One of the largest debt collectors in the U.S. has agreed to pay a $2.5 million civil penalty to settle Federal Trade Commission charges, the agency reported today.
“Most consumers do not know their legal rights with respect to collection of old debts past the statute of limitations,” David Vladeck, Director of the FTC’s Bureau of Consumer Protection, said in a release.
The FTC dinged Asset Acceptance, LLC, for making a range of misrepresentations when trying to collect old debts. As part of the settlement, the company has agreed to tell consumers whose debt may be too old to be legally enforceable that it will not sue to collect those debts.
“When a collector tells a consumer that she owes money and demands payment, it may create the misleading impression that the collector can sue the consumer in court to collect that debt. This FTC settlement signals that, even with old debt, the prohibitions against deceptive and unfair collection methods apply.”
The settlement, which has not been finalized, forces Asset Acceptance to investigate when consumers dispute the accuracy of the debt. The company must ensure it has a reasonable basis for its claims against the consumer before continuing its collection efforts. The settlement would also bar the company from placing debt on the consumers' credit reports without notifying them.
The proposed settlement was filed by the U.S. Department of Justice at the FTC's request.
Michigan-based Asset Acceptance buys unpaid debts from credit card companies, health clubs, and telecommunications and utilities providers, as well as other debt buyers, and attempts to collect them. The company has purchased tens of millions of consumer accounts for pennies on the dollar. It targets accounts that other collectors have pursued and are more than a year past due, and in some cases attempts to collect debt that is more than 10 years old. Some of this debt is too old to be legally enforceable – state statutes of limitations cut off the right to sue to collect the debt after some period of time has passed, depending on the state and the type of debt. Many consumers do not know that making a partial payment of a debt may reset the state law's clock on the collector's ability to take legal action.
The FTC's nine-count complaint charged Asset Acceptance with:
- misrepresenting that consumers owed a debt when it could not substantiate its representations;
- failing to disclose that debts are too old to be legally enforceable or that a partial payment would extend the time a debt could be legally enforceable;
- providing information to credit reporting agencies, while knowing or having reasonable cause to believe that the information was inaccurate;
- failing to notify consumers in writing that it provided negative information to a credit reporting agency;
- failing to conduct a reasonable investigation when it received a notice of dispute from a credit reporting agency;
- repeatedly calling third parties who do not owe a debt;
- informing third parties about a debt;
- using illegal debt-collection practices, including misrepresenting the character, amount, or legal status of a debt; providing inaccurate information to credit reporting agencies; and making false representations to collect a debt; and
- failing to provide verification of the debt and continuing to attempt to collect a debt when it is disputed by the consumer.
The proposed settlement requires that when Asset Acceptance knows or should know debt may not be legally enforceable under state law – often referred to as "time-barred" debt – it must disclose to the consumer that it will not sue on the debt and, if true, that it may report nonpayment to the credit reporting agencies. Once it has made that disclosure, it may not sue the consumer, even if the consumer makes a partial payment that otherwise would make the debt no longer time-barred.
The order also prohibits the company from:
- Making any material misrepresentation to consumers and making any representation that a consumer owes a particular debt, or as to the amount of the debt, unless it has a reasonable basis for the representation. To ensure it has such a basis, the order requires Asset Acceptance to investigate consumer disputes before continuing collection efforts;
- "Parking" – or placing – debt on a consumer's credit report when it has failed to notify the consumer in writing about the negative report, and;
- Violating the Fair Credit Reporting Act and the Fair Debt Collection Practices Act, in the ways alleged in the complaint.
The DOJ filed the complaint and proposed consent decree on behalf of the Commission in U.S. District Court for the Middle District of Florida today. The proposed consent decree is subject to court approval.