If you take $1 from a millionaire, does it make an impact on his or her financial well-being? Will it change the decision of whether to go on a multi-leg first-class European vacation? Likely not.
Sadly, that’s what the Federal Trade Commission has accomplished in a recent civil fine against one of America’s largest debt collectors.
Asset Acceptance Corp., a Michigan-based company, buys old debts and tries to collect them. This isn’t the only debt buyer out there, and there’s nothing illegal about it.
The Debt Buyer Business Model
Banks lend money to people who stop making payments. The banks, in an attempt to recoup some of their losses, sell the debts to other companies. Those companies pay a fraction of the amount due, profiting off the difference between the amount collected and the amount paid.
It’s a simple business model, and a profitable one. For example, the first nine months of 2011 saw Asset Acceptance rake in a total of $161,690,000 and net $7,820,000. That’s after paying all of the overhead.
To put it in context, this single debt buyer had net income of about $28,500 for every single calendar day of 2011. All from buying up bad debt and trying to collect on it.
Debt Buyers Sometimes Play Fast And Loose
Some debt buyers pick up accounts that are too old to be legally collectible. Some people may pay, but they can’t be forced to do so.
And as we’ve discussed before, debt buyers don’t usually get any information about the account beyond the consumer’s identifying information and the amount claimed to be due. If they want more information, they’ve got to pony up extra money. When you’re dealing in tens of thousands of accounts annually, even $10 extra per account can eat into your profit margin.
You Are The Prey In The Hunt For Money
When you get a phone call from a debt collector seeking money, you’re probably afraid. There’s a good chance you don’t know much about your rights. And the voice on the other end of the line is not only convincing, but downright scary. Even if the collector isn’t making threats, there’s always the unspoken one – pay or there will be trouble.
If you can, you give some money. And if you can’t, you know there’s a good chance the collector will bring in a lawyer to sue you.
Those debt collection lawsuits often go to judgment because most people don’t defend them. They figure there’s no valid defense – after all, you do owe the money. So you either try to work out a settlement or, more often than not, you do nothing. A judgment is entered and, if your state allows it, an income execution or bank account seizure is set in motion.
Game over. You lose, the debt buyer wins.
The Government Cracks Down On Asset Acceptance
The Federal Trade Commission recently brought down the hammer on Asset Acceptance, charging the company 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.
In response, Asset Acceptance accepted a $2.5 million civil penalty and agreed to disclose to the consumer that it will not sue on the debt if time-barred. The company also agreed to take greater precautions to adhere to the Fair Debt Collection Practices Act and Fair Credit Reporting Act.
The FTC also issued a new publication to help consumers understand how debt collectors attempt to collect old debts, along with their rights in these cases. Time-Barred Debts: Understanding Your Rights When It Comes to Old Debts provides information on when a debt is too old for a collector to sue, what consumers should do if a debt collector calls about a time-barred debt, and whether a consumer should pay a debt that’s considered time-barred. It also provides advice on what consumers should do if they are sued for a time-barred debt, including defending themselves in court and asserting their rights under the Fair Debt Collection Practices Act. Finally, it has links to other FTC publications and videos about dealing with debt.
The Sad Truth About The Asset Acceptance Settlement
Remember, Asset Acceptance made nearly $8 million in the first 9 months of 2011 alone. $2.5 million is not insignificant, but it’s a drop in the bucket for the company. The penalty is a message to the industry, but by no means is it a death knell for debt buyer shenanigans.
Consider it a cost of doing business. After all, there’s still plenty of money floating around out there for debt buyers like Asset Acceptance to sweep up. And lots of consumers who are too scared to exercise their rights.
If you’re on the receiving end of a collection action – be it in court, by phone or letter – you need to take care to protect yourself. Learn what you can about the federal and state consumer protection laws. Spend the time necessary to get informed about your rights.
And if there’s a reason to suspect shenanigans, call a lawyer. Because there’s only so much the government can do to save you.
Image credit: The Doctr