Why Debt Collection Calls Top The List Of Consumer Complaints

The Fair Debt Collection Practices Act, a federal law that outlines tactics that

debt collectors aren't allowed to use, requires an annual report to Congress. Until this year, that report was issued by the Federal Trade Commission (FTC). Starting in 2012, however, the annual report is the responsibility of the Consumer Financial Protection Bureau. The CFPB is a new agency, created by the Dodd-Frank Act of 2010. The Bureau issued its first report, using data gathered by the FTC, and once again found that debt collection complaints topped the list of consumer complaints.

The FTC and CFPB sliced and diced the data, and crunched the numbers, but the bottom line remains the same: arguably more than any other, the debt collection industry routinely crosses the line into illegal and unethical behavior. There are several reasons why this might occur, including:

1. Financial Incentive. Most bill collection agencies are paid on commission. In other words, they do not get paid unless they collect money from the consumer. This means that there is a strong incentive to do whatever it takes to collect every dime possible. For some debt collectors, this translates into implicit permission to harass, embarrass, or threaten consumers into making a payment - even if those actions are a violation of the Fair Debt Collection Practices Act.

This financial incentive is particularly compelling in the case of debt buyers. Typically, an original creditor eventually writes off an outstanding debt as a loss, even though the debt is still legally collectible. These written-off debts are bundled and sold to a debt buyer for very little money. The debt buyer, in turn, has to collect a small percentage of them in order to recoup his investment. Anything above that is pure profit.

2. Unsavory Characters. While many in the debt collection industry provide a service and make an honest living, living in the industry's underbelly are those who would send chills up anyone's spine. In the past several months, debt collection agencies have been shuttered or made to pay large fines by state Attorneys General because they hire convicted felons or because they run scams whereby they convince consumers to pay debt that aren't even owed. Even those debt collection agencies that are considered legitimate have been known to have rogue collectors who routinely trample on the rights of consumers.

3. Wild West Mentality. Combine financial incentive and unsavory characters, and segments of the debt collection industry have a Wild West mentality. After all, most consumers don't understand their rights, and many don't realize that they have legal remedies to hold unscrupulous debt collectors accountable. This enables bill collectors to run roughshod over those from whom they're trying to collect. Moreover, after the economy tanked and consumers had less money to pay their debts, the industry began implementing a new business model, using the taxpayer-funded court system to file thousands of lawsuits against unsuspecting consumers. Those in the debt collection industry routinely try and figure out workarounds that will enable them to collect more dollars for less money.

Ultimately, all of these factors play a role in ratcheting up the number of complaints received by regulatory agencies like the Federal Trade Commission and the Consumer Financial Protection Bureau. Yet consumers should continue to ensure that their voices are heard by filing complaints against debt collectors who violate the law, and by exerting their right to sue debt collectors for violations of the Fair Debt Collection Practices Act.

by: Sergei Lemberg

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