not just basedon dollars collected but also to reward superior customer service.It provides significant financial incentives to encourage loan reha-bilitation. We expect the department to provide effective over-sight. In this regard, the department has established a dedicatedwebsite and toll-free hotline to receive borrower complaints, andan active and effective ombudsman office. The Consumer Finan-cial Protection Bureau stands by as a consumer watchdog.

There are some who believe the department should aban-don the use of third-party debt collectors. They tout the IRSas an example justifying such a move. But PCA’s have helpedthe Department of Education recover more than 90 percent ofthe defaulted student loans (after collection costs). On theother hand, since 2000 the IRS’s backlog of uncollected debtexploded by 700 percent to more than $70 billion, while dur-ing the same period the collection rates on debt it attemptedto recover have fallen by half. The government and taxpayerscan’t afford to replicate that record of loss.

The department’s collection portfolio consists of nearly 23 mil-lion borrowers. With a program that size, there are bound to besome legitimate borrower complaints. They should be addressed.However, this does not justify ending a successful public-privatepartnership that benefits borrowers and taxpayers alike.

638 CQ Researcher

as upgrade our compliance process-es,” said Ronald Rittenmeyer, NCO’schief executive. 61

Legislative Action

S tate legislatures have been activeon the debt-collection front as

well. While the FDCPA regulates debtcollection at the federal level, statescan write their own legislation, andthe industry must follow whicheverstatute is stricter.

North Carolina passed one of thestrictest in 2009, aimed particularly atdebt buyers. In court, attorneys rep-resenting a debt buyer or its collec-tion agency must produce valid doc-umentation that the debt buyer ownsthe debt; the name of the originalcreditor; the consumer’s account num-ber; a copy of the original creditagreement or similar document; andan itemized accounting of the allegeddebt amount.

The law also requires the debt buyeror its collection agency to give 30 days’notice in writing to the consumer of itsintent to sue. That notice must includeall of the above information.

“It sounds like such a simple request,but the name of the original creditorcan be a lot to ask for,” says Andersen.“The ability to figure out the name ofthe first bank can be problematic be-cause of mergers and acquisitions.”

Illinois attorney Louis Freedman hasa more fundamental objection to theNorth Carolina law: that the collectionindustry and its attorneys are beingsingled out. Freedman, president ofthe Washington-based National Asso-ciation of Retail Collection Attorneys,says no other area of law requiressuch notice. “You are required to give[consumers] every bit of informationbefore you have even filed suit,” Freed-man says.

But Hobbs of the National Con-sumer Law Center says the North Car-

olina law “is a good model for otherstates. Maryland and Delaware courtshave enacted rules which are similar,although they might not be quite asstrong.”

California has also taken aim at debtbuyers. The state Senate approved abill in February that would requiremore documentation from debt buy-ers during the collection process, andon June 28 a committee in the Gen-eral Assembly approved the measure.

Every state has a law that shieldscertain property from being claimedby creditors to pay off bad debts, butmany of the laws are old. Some stateshave begun to revise them to reflectinflation and changes in technology.

More than a dozen states have in-creased the exemption for cars, andabout a fifth of states have raised theirexemptions for household goods, in-cluding computers. The revisions meanthat “tens of millions of consumers withjudgments over their heads, as they re-cover from a disability or a long peri-od of unemployment, have the abilityto acquire a used car or get a com-puter to look for a job without havingthe car seized or their computer takenaway,” says Hobbs.

The revisions were long overdue,says Hobbs. Before March 2011, Mass-achusetts law protected two cows, 12sheep, two swine and a few tons ofhay from creditors and exempted avehicle worth up to $750 from seizure,according to Hobbs. In 2011, the statepassed a new law that protected abroader array of items and raised thevehicle cap to $7,500. 62

Still, says Hobbs, “a lot of stateshave not significantly improved theselaws since the Great Depression.”

Statute of Limitations

D ebt collectors have a limited num-ber of years to take consumers

to court to collect bad debts. This statuteof limitations varies from state to state.

It’s three years in Alabama, for exam-ple, five in Florida and eight inWyoming. 63 But the debt does not goaway, and while collectors cannot sue,they are allowed in most states to con-tact consumers to request payment ondebt that has passed the statute of lim-itations, known as “time-barred” debt.Consumers are often not aware, how-ever, that making a partial payment willreset the clock in most states, givingthe debt collector a fresh shot in court.

Even though the FDCPA and statelaws forbid collectors to sue on “time-barred debt,” consumer advocates sayit happens frequently. They say the prob-lem can be missing paperwork thatwould have spelled out the applicablestatute of limitations.

But Schiffman from ACA Internationaldisagrees that such lawsuits are com-monplace. “It might happen occasion-ally, and when it does those collectorsshould be held accountable,” he says.

A few states have recently addedconsumer protections for time-barreddebt. New Mexico requires debt col-lectors to inform consumers if a debthas passed the state’s statute of limi-tations and that they cannot be sued,though collectors can continue to pur-sue payment by phone or othermeans. “This rule is intended to en-sure that debt collectors provide im-portant information to consumers sothat they make informed decisionswhen they are confronted with a de-mand to pay an old unenforceabledebt,” said King, the state’s attorneygeneral. 64 New York City and Massa-chusetts also have such rules.

Laws in Wisconsin and Mississippigo even further by completely extin-guishing debt older than their statutesof limitations. The ACA does not wantto see that practice spread to otherstates. “If there is no ability to collecton that debt, there would be a dev-astating impact on credit granting inthe United States. You would makecredit almost impossible to get,” saysSchiffman.

DEBT COLLECTORS

Continued from p. 636


The ACA wants a national statute oflimitations, rather than 50 different statestatutes, to clear up any confusion dur-ing collection lawsuits. The trade asso-ciation says the limitation period shouldbe seven years. Consumer groups sayit should be three.

OUTLOOKNew Rules?

T he next year or so will be oneof uncertainty for debt collectors

as the Consumer Financial ProtectionBureau (CFPB) rolls out new regula-tory rules. But industry insiders say re-cent enforcement actions by the FTCoffer clues to what is coming.

When the FTC settled with Asset Ac-ceptance in January after investigatinghow the company collected on time-barred debt, it required the companyfrom then on to disclose to consumersif a debt has passed the relevant statuteof limitations. It also prohibited thecompany from suing a consumer aftersuch a disclosure even if the consumermakes a partial payment that otherwisewould reset the clock. 65

Andersen at Ontario Systems, thedebt-collection software firm, expectsthe CFPB to require all debt-collectionagencies to notify consumers “that thestatute of limitations is either close toan expiration date or has expired.”And while the CFPB might not go asfar as to prohibit suits against con-sumers who make a partial paymenton time-barred debt, it might requirecollection agencies to warn consumersof how a debt payment may affect thestatute of limitations, Andersen says.

She says she would be surprisedif Congress passes legislation to amendthe Fair Debt Collection ProtectionAct (FDCPA) this year or next, whetherto raise the $1,000 limit on statuto-

ry damages when debt collectors vi-olate the law, add documentation re-quirements for collectors or shieldthe industry from consumer lawsuitsover debt-related phone messages.“Congress is not going to neuter theCFPB, not our current Senate any-way, by passing FDCPA legislation,”Andersen says.

But Curtis of Community Catalystsays Congress might act. “I think thereis some interest in strengthening the. . . act,” she says, but adds a caveat:“It is also an election year, and thatalways has interesting implications forCongress.”

One debt-related bill before Con-gress does have broad support. TheHouse passed a version of the Med-ical Debt Responsibility Act in 2010,and Sen. Jeff Merkley, D-Ore., reintro-duced the bill in the Senate in March.The bill would erase medical debtfrom consumer credit reports within45 days of being settled or paid. Undercurrent law, consumer debt, includingmedical debt, can remain on a creditreport for seven years, driving downcredit scores.

“Medical debt is not a great pre-dictor of a person’s creditworthiness,and folks should not be shackled fromgetting loans to start businesses or buytheir dream home because they gotvery sick,” Merkley said. 66

The bill’s support extends beyondpatient-advocacy groups, such as Con-sumers Union and The Access Pro-ject, to the Mortgage Bankers Asso-ciation, American Medical Associationand members of the debt-collectionindustry. “Medical debt is unlike anyother type of consumer debt,” says CapioCEO Richards. “We totally understandno one plans an accident or illness,which creates medical debt.”

Critics of the bill, however, saymedical debt is predictive of a con-sumer’s credit worthiness. A spokesmanfor the Consumer Data Industry As-sociation, which represents the na-tion’s major credit bureaus, told The

New York Times that it had “deep con-cerns about deleting any type of ac-curate, predictive data” before the endof the seven-year period. “Broadly speak-ing, a precedent of deleting adverse in-formation once a delinquent debt ispaid would seriously impinge on thequality of data,” he said. 67

Notes

1 “As a Result of FTC Action, Two Defendantsin Abusive Debt Collection Case Are Bannedfrom the Industry, Will Surrender Assets,” Fed-eral Trade Commission, March 15, 2012, www.ftc.gov/opa/2012/03/rumson.shtm. “FederalTrade Commission vs. Forensic Case Man-agement,” U.S. District Court for the CentralDistrict of California, Sept. 12, 2011, pp. 7-8,www.ftc.gov/os/caselist/1123035/110930rumsoncmpt.pdf.2 “Repairing a Broken System: Protecting Con-sumers in Debt Collection Litigation and Ar-bitration,” Federal Trade Commission, July 2010,p. i, www.ftc.gov/os/2010/07/debtcollectionreport.pdf.3 “The Impact of Third-Party Debt Collectionon the National and State Economies,” Ernst &Young, February 2012, p. 2, www.acainternational.org/files.aspx?p=/images/21594/2011acaeconomicimpactreport.pdf.4 “Quarterly Report on Household Debt andCredit,” Federal Reserve Bank of New York,p. 16, www.newyorkfed.org/research/national_economy/householdcredit/DistrictReport_Q12012.pdf.5 “FTC Highlights Expanded Work on DebtCollection Issues over the Past Year,” Feder-al Trade Commission, March 20, 2012, www.ftc.gov/opa/2012/03/cfpb.shtm.6 “Leading Debt Collector Agrees to Pay Record$2.8 Million to Settle FTC Charges,” FederalTrade Commission, March 16, 2011, www.ftc.gov/opa/2011/03/wam.shtm.7 “Under FTC Settlement, Debt Buyer Agreesto Pay $2.5 Million for Alleged Consumer De-ception,” Federal Trade Commission, Jan. 30,2012, www.ftc.gov/opa/2012/01/asset.shtm.8 “DBA International Supports FTC Enforce-ment Actions,” DBA International, April 16, 2012,www.dbainternational.org/news/ftc-india.asp.9 “Fair Debt Collection Practices Act: CFPBAnnual Report 2012,” Consumer FinancialProtection Bureau, March 21, 2012, Appen-

640 CQ Researcher

dix B, Appendix C, http://files.consumerfinance.gov/f/201203_cfpb_FDCPA_annual_report.pdf.10 “U.S. Debt Collections Industry Worth$12.2. Billion,” PRWeb, April 10, 2012, www.prweb.com/releases/2012/4/prweb9383739.htm.11 Ernst & Young, op. cit.12 Federal Reserve Bank of New York, op.cit., p. 10.13 “Consumer Financial Protection Bureau pro-poses rule to supervise larger participants inconsumer debt collection and consumer re-porting markets,” Consumer Financial ProtectionBoard, Feb. 16, 2012, www.consumerfinance.gov/pressreleases/consumer-financial-protection-bureau-proposes-rule-to-supervise-larger-participants-in-consumer-debt-collection-and-consumer-reporting-markets.14 Maria Aspan, “Borrower Beware: B of A Cus-tomer Repaid Her Bill Yet Faced a CollectionsNightmare,” American Banker, March 29, 2012,www.americanbanker.com/issues/177_62/bofa-credit-cards-debt-collections-delinquent-robosigning-1047991-1.html.15 “Evolution of the U.S. Accounts ReceivableManagement Industry,” Kaulkin Ginsberg,October 2006, p. 5.16 “Workshop: Debt Collection 2.0: ProtectingConsumers,” Consumers Union letter to FTC,May 27, 2011, p. 3, www.consumerfed.org/pdfs/Debt_Collection_2_0_wkshop_comment.pdf.17 Robert J. Hobbs and Chi Chi Wu, “ModelFamily Financial Protection Act,” National Con-sumer Law Center, June 2012, p. 14, www.nclc.org/images/pdf/debt_collection/model_family_financial_protection_act.pdf.18 “The Path Forward: ACA International’sBlueprint for Modernizing America’s ConsumerDebt Collection System,” ACA International,April 2011, p. 18, www.acainternational.org/files.aspx?p=/images/18898/finalblueprint-designedversion.pdf.19 “Credit Cards: Fair Debt Collection Practices

Act Could Better Reflect the Evolving Debt Col-lection Marketplace and Use of Technology,”Government Accountability Office, September2009, p. 41, www.gao.gov/assets/300/295588.pdf.20 “Repairing A Broken System: ProtectingConsumers in Debt Collection Litigation andArbitration,” Federal Trade Commission, July 2010,www.ftc.gov/os/2010/07/debtcollectionreport.pdf.21 For background, see Barbara Mantel, “LegalAid Crisis,” CQ Researcher, Oct. 7, 2011, pp.829-852.22 “Repairing A Broken System,” op. cit.23 Patrick Lunsford, “Encore Capital Wins Ap-proval of $5.2 million Settlement,” InsideArm,Aug. 13, 2011, www.insidearm.com/daily/debt-buying-topics/debt-buying/encore-capital-wins-approval-of-5-7-million-settlement.24 “Dear Members of Congress,” National Asso-ciation of Attorneys General, Dec. 7, 2011, p. 1,http://signon.s3.amazonaws.com/20111207.signon.Final_HR3035_Letter.pdf.25 Chris Serres, “Debtors in court — suing col-lectors,” StarTribune.com, Minneapolis-St. Paul,Minn., Aug. 1, 2010, www.startribune.com/investigators/99676349.html?page=5&c=y.26 Marjie Lundstromand and Sam Stanton,“Debtors seethe, sue over collector tactics,”The Sacramento Bee, April 22, 2012, www.sacbee.com/2012/04/22/4432940/debtors-seethe-sue-over-collector.html.27 Serres, op. cit.28 Ames Alexander and David Raynor, “Hospitalsuits force new pain on patients,” charlotteobservercom, April 23, 2012, www.charlotteobserver.com/2012/04/23/3193509/hospital-suits-force-new-pain.html.29 Sara R. Collins, Michele M. Doty, RuthRobertson and Tracy Garber, “Help on theHorizon: How the Recession Has Left Millionsof Workers Without Health Insurance, andHow Health Reform Will Bring Relief,” TheCommonwealth Fund, March 2011, pp. 10-11,

www.commonwealthfund.org/~/media/Files/Surveys/2011/1486_Collins_help_on_the_horizon_2010_biennial_survey_report_FINAL_31611.pdf.30 For background, see Marcia Clemmitt, “HealthCare Reform,” CQ Researcher, June 11, 2010,updated May 24, 2011, pp. 505-528.31 Cheryl Fish-Parcham, Chi Chi Wu, OdetteWilliamson and Jessica Hiemenz, “HelpingOlder Americans Cope with Medical Debt,” Na-tional Consumer Law Center, March 14, 2012,p. 13.32 “Additional Requirements for CharitableHospitals,” Internal Revenue Service, June 22,2012, pp. 80-81, www.irs.gov/pub/irs-drop/reg-130266-11.pdf.33 “The Patient Financial Assistance Act,” Com-munity Catalyst, May 2004, p. 23, www.communitycatalyst.org/doc_store/publications/model_act_and_guide_may04.pdf.34 Ibid.35 Louis Hyman, Borrow: The American Wayof Debt (2012), p. 21.36 Ibid., p. 27.37 Lendol Calder, Financing the AmericanDream (1999), p. 54.38 Charles R. Geisst, Collateral Damaged: TheMarketing of Consumer Debt to America (2009),p. 52.39 Calder, op. cit., p. 135.40 Ibid., p. 147.41 Ibid., p. 151.42 “Evolution of the U.S. Accounts ReceivableManagement Industry,” op. cit., p. 3.43 Hyman, op. cit., p. 104.44 Ibid., p. 109.45 Ibid., p. 115.46 Geisst, op. cit., p. 88.47 Rick Jurgens and Robert J. Hobbs, “The DebtMachine: How the Collection Industry HoundsConsumers and Overwhelms Courts,” NationalConsumer Law Center, July 2010, p. 8, www.nclc.org/images/pdf/pr-reports/debt-machine.pdf.48 “Fear: the collectors’ trump card,” ChicagoTribune, April 10, 1974, http://expressrecovery.com/uploads/files/90_1-Chicago_Tribune_Bill_Collector_Series_1974.pdf.49 The Fair Debt Collections Practices Act,Section 802, www.ftc.gov/os/statutes/fdcpa/fd-cpact.shtm.50 Geisst, op. cit., p. 105.51 Sandra E. Black and Donald P. Morgan,“Meet the New Borrowers,” Current Issues inEconomics and Finance, Federal Reserve Bankof New York, February 1999, p. 1, www.nyfedeconomists.org/research/current_issues/ci5-3.pdf.52 Meta Brown, et. al., “The Financial Crisis

DEBT COLLECTORS

About the AuthorBarbara Mantel is a freelance writer in New York City.She is a former correspondent and senior producer for Na-tional Public Radio and has won several journalism awards,including the National Press Club’s Best Consumer Journal-ism Award and the Front Page Award from the Newswomen’sClub of New York for her Nov. 1, 2009, CQ Global Researcherreport “Terrorism and the Internet.” She holds a B.A. in his-tory and economics from the University of Virginia and anM.A. in economics from Northwestern University.


at the Kitchen Table: Recent Trends in House-hold Debt and Credit,” Federal Deposit In-surance Corp., Sept. 15, 2011, p. 9, www.fdic.gov/news/conferences/VanderKlaaw6.pdf.53 “Debt Deception: How Debt Buyers Abusethe Legal System to Prey on Lower-IncomeNew Yorkers,” The Legal Aid Society, May 2010,p. 4, www.nedap.org/pressroom/documents/DEBT_DECEPTION_FINAL_WEB.pdf.54 “Franken, LeMieux Introduce Legislation toEnd Debt Collector Abuse,” Press Release,Sept. 30, 2010, www.franken.senate.gov/?p=press_release&id=1122.55 Rozanne M. Andersen, “Eye on the Hori-zon — 2012: Emerging Legal, Legislative andRegulatory Trends in the Accounts Receiv-able Industry,” Kaulkin Ginsberg, January 2012,p. 2.56 “State AGs oppose settlement with Encoreunit,” Reuters, June 3, 2011, www.reuters.com/article/2011/06/03/encore-settlement-idUSN0316342920110603.57 Emily Sachar, “The issue: How far can adebt collector go to pursue its claims?” AARPBulletin, May 2012, http://pubs.aarp.org/aarp-bulletin/201205_DC?pg=34#article_id=163864.58 “Encore Capital Discloses Another State In-vestigation as Profits Rise in Q3,” insideARM.com,Oct. 27, 2011, www.insidearm.com/daily/debt-buying-topics/debt-buying/encore-capital-discloses-another-state-investigation-as-profits-rise-in-q3.59 “Alaska Announces Settlement with DebtCollector NCO Financial Systems,” State of Alas-ka Department of Law, Feb. 6, 2012, www.law.alaska.gov/press/releases/2012/020612-NCFO.html. “States Settle with National Debt Col-lection Firm,” Office of New Mexico Attor-ney General, Feb. 6, 2012, www.nmag.gov/News-Releases/statessettlewithnationaldebtcollectionfirmagkingmonetaryreliefforvictimizednmconsumers.60 Ibid.61 Patrick Lunsford, “NCO Settles Debt Col-lection Action with 19 States,” insideARM.com,Feb. 7, 2012, www.insidearm.com/daily/collection-laws-regulations/collection-laws-and-regulations/nco-settles-debt-collection-action-with-19-states.62 Robert J. Hobbs and Hon. Carol J. Ken-ner, “How to Protect Your Clients’ Cash andAssets Under New Massachusetts PersonalProperty Exemptions,” org??? March 9, 2011,p. 1, www.nclc.org/images/pdf/pr-reports/new-law-protects-cars-wages-bank-accounts.pdf.63 “State statutes of limitation for credit carddebt,” CreditCards.com, www.creditcards.com/

credit-card-news/credit-card-state-statute-limitations-1282.php.64 New Mexico Attorney General, press release,Dec. 15, 2010, http://creditboards.com/forums/index.php?showtopic=461211.65 Federal Trade Commission, Jan. 30, 2012,op. cit.66 “Merkley Reintroduces Bill to Provide Re-lief to Americans Struggling with Medical

Debt,” press release, March 2, 2012, www.merkley.senate.gov/newsroom/press/release/?id=e5b222cf-7804-4b44-8f0d-1310753068e5.67 Tara Siegel Bernard, “Discrepancies on Med-ical Bills Can Leave a Credit Stain,” The NewYork Times, May 4, 2012, www.nytimes.com/2012/05/05/your-money/medical-debts-can-leave-stains-on-credit-scores.html?page-wanted=all.

FOR MORE INFORMATIONACA International, 4040 West 70th St., Minneapolis, MN 55435; 952-926-6547;www.acainternational.org. Trade association for collection agencies, asset buyers,attorneys, creditors and vendor affiliates.

American Hospital Association, 155 N. Wacker Drive, Chicago, IL 60606; 312-422-3000; www.aha.org. Trade association for hospitals and health care networks.

Community Catalyst, 30 Winter St., 10th Floor, Boston, MA 02108; 617-338-6035;www.communitycatalyst.org. Promotes transformation of health system throughwork with consumer and community leaders.

Consumer Financial Protection Board, 1700 G St., N.W., Washington, DC20552; 202-435-7000; www.consumerfinance.gov. Federal agency that regulatesconsumer financial products and services.

Consumers Union, 1535 Mission St., San Francisco, CA 94103; 415-431-6747;www.consumersunion.org. Consumer-protection advocacy organization.

DBA International, 1050 Fulton Ave., Suite 120, Sacramento CA 95825; 916-482-2462; www.dbainternational.org. Trade association for the debt-buying industry.

Federal Trade Commission, 600 Pennsylvania Ave., N.W., Washington, DC20580; 202-326-2222; www.ftc.gov. Federal agency charged with preventing anti-competitive or deceptive business practices.

National Association of Consumer Advocates, 1730 Rhode Island Ave., N.W.,Suite 710, Washington, DC 20036; 202-452-1989; www.naca.net. Membership orga-nization of attorneys and consumer advocates representing consumer interests.

National Association of Retail Collection Attorneys, 601 Pennsylvania Ave., N.W.,Washington, DC 20004; 800-633-6069; www.narca.org. Membership organization oflaw firms engaged in consumer debt collection.

National Consumers Law Center, 7 Winthrop Square, Boston, MA 02110; 617-542-8010; www.nclc.org. Promotes access to quality financial services and protec-tion of family assets from unfair transactions.

National Council of Higher Education Loan Programs, 1100 Connecticut Ave.,N.W., Suite 1200, Washington, DC 20036; 202-822-2106, www.nchelp.org. Representsguaranty agencies, lenders, loan servicers, collection agencies and schools involvedin the administration and servicing of federal and alternative student loans.

Privacy Rights Clearinghouse, 3108 Fifth Ave., Suite A, San Diego, CA 92103;619-298-3396; www.privacyrights.org. Advocates for consumers’ privacy rights.

FOR MORE INFORMATION

642 CQ Researcher

Selected Sources

BibliographyBooks

Calder, Lendol, Financing the American Dream, Prince-ton University Press, 1999.A history professor presents a social and cultural history

of the rise of consumer credit in America.

Geisst, Charles R., Collateral Damaged: The Marketingof Consumer Debt to America, Bloomberg Press, 2009.A financial writer examines the policy implications of Amer-

ica’s recent credit crisis and proposes how to get the coun-try’s fiscal house in order.

Hyman, Louis, Borrow: The American Way of Debt, Vin-tage Books, 2012.A historian looks at how the rise of consumer borrowing in

the past century has altered U.S. culture and the economy.

Articles

Alexander, Ames and David Raynor, “Hospital suits forcenew pain on patients,”charlotteobserver.com, April 23, 2012,www.charlotteobserver.com/2012/04/23/3193509/hospital-suits-force-new-pain.html.Nonprofit North Carolina hospitals are suing patients for

bad debts, including some patients who were eligible forhospital financial assistance but did not receive it.

Aspan, Maria, “Borrower Beware: B of A Customer RepaidHer Bill Yet Faced a Collections Nightmare,”AmericanBanker,March 29, 2012, www.americanbanker.com/issues/177_62/bofa-credit-cards-debt-collections-delinquent-robosigning-1047991-1.html.A Maryland woman spent a year paying off a delinquent

credit card bill, only to be pursued by debt collectors afterthe credit-card issuer mistakenly sold her settled debt.

Lerner, Maura and Tony Kennedy, “ ‘Money-hungry’ tacticsraised alarms at Fairview,” Star Tribune (Minneapolis),www.startribune.com/lifestyle/health/151639735.html.Employees of a Minneapolis nonprofit hospital complain about

aggressive tactics of a newly hired debt-collection company.

Lundstromand, Marjie and Sam Stanton, “Debtors seethe,sue over collector tactics,” The Sacramento Bee, April 22,2012, www.sacbee.com/2012/04/22/4432940/debtors-seethe-sue-over-collector.html.In the last seven years, the number of lawsuits in Califor-

nia federal courts accusing collectors of violating federal lawincreased fivefold.

Serres, Chris, “Debtors in court — suing collectors,” StarTribune.com (Minneapolis), Aug. 1, 2010, www.startribune.com/investigators/99676349.html?page=1&c=y.

Federal lawsuits by consumers against debt collectors havesoared, but collectors say many suits are unsubstantiated.

Reports and Studies

“Additional Requirements for Charitable Hospitals,” In-ternal Revenue Service, June 22, 2012, pp. 80-81, www.ofr.gov/OFRUpload/OFRData/2012-15537_PI.pdf.The IRS writes draft rules for implementing billing and col-

lection polices at nonprofit hospitals required by the Af-fordable Care Act.

“Credit Cards: Fair Debt Collection Practices Act CouldBetter Reflect the Evolving Debt Collection Marketplaceand Use of Technology,” U.S. Government AccountabilityOffice, September 2009, p. 41, www.gao.gov/assets/300/295588.pdf.The Government Accountability Office finds that consumer

protections should be strengthened in light of growth in debtbuying and that decades-old laws should be amended tokeep up with communication tools such as email and cell-phones.

“Fair Debt Collection Practices Act: CFPB Annual Report2012,” Consumer Financial Protection Bureau, March 21,2012, Appendix B, Appendix C, http://files.consumerfinance.gov/f/201203_cfpb_FDCPA_annual_report.pdf.The federal consumer-protection agency reports on progress

regulating consumer financial services and on trends in con-sumer complaints against debt collectors.

“The Path Forward: ACA International’s Blueprint forModernizing America’s Consumer Debt Collection System,”ACA International, April 2011, p. 18, www.acainternational.org/files.aspx?p=/images/18898/finalblueprint-designedversion.pdf.A debt-collection industry trade group lays out its blueprint

for changes in laws and regulations.

“Repairing a Broken System: Protecting Consumers inDebt Collection Litigation and Arbitration,” FederalTrade Commission, July 2010, p. i, www.ftc.gov/os/2010/07/debtcollectionreport.pdf.After a series of roundtable discussions on litigating and

arbitrating debt collectors’ claims against consumers, the FTCconcludes that the system is broken.

Hobbs, Robert J., and Chi Chi Wu, “Model Family Fi-nancial Protection Act,” National Consumer Law Center,June 2012, p. 14, www.nclc.org/images/pdf/debt_collection/model_family_financial_protection_act.pdf.A consumer advocacy group writes a model statue for states

to regulate the debt-collection industry and fill gaps it seesin federal law.


Consumer Protection

Ambrose, Eileen, “Debt Buyers Now Must Back Up TheirLawsuits,” Baltimore Sun, Jan. 29, 2012, p. C1, articles.baltimoresun.com/2012-01-29/business/bs-bz-ambrose-court-debts-20120129_1_debt-buyers-sonya-smith-valentine-consumer-protection-clinic.Debt buyers who purchase old consumer debt and then

try to collect must now provide greater evidence of theirclaims when suing consumers in Maryland courts.

Carter, Ted, “Threats, Lies Get Atlanta Debt CollectionCompany in Very Hot Water in Georgia,”Mississippi Busi-ness Journal, March 1, 2012, msbusiness.com/businessblog/2012/03/01/threats-lies-get-debt-collection-company-in-very-hot-water/.The Georgia governor’s office has ordered an Atlanta collec-

tions agency to give up attempts to collect on more than 31,000accounts because it allegedly used intimidation and lying.

Demarrais, Kevin, “Rules on Debt Collection Are Hazyon What’s Harassment,”The Record (Bergen County, N.J.),April 22, 2012, p. B1, www.northjersey.com/news/business/148419435_Rules_on_debt_collection_are_hazy_on_what_s_harassment.html.Rules govern when debt collectors may call and what they may

say, but there is no definition of what constitutes harassment.

Goforth, Alan, “Getting Bills Paid Can Be a Good Thing,Collectors Say,” Kansas City Star, Oct. 29, 2011, p. A16.The Kansas Collectors Association says bill collecting should be

handled professionally to help both businesses and consumers.

Medical Bills

Bernard, Tara Siegel, “A Medical Debt’s Stain,” The NewYork Times, May 5, 2012, p. B1, www.nytimes.com/2012/05/05/your-money/medical-debts-can-leave-stains-on-credit-scores.html?pagewanted=all.More medical providers are using debt collection services and

are turning to them more quickly than they have in the past.

Doyle, Jim, “Ascension Health’s Ties to Debt CollectionProbe,” St. Louis (Mo.) Post-Dispatch, April 27, 2012,www.stltoday.com/business/local/ascension-health-s-ties-to-embattled-debt-collector/article_6304c69a-8fe2-11e1-b74e-0019bb30f31a.html.A Chicago-based medical debt collection firm has been ac-

cused of illegal collection practices at two Minnesota non-profit hospital systems.

Hart, Patricia Kilday, “Humane Medical Billing — SurelyWe Can Afford It,”Houston Chronicle, July 1, 2012, p. B1,www.chron.com/news/kilday-hart/article/Hart-Humane-

medical-billing-surely-we-can-3676248.php.More and more consumers are having their credit scores

ruined by delinquent payments on medical bills.

Settlement

Dugas, Christine, “Know Your Options If Seeking HelpWith Debt,” USA Today, Nov. 16, 2011, p. B4, www.usatoday.com/money/perfi/credit/story/2011-11-15/debt-relief/51223354/1.Consumers seeking debt relief should avoid traps and under-

stand their options.

Jowers, Karen, “Do’s and Don’ts of Debt Consolidation,”Army Times, June 21, 2012, www.armytimes.com/money/financial_advice/offduty-consumer-watch-how-to-find-right-path-out-of-financial-trouble-062512w/.Debt settlement can harm credit scores and require fees

from $2,000 to $5,000.

Namee, Roberta, “Look for Red Flags Before Hiring a Cred-it Repair Company,” Wichita (Kan.) Eagle, May 12, 2012,www.kansas.com/2012/05/12/2332325/look-for-red-flags-before-hiring.html.Debt settlement and credit-repair companies can often make

consumers’ financial burdens worse.

Tompor, Susan, “In Many Cases, Consumers Can Fix TheirCredit Themselves,” Detroit Free Press, May 10, 2012,p. B1, www.freep.com/article/20120510/COL07/205100492/Susan-Tompor-Consumers-can-fix-credit-themselves.Many consumers fail to understand that debt settlement agree-

ments with creditors do not translate into higher credit scores.

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