The Federal Trade Commission today identified the nine debt-buying companies that it has ordered to turn over information about their purchasing and collection practices.
The companies are: Arrow Financial Services LLC, based in Niles, Ill.; Asta Funding Inc. of Englewood Cliffs, N.J.; B-Line LLC of Seattle; eCast Settlement Corp. of Whippany, N.J.; Encore Capital Group Inc. of San Diego; NCO Portfolio Management Inc. of Horsham, Pa.; Portfolio Recovery Associates of Norfolk, Va.; Sherman Financial Group of New York; and Unifund Corp. of Cincinnati.
Thomas Kane, senior attorney in the FTC's Division of Financial Practices, tells Collections & Credit Risk the nine companies were selected because they buy 75% of the nation's delinquent consumer debt, not because the FTC suspects any problems or wrongdoing. "This is meant to provide us with a strong picture of how the [debt-buying] industry operates and how decisions are made," he says.
The FTC's order has many participants in the debt-buying industry worried that a clampdown is near. “The current economic and political environment gives reason for pause. We will have the greatest exposure to government scrutiny and intrusion [primarily on the state level] over the next few months," says Aaron Hadam, executive vice president at National Loan Exchange Inc., which brokers sales of consumer accounts. "Unfortunately, if the economic recovery continues to be jobless, I would not be surprised to see more of a spotlight on debt-buying practices.”
Collection agencies regularly buy bad debt from banks and other financial institutions at pennies on the dollar and then pursue repayment. According to the FTC, many frequently try to collect wrong amounts or contact the wrong consumer. The FTC wants to determine if the companies buying the debt are contributing to the problem.
Over the past decade, debt buyers have become a significant part of the debt collection system. The industry has faced increased scrutiny from state regulators trying to make it harder for collectors to make recoveries.
When buyers are not paid, they often sell the accounts to other buyers. Many debts are purchased and resold several times over a period of years before all collection efforts finally cease. The FTC also wants to understand how resales are handled and whether data on accounts is being transferred. In February of last year, the agency issued a report based on an agency debt collection workshop in which it found major problems in the flow of information among creditors, debt buyers and collectors.
The FTC's order is a 15-page document that seeks details about purchasing and collection practices such as the reasons for choosing to buy a delinquent debt portfolio, specific purchase contract language included in deals, types of account information received from sellers before and after a sale, how collections are handled with consumers and details about the use of technology.
A spokesperson for ACA International, a collection industry trade group, put a positive spin on the examination. "The FTC's study of the debt purchasing industry will give the industry the opportunity to educate regulators," says David Cherner, legal counsel at ACA International, based in Minneapolis.
Results of the study could lead to enforcement actions or policy recommendations for Congress. Dating back to 1977, the Fair Debt Collection Practices Act, the existing collection law, stipulates that Congress must set the rules, not the FTC.
Cherner said that one of the most important issues the FTC should focus on is how the flow of information actually begins, with creditors held accountable for supplying correct information.
DBA International, which represents the nation's debt purchasers, hopes the FTC opens a dialogue with the industry, beyond the information sought in the order, says Barbara A. Sinsley, DBA’s general counsel and a partner at Barron, Newburger & Sinsley PLLC in Lutz, Fla. “DBA has always worked openly with the FTC and would hope to be ... part of the conversation. Debt buying is an integral part of the credit cycle and debt buyers provide an economic benefit to consumers to resolve their debts amicably,” she tells Collections & Credit Risk.
Kane said is not sure whether the FTC will open discussions with DBA International or ACA International, another leading collection industry trade group. "It’s certainly possible. It might be good for the Commission and debt buyers if there is somebody who ultimately acts as a go-between coordinating efforts,” he says. “We’re still in the early stages of this so nothing has been decided yet.”