E-mail Darren Waggoner at darren.waggoner@sourcemedia.com to comment on this developing story.

The Federal Trade Commission has sent surveys to nine companies that buy 75% of the nation's delinquent consumer debt to try to determine whether they are working with accurate information.

The government agency, charged with consumer protection, ordered the debt buyers to turn over information about their purchasing and collection practices. The FTC did not identify the nine companies and did not respond Wednesday to queries about exactly what information is being sought.

The largest U.S. debt buyers, according to Collections & Credit Risk research, include publicly traded companies Asta Funding Inc., Englewood Cliffs, N.J.; Portfolio Recovery Associates Inc., Norfolk, Va.; Asset Acceptance Capital Corp., Warren, Mich.; and Encore Capital Group Inc., San Diego.

Industry insiders have concerns about what the FTC order means. "The current economic and political environment gives reason for pause," says Aaron Hadam, executive vice presidenet at National Loan Exchange Inc., a debt broker that facilitates deals between buyers and sellers of consumer accounts. "We will have the greatest exposure to government scrutiny and intrusion [primarily on the state level] over the next few months. It will be interesting to see the political posturing in these months leading up to the elections. 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 companies 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.

When debts are sold, the sellers also send the buyers information about the debtor and the debt. Buyers try to collect on the debts, and if they 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 industry has faced increased scrutiny from state regulators who have been trying to make it harder for collectors to make recoveries. Over the past decade, debt buyers have become a significant part of the debt collection system. In February 2009, the FTC 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.

Information the FTC gathers from the orders will help it determine how shortcomings in the flow of information affect buyers, collectors and consumers. The agency has authority to issue the orders under Section 6(b) of the FTC Act.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.