The Federal Trade Commission yesterday announced the results of an empirical study of companies that are in the business of buying consumer debts and trying to collect on them. The study looked at more than 5,000 portfolios containing nearly 90 million consumer accounts with a face value of $143 billion. In its report, The Structure and Practices of the Debt Buying Industry, the FTC noted problems due to incomplete information and poor communication. As a result, debt collectors may approach the wrong consumers or try to collect the wrong amount. Debt buyers verified only about half of the disputed debts–meaning that buyers either could not or did not attempt to verify about 500,000 debts each year. The FTC’s press statement offers this overview:
The report also found that at the time of purchase, creditors provided debt
buyers with some important information concerning debts, including the
name, address, and telephone number, and social security number of the
debtor; the creditor’s account number; the outstanding balance on the
account; and the dates of account opening and last payment. Buyers,
however, did not receive some key information about debts purchased,
such as whether consumers previously disputed the debts or whether
collectors previously verified the debts. Creditors also imposed
limitations on the ability of debt buyers to obtain information and
documents about accounts after sale. Most contracts between creditors
and debt buyers stated that the creditors did not warrant that the
information they provided to buyers about debts was accurate.
The FTC also notes that debt buying plays an important role in consumer
credit: "Debt buyers paid pennies on the dollar (an average of about 4 cents, with older debt selling for less than newer debt) for the
billions of dollars in debts they bought from creditors. The proceeds
from these sales have helped to reduce creditors’ losses from lending
money, allowing them to provide more credit at lower prices."
