The debt collection industry has grown tremendously over the last decade. In the late nineties, the debt purchasing industry was in the range of $10 billion. Today the debt purchasing industry has grown to more than $115 billion. Debts are typically sold or assigned to third party debt collectors when the original creditor feels the debt is no longer collectible. The original creditor is the party with whom the debtor receives an extension of credit or to whom the original debt is owed. These parties include companies such as Chase, Capital One, Wells Fargo, etc. The original creditor sells debt in portfolios or in bulk to third party collection agencies for around four cents on the dollar. The debt collection agency will then attempt to collect on the debt for the full amount allegedly owed to the original creditor.
The collection agency purchasing the debt generally acquires merely an electronic file containing the alleged debtor’s name, account number, personal contact information, and references the collection agency may have utilized in their efforts to collect the debt. Essential information necessary in proving the debt is owed or providing the collection agency with “personal knowledge” of the account, required by law in order to sue on the debt, is generally not purchased. This information includes, for example, the original contract, terms and conditions, account statements, charge slips, etc.
The more times the original debt is sold, the less likely the collection agency holds the documents necessary to file suit. Further, the more times a debt has been sold, the more likely errors have occurred. Most of the time the third party debt collector lacks personal knowledge necessary to sue on the account or it may be passed the statute of limitations to sue on the debt. Some collection agencies will not even attempt to sue the alleged debtor. Collection agencies many times purchase old debt knowing it is passed the statute of limitation to sue and rely on aggressive collection tactics to scare the consumer into paying the debt.
What is rather disturbing is that an overwhelming majority of the debt collection suits brought against consumers are won by default judgment. This means that the alleged debtor failed to respond to the suit by filing an answer and appearing at the hearing. Once a judgment is entered it is difficult to undo the damage. The creditor or collection agency will attempt to collect the judgment through wage garnishment, bank account levy, or other measures. Many times these suits should not have been brought in the first place. Had the debtor merely responded, for instance by filing an answer, the creditor or collection agency would have been required to appear in court and present evidence that they properly owned the debt and that it is legal that they brought the suit. Once again, many debt collection suits may be challenged for being filed passed the statute of limitations period.
Collection suits are typically filed based on the legal theories of breach of contract or account stated. If the original signed contract and terms and conditions are signed, AND the creditor or collection agency has possession of the contract (RARE), they have ten years from the date of charge-off or default in some cases to file a collection suit. If the creditor or collection agency does not hold the original contract, they are filing the collection suit based on an account stated theory (majority of collection cases utilizing mostly billing statements to prove up the debt). A collection suit file based on an account stated theory must be filed within five years of the date of the charge-off or default.
What many consumers do not realize is that original creditors and third party collection agencies alike are required to conduct their debt collection practices within the regulations of the Iowa Debt Collection Practices Act as well as the Federal Fair Debt Collection Practices Act. Keep in mind that collection agencies do not care about “customer service.” They are not attempting to hold onto you as a customer. The object is to collect on the debt in the most efficient, cost effective way possible. Many times the debt collector’s business model does not involve being in compliance with the FDCPA because not very many consumer protection attorneys file suits against creditors and collection agencies for violating consumer’s rights. In addition, it is unfortunately known that the penalties collection agencies face for failing to comply with the regulations of the FDCPA are extremely low. Since the penalties are not severe, many collection agencies continue to utilize illegal collection practices, by way of threat, coercion, and humiliation (contacting third parties). In other words, dealing with law suits is cheaper than making sure that the business is in compliance with the law.
I do cautiously state that not all creditors and collection agencies engage in illegal debt collection practices. It is my opinion, however, that the companies that do operate legally are the minority in the industry. It is important to remember that consumers do have rights and that consumers should require a creditor or collection agency prove it owns the debt and that the consumer owes the debt.
If you think you are a victim of any type of illegal collection practice, you should seek the advice of counsel or contact your Attorney General’s office. A suit may be brought against a creditor or collection agency for even one debt collection violation. The Iowa legislature and Congress believed that enforcing your rights as a consumer was so important that if a consumer is successful, the creditor is required to pay your attorney fees and court costs. Please contact Ashley at Marks Law Firm for any questions about illegal debt collection activities.