The FTC recently released its 162-page report entitled "The Structure and Practices of the Debt Buying Industry" which describes a comprehensive study conducted by the FTC over a three-year period using data obtained from the nation’s largest debt buyers. Many will view the Report as another chance to engage in debt buyer bashing, which has become a favorite pastime for mainstream media and consumer advocates.
A close read of the Report, however, reveals that it contains absolutely zero evidence that any debt buyer has engaged in any of the headline-grabbing collection abuses that we always read about. There was no evidence presented that any of the debt buyers used inaccurate information when collecting debts, no evidence that they have sued or threatened to sue anyone on time-barred debts, and no evidence regarding the validity of any dispute raised by any consumer. When you finish reading the Report, you may be tempted to ask yourself: "Where’s The Beef??"
• No Evidence That Debt Buyers Use Inaccurate Information.
There is absolutely zero evidence contained in the Report that any debt buyer has purchased or used inaccurate data in the collection process. Indeed, the FTC expressly and repeatedly admits this at multiple places in the Report, making clear that it did not attempt to assess the accuracy of any of the data used by debt buyers. In the Introduction to the Report, for example, the FTC says: "Another limitation of the study is that the FTC did not directly assess the accuracy of the information that debt buyers used in collecting purchased debts or filing lawsuits on this debt." See Report at 2.
Later, when discussing the purchase and sale agreements that are largely drafted by debt sellers, the FTC concedes the point again, stating: "As noted above, contracts commonly stated that debts were sold ‘as is and with all faults.’ However, the fact that debts were generally sold ‘as is’ does not necessarily mean that errors or inaccuracies were or were not prevalent. The study did not test the accuracy of the information conveyed by debt sellers to debt buyers. Accordingly, the study does not permit any conclusions to be drawn as to the prevalence of errors or inaccuracies in debts generally sold ‘as is.’" Report at 25 (emphasis added).
When discussing the data that debt buyers receive from sellers, the FTC emphasized that the data provided absolutely no evidence that debt buyers obtained or used inaccurate information, stating: "The data the FTC obtained and analyzed, however, are subject to two important limitations. First, the data evaluated did not include information about debt collection litigation actions, and, therefore, the Commission can neither make findings nor offer conclusions as to the sufficiency and accuracy of information debt buyers have or offer in connection with matters in litigation. Second, the study did not directly evaluate the accuracy of the information that debt buyers obtained but instead focused on what types of information debt buyers obtained, as well as when and how they obtained it." Report at 34 (emphasis added).
In other words, even though the FTC spent three years analyzing debt buyer data from thousands of portfolios containing nearly 90 million consumer accounts, the FTC Report does not identify a single instance where a debt buyer purchased or used inaccurate data.
No Evidence That Debt Buyers Sue Or Threaten To Sue On Time-Barred Debt
Although the FTC repeated its concern that "consumers will be subject to a default judgment on a time-barred debt" the Report itself provides zero evidence that this has occurred. None of the data supplied by the debt buyers established that they had threatened to file suit or had actually filed suit on debts after the statute of limitations expired. In fact, the FTC never asked the debt buyers to provide information on this point. This is expressly conceded in the Report, which states: "The information the FTC received in response to its 6(b) orders did not permit the agency to assess how often debt buyers filed actions in court to recover on debts that were beyond the statute of limitations or the effect of such actions on consumers." Report at 46.
No Evidence Of The Validity Of Any Consumer Dispute
The report makes much of the fact that there is a 3.2% consumer dispute rate on debt buyer accounts, which translates into one million disputes per year. But the FTC did not perform any type of qualitative analysis of those disputes in order to determine whether they had any merit. Consumers who actually owe their debts may dispute them for a variety of reasons, including because they do not remember the account, they do not recognize the name of the debt buyer, they have ignored the power of compounding interest, or because the cannot pay or simply want to delay paying debts that they know they owe. Thus, although the Report tracks the dispute rate, it says nothing about whether any of the consumers do, or do not, owe the amount that the debt buyers were seeking to collect. And, as previously noted, the Report could not make this type of assessment, because it made no attempt to determine if the debt buyers’ data about what was owed was accurate or inaccurate.
The FTC Report actually includes a few passages that are helpful to debt buyers. For example, the FTC acknowledges the important role that debt collection plays in the economy, stating: "Like other contracts, credit contracts are of little value if the parties cannot enforce them. . . . Debt collection reduces the amounts that creditors lose from debts, both directly (by collecting on the debts) and indirectly (by making it more likely that consumers will incur debt only if they can and will repay it). By reducing the losses that creditors incur in providing credit, debt collection also allows creditors to provide more credit at lower prices – that is, at lower interest rates." Report at 11.
In addition, although media reports often emphasize that debt buyers pay "pennies on the dollar" for the accounts, suggesting they must make super-competitive profits, the Report points out the fallacy of this logic. The debt buyers paid on average 4 cents a dollar for the accounts that were analyzed for the Report, but the FTC noted these prices do not guarantee high profits, stating: "It is important to note, however, that although the price paid by debt buyers for debts is low relative to their face value, it does not necessarily follow that the profit from collecting on those debts will be high. First, debt buyers do not recover the face value of all of the debts that they purchase. Debt buyers typically do not attempt collections on all accounts they purchase, do not usually realize recoveries on every account for which collections are attempted, and do not typically recover the full face value on accounts for which they do realize recoveries. Second, debt buyers, like any other debt collectors, also incur substantial costs in collecting on debts." Report at 23.
The FTC Report should be read and understood in its proper context. It simply does not provide any evidence that any debt buyer has engaged in any improper collection practices.
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