FTC Announces Changes in Debt Collection Industry

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Debt Collection Industry

Source: web

The Federal Trade Commission is honing in on unethical and illegal debt collectors in the new year. With complaints that run the gamut, including threatening one service member with dishonorable discharge, the agency, along with CFPB is on a mission.

CBS spoke with Chris Koegel, an attorney with the Federal Trade Commission,

Some of our number one sources of complaints for consumers are for harassment and abuse, calling too often, using profanity, making violent or abusive threats.

Some consumers complaint they receive up to 20 or more phone calls on a daily basis. Worse, many are posing as attorneys and are threatening to sue consumers, throw them in jail or even contact their family and friends to let them know they’re in the midst of a “deadbeat”. All of these actions are against the law – actually, they’re against several laws – including the Fair Debt Practices Act.

On January 2nd, both the FTC and the Consumer Financial Protection Bureau announced they would begin a new effort to track large collection agencies to ensure first, they’re operating legally and second, that they’re not harassing consumers. They didn’t have to look too far as it appears these businesses are found around the country.

Growing Student Loan Problems

There were more than 150,000 complaints against collectors to the Federal Trade Commission (FTC) in 2012 alone, and one of the fastest growing complaint topics are student loans – credit card companies came in second. This has consumer advocates worried and has the two government agencies pushing for new fines and legal options to put a halt to these predatory practices. This new oversight could also be used to justify changes in student loans collections.

Collection agencies that acquire unpaid loans may face additional scrutiny as overhauls in the collective financial sector continue, too. It will mean big changes for the industry, but as many consumer advocates say, these changes are long overdue. Others, however, are focusing on other problems in the sector – foreclosures, bankruptcies and mounting credit card debt are just a few examples.

Some argue America is teetering on economic insolvency and they insist student loan debts are only adding to increasing strain on financial institutions and the overall economy. As we know, today’s college graduates face challenges unlike none other before. The debt can be incredibly difficult to pay back if jobs are not readily available (and they’re not). Collection agencies are now going to have to change their regulations in order to remain in compliance – and the repercussions could be powerful and immediate.

Student loan debt exceeded all other consumer debt in the United States for the first time in 2012. Today, there are more college graduates unable to repay their student loans than ever before. There simply are no jobs, and certainly none for which they hoped to land with a college degree, and this is lending to the increasingly unpaid student loan problem. Another layer of concern is those students who not only gained their expensive private education with no way to repay their loans, but many are also saddled with credit card debt that was used to pay for books and other university essentials. It’s little wonder then that many college graduates leave college and head straight to the bankruptcy courts. Digging out of these deep financial holes is impossible when you can’t find a job that allows you to do so. Lawmakers are convinced this problem could suffocate the economy for years to come unless new solutions are reached quickly.

Eliminate Third Parties

Many say removing debt collectors is the solution. It would allow students to pay only for the loans without worries of debt collectors gobbling up part of the recovered funds. Many say, from a psychological perspective, these young adults wouldn’t attach a shameful stigma to their credit histories, too. That might not work with those with credit card debt, however, since these financial products are mainstream. There are many ongoing debates, each with the goal of finding solutions. The debt collection industry, naturally, doesn’t support the solution that doesn’t include profits for it, though those arguing for it say the government shouldn’t use tax dollars to pay unethical debt collectors.

Illegal Minds

Something has to be done – and soon. There is a surge in the number of debt collectors who are facing legal problems for their actions. Recently, the U.S. Justice Department announced fraud charges against a debt collection agency located in Minnesota. Khemall Jokhoo, who founded and was the only debt collector in his company, First Financial Services, was hit with 11 counts of bank fraud, nine counts of mail fraud, three counts of wire fraud, 10 counts of aggravated identity theft and one count of false impersonation of an officer or employee of the United States.

Jokhoo’s collection agency had been in legal hot water before. His license was revoked in 2009 by the Minnesota Department of Commerce and just two short years later, in 2011, Jokhoo and his company were fined $100,000 for violating the Fair Debt Collection Practices Act. It’s alleged Jokhoo improperly gathered information to contact victims and then used that information to lie to them. If he’s found guilty and convicted, Jokhoo could be sentenced to up to 30 years in prison for each count he’s charged on. This is just one of thousands of similar lawsuits springing up around the country.

A Texas man filed a lawsuit against NCC Business Services that allegedly “engaged in harassment and abusive tactics in an attempt to ruin his credit rating”. The consumer had asked the debt collector to send information on the debt the agency said he owed. Instead of getting the documentation, he and his family received hundreds of phone calls to their homes, cells and employers. That company is facing charges that it too violated the Fair Debt Collection Practices Act and the Texas Debt Collection Act.

The time has come for changes. With millions of Americans rebuilding their credit, illegal and unethical behaviors like these shouldn’t be a part of their efforts. Between CFPB and the FTC, it could be new changes are in the making.

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About Author

David is a CPA and has spent the past decade as a financial adviser helping clients meet their fiscal objectives. With an appreciation for journalism, he has spent the past few years overseeing several financial columns as well as writing two previous finance blogs. He resides on the East Coast with his wife and two sons and has guided many through the recent recession while providing a no-nonsense approach to spending and saving.


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