As the Consumer Financial Protection Bureau (CFPB) moves closer to issuing regulations under the Fair Debt Collection Practices Act, this summary of key facts about consumer debt collection shows the need for greater consumer protections.
Debt Collection is a Pervasive Part of American Life
- Debt collectors contact American consumers more than a billion times a year.
- In 2014, 77 million Americans had non-mortgage debts in collections.
- In a national survey, 18% of respondents said that they had been contacted by a debt collection agency in the past year.
- Encore Capital Group, Inc., one of the nation’s largest debt buyers, claims that 20% of US consumers either owe it money currently or have owed it money in the past.
- Consumers generally default on debt due to unemployment, illness, divorce, or other unanticipated hardships.1
Consumers Are Inundated with Debt Collection Calls
- Credit card companies “limit” their debt collectors to 4-15 calls per account per day. Lawsuits also provide evidence of high call volumes by debt collectors. 2
- The collection industry has asked the CFPB to allow 6 debt collection calls per day, 186 calls per month, and 2,190 calls per year for each collection account.
Debt Collection is the Top Consumer Complaint
- In 2015, debt collection was the largest source of complaints in the Federal Trade Commission’s (FTC) database of consumer complaints, generating nearly 900,000 complaints,3 and also the leading source of consumer complaints to the CFPB.
- At the CFPB, “continued attempts to collect debt not owed” was the most common type of collection complaint reported by 40% of consumers, with 63% of these stating that the debt is not theirs and 26% reporting that the debt was paid.
Debt Collection Is Big Business
- In 2016, the CFPB estimated that there were 6,000 collection agencies in the U.S.
- The collection industry generated an estimated $13.7 billion in revenue in 2015.
Debt Collectors Sue Millions of Struggling Consumers Annually
- State courts are clogged with millions of suits by debt collectors.4
- Debt collectors rely on court rules that allow them to obtain default judgments in an overwhelming majority of lawsuits,5 often without presenting any evidence and despite the fact that consumers may have legitimate defenses.
- Less than 10% of consumers are represented by an attorney when they are sued on a debt,6 making it virtually impossible for these consumers to present their defenses.
Debt Buying Changed the Way Debts Are Collected
- Debt buyers purchase consumer debts that were written off by the original lender for an average of just pennies on the dollar7 but aggressively seek to collect the full amount of the debt – often adding interest, penalties, and attorney’s fees.
- Debt buyers purchase accounts in bulk, frequently obtaining only an electronic spreadsheet with minimal information about the debts.8
- A 2013 FTC study found that more than 30% of the debt purchased by debt buyers from other debt buyers was over six years old.
- The face value of defaulted consumer debt purchased by debt buyers increased from less than $10 billion in 1993 to more than $60 billion in 2011.
- Credit card and other debt sellers may not even guarantee that the accuracy of the information provided to the debt buyer.9
Rising Student Loan Debt Will Harm Families for Decades
- Of the nearly 42 million federal student loan borrowers, 1 in 4 borrowers are delinquent on their loans and approximately 7.5 million borrowers are currently in default on roughly $125 billion of student loan debt.10
- In February 2015, the U.S. Department of Education found high incidences of materially inaccurate representations with 5 of its 22 private collection agencies.
Medical Debt Continues to Affect Millions of Americans
- Nearly 75 million working-age adults experienced problems with medical bills.
- In 2012, 41 million adults (or about 22%) were contacted by a collection agency for unpaid medical bills.
- More than 50% of collection items on credit reports are for medical debt and nearly one in five (19.5%) consumers with a credit report show a medical bill in collection.
1 S. REP. 95-382, 3, 1977 U.S.C.C.A.N. 1695, 1697. See also Warren & Tyagi, The Two-Income Trap: Why Middle-Class Parents are Going Broke (2004); Sullivan, Warren, & Westbrook, As We Forgive Our Debtors (1989); Caplovitz, Consumers in Trouble (1974).
2. See, e.g., Osorio v. State Farm Bank, 746 F.3d 1242 (11th Cir. 2014) (327 robocalls to the consumer’s cell phone in 6 months, all seeking to collect on a debt owed by someone else); King v. Time Warner Cable, 113 F. Supp. 3d 718 (S.D.N.Y. 2015) (153 debt collection calls to a woman who was never a customer); State of West Virginia ex rel., et al. v. CashCall, Inc. et al., 2012 WL 11875223, Final Order on Phase I of Trial: The State’s Debt Collection Claims at ¶¶ 50 (W.Va. Circuit Court of Kanawha County, Sept. 10, 2012) (internet-based lender admitted that “10-20 calls per day, and 1,000 calls over several months, were not unusual or unreasonable.”).
3 The Consumer Sentinel Network stores consumer complaints received by the FTC, various states, the Better Business Bureaus, the CFPB, and other federal agencies.
4 Maria Aspan, “Courthouse ‘Rocket Dockets’ Give Debt Collectors Edge Over Debtors,” American Banker (Feb. 11, 2014) (reporting that millions of debt-collection lawsuits are filed annually). See also Annie Waldman & Paul Kiel, “Racial Disparity in Debt Collection Lawsuits: A Study of Three Metro Areas,” ProPublica (Oct. 8, 2015) (during a five year period there were 116,289 judgments in debt collection lawsuits in St. Louis City and County, Missouri; 278,566 in Cook County, Illinois; and 128,918 in Essex County, New Jersey); Jessica Mendoza, et al. “Collection claims abuses move up to higher courts,” Boston Globe (Mar. 28, 2015) (from 2004 to 2013 at least 1.2 million cases were filed in Massachusetts small claims and district court sessions by professional debt collectors); Peter A. Holland, “Junk Justice: A Statistical Analysis of 4,400 Lawsuits Filed By Debt Buyers”, 26 Loy. Consumer L. Rev. 179 (2014) (reporting that debt buyers filed 40,796 lawsuits in 2009; 43,581 in 2010; 37,202 in 2011; 22,566 in 2012; and 24,317 in 2013); Susan Shin and Claudia Wilner, New Economy Project, The Debt Collection Racket in New York (June 2013) (reporting that debt collectors filed 195,105 lawsuits against New Yorkers in 2011); Claudia Wilner and Nasoan Sheftel-Gomes, Neighborhood Economic Development Advocacy Project, Debt Deception: How Debt Buyers Abuse the Legal System to Prey on Low Income New Yorkers (2010) (“In New York City, debt collectors filed approximately 300,000 lawsuits per year between 2006 and 2008.”).
5 See, e.g., Mary Spector, “Debts, Defaults, and Details: Exploring the Impact of Debt Collection Litigation on Consumers and Courts,” 6 Va. L. & Bus. Rev. 257, 288 (2011) (77% default rate in Dallas County); Claudia Wilner and Nasoan Sheftel-Gomes, Neighborhood Economic Development Advocacy Project, Debt Deception: How Debt Buyers Abuse the Legal System to Prey on Low Income New Yorkers (2010) (81% default rates in New York City); Federal Trade Commission, Repairing a Broken System 7 (July 2010) (“panelists from throughout the country estimated that sixty percent to ninety-five percent of consumer debt collection lawsuits result in defaults, with most panelists indicating that the rate in their jurisdictions was close to ninety percent”) and 7 n.18 (collecting studies on default rates).
6 See Paul Kiel, “So Sue Them: What We’ve Learned About the Debt Collection Lawsuit Machine,” ProPublica (May 5, 2016) (99% of defendants sued by New Jersey collection law firm Pressler & Pressler did not have attorneys; 97% of defendants in debt collection cases filed in New Jersey’s lower level court in 2013 did not have attorneys; 91% of defendants in Missouri debt collection cases in 2013 did not have attorneys); Samantha Liss, “When a nonprofit health system outsources its ER, debt collectors follow,” St. Louis Post-Dispatch (Apr. 17, 2016) (reporting that in 1,078 lawsuits filed by CP Medical in St. Louis, St. Louis County and St. Charles County between December 2, 2014 and March 10, 2016, only 17 defendants had an attorney); Chris Albin-Lackey, Human Rights Watch, Rubber Stamp Justice: US Courts, Debt Buying Corporations, and the Poor (Jan. 2016) (consumers had legal representation in 3 out of 247 cases in a randomized sample of lawsuits filed in New York by debt buyers in 2013 that resulted in judgments); Peter Holland, “Junk Justice: A Statistical Analysis of 4400 Lawsuits Filed by Debt Buyers,” 26 Loy. Consumer L. Rev. 179 (2014) (consumers were represented by an attorney in only 2% of debt collection lawsuits in Maryland); Susan Shin and Claudia Wilner, New Economy Project, The Debt Collection Racket in New York (June 2013) (attorneys represented consumers in only 2% of debt collection cases filed in New York City); Mary Spector, “Debts, Defaults, and Details: Exploring the Impact of Debt Collection Litigation on Consumers and Courts,” 6 Va. L. & Bus. Rev. 257, 288 (2011) (fewer than 10% of defendants served in debt collection lawsuits were represented by an attorney in Dallas County, Texas); Claudia Wilner and Nasoan Sheftel-Gomes, Neighborhood Economic Development Advocacy Project, Debt Deception: How Debt Buyers Abuse the Legal System to Prey on Low Income New Yorkers 1 (2010) (only 1% of people sued by debt buyers in New York City are represented by counsel).
7 See, e.g., Consumer Financial Protection Bureau, The Consumer Credit Card Market (Dec. 2015); Federal Trade Commission, The Structure and Practices of the Debt Buying Industry (Jan. 2013).
8 Dalié Jiménez, Dirty Debts Sold Dirt Cheap, 52 Harv. J. on Legis. 41 (2015); Federal Trade Commission, The Structure and Practices of the Debt Buying Industry (Jan. 2013). See also Consumer Financial Protection Bureau, The Consumer Credit Card Market (Dec. 2015) (finding some additional documentation transferred in mid-2015 review of credit card debt sales).
9 Dalié Jiménez, Dirty Debts Sold Dirt Cheap, 52 Harv. J. on Legis. 41 (2015); Federal Trade Commission, The Structure and Practices of the Debt Buying Industry (Jan. 2013). See also Consumer Financial Protection Bureau, The Consumer Credit Card Market (Dec. 2015) (some credit card companies qualify warranties of accuracies as to the “best of the seller’s knowledge).
10 Consumer Financial Protection Bureau, Student Loan Servicing: Analysis of Public Input and Recommendations for Reform, (Sept. 2015); The Institute for College Access and Success, Default Rate Declines, Yet 611,000 Defaulted on Federal Student Loans, (Sept. 2015). “A loan is delinquent when loan payments are not received by the due dates. A loan remains delinquent until the borrower makes up the missed payment(s) through payment, deferment, or forbearance.” U.S. Department of Education, Federal Student Aid, Glossary.