ACA Responds to IRS Private Collection Agency Critics

ACA International responded Wednesday to criticism of a proposal that would allow the Treasury Department to contract with private collection agencies to recover unpaid taxes owed to the Internal Revenue Service.

Sen. Charles E. Schumer (D-NY) recently introduced the proposal, which is now on the Senate floor. The measure has bipartisan support but would be unlikely to reach President Obama’s desk quickly because of a dispute with the House over reviving expired tax breaks.

The National Treasury Employees Union said a similar effort by the IRS between 2006 and 2009 caused the government to miss out on millions of dollars in potential revenue while paying $102 million to fund administrative and commission costs. The NTEU had championed shutting down the program.

ACA International is the largest association representing collection agencies. The following is part of a statement from ACA International President Leslie Bender:

"Allegations that the use of private debt collectors in the public sector is a failed experiment are not founded in fact. A 2010 General Accountability Office report on tax collections clearly stated that an evaluation by the IRS of its private collector program had design and methodology deficiencies that were flawed, making it ineffective at supporting the IRS’ decision to discontinue the practice.

Per the 2006 IRS National Taxpayer Advocate Annual Report to Congress, service levels to taxpayers assigned to private collection agencies exceeded the standards set for IRS customer service and quality.  Private collection agency quality, measured the same way as IRS quality, ranged from 97% to 100% compared to 89.5% to 99.5% for the IRS’ collection system.

This report also indicated that of the nearly 19,000 cases assigned to private collectors, only 31 complaints were reported (0.001% of all contacts) and the majority of the complaints dealt with questions about IRS procedures for authenticating taxpayer identity intended to protect privacy. Further there were ‘no instances of fraud or misuse of taxpayer information.’ Importantly, Better Business Bureau data shows that in 2013 debt collectors in the U.S resolved 84% of the consumer complaints they received, compared to 76% for all industries combined. In fact, U.S. debt collectors have maintained a consumer complaint resolution rate of over 80% over the past several years."

Congress authorized the Treasury Department to contract the task of recouping unpaid tax bills in 2006 and three collection agencies won initial contracts: CBE Group Inc., in Waterloo, Iowa; Pioneer Credit Recovery Inc., in Arcade, N.Y.; and Linebarger Goggan Blair & Sampson LLP in Austin, Texas. 

Schumer's office noted that congressional tax analysts predict the new program would haul in $4.8 billion in delinquent taxes over the next decade, of which half would be used to cover the cost of expanding a popular tax break for research and development for startup businesses.

Advocates in Congress and in the collection industry argue that the IRS is too distracted with other tasks, including new responsibilities created by the 2010 Affordable Care Act. Private agencies bring the collections expertise and save the government the cost of training.

“It is a myth that responsible debt collectors act in disregard of consumer rights. Portraying the action of a few as efforts of an entire industry creates a woefully inaccurate picture of reality," continued the statement from Bender and ACA International.

"Private and public sector organizations rely on professional third-party debt collectors to recover tens of billions of dollars per year that sustain America’s credit-based economy. By law they are required to manage and oversee the activities of their debt collection agents and they maintain significant vendor management programs, oversight and auditing.

Consumer debt collection is among the heaviest regulated activities in America by federal, state and local laws and regulations. The industry is engaged with policymakers to modernize laws and rules for collecting rightfully owed debts. The Consumer Financial Protection Bureau, poised to issue long-needed regulations under consumer financial protection laws, is charged with primary regulatory oversight of the industry and continues to emphasize a consumer-centric focus that can already be seen in the activities it has undertaken involving debt collection.

President Barack Obama’s FY2014 and FY2015 budgets highlighted the importance of debt collectors at the federal level by proposing that U.S. Treasury extend the use of debt collection resources in the recovery of debt owed to or granted by the U.S. And, further, in its FY2012 Report to Congress, the U.S. Treasury described private collection agencies as one of the tools it uses to collect delinquent Federal non-tax debt and detailed over $3 billion in collections made on behalf of the Departments of Health and Human Services, Treasury and Education in FY2012, and has been an increasing trend since FY2008.

Additionally, state and local governments from coast to coast continue to engage private debt collector expertise to recover tens of billions in taxpayer owed revenue demonstrating the importance of these efforts to fund critical governmental functions such as courts, human services, public safety and education.

Our industry welcomes the opportunity to dispel the outdated and exaggerated myths about how collection agencies work and fail to appreciate the importance collection agencies place on respectful and meaningful communication with consumers.”

ACA International's financial education tools include www.askdoctordebt.org.