Feds looks into debt-collection practices

We told you about the debt collection hassles endured by people shouldering a large amount of credit-card debt. Then we invited debt collectors to tell their side of the story. Both sides had a lot to say about just what goes on in the debt collection industry, but one assertion -- by the head of a collections industry trade group -- that debt collectors were courteous and professional raised many eyebrows. Many of you vociferously disagreed with this in the comments section.

As it turns out, government watchdogs agree with you. A new report has led to the Federal Trade Commission stepping up its enforcement of debt-collection abuses.

"I'm pleased the FTC is cracking down on debt collectors, and has identified harassment and targeting the wrong debtors as examples of what's wrong in the industry," Linda Sherry, director of national priorities for Consumer Action, a consumer advocate group, told WalletPop via email.

According to an article in Kiplinger's Personal Finance, a newly-issued report from the Government Accountability Office (GAO) determined that the selling and reselling of debt from one collection agency to another made it increasingly likely that vital information could slip through the cracks. As a result, collectors often try to collect money from the wrong person, or try to collect the wrong amount, the report says.

The GAO report states that the volume of consumer complaints about unfair debt collection practices led the agency to study the subject. For consumers, the good news is that the collection practices uncovered in this report will lead to a greater degree of enforcement: The Federal Trade Commission, which is responsible for policing third-party debt collectors subject to the Fair Debt Collection Practices Act (FDCPA), will be increasing its enforcement of collection agencies. It has already required the nine biggest agencies to turn over detailed information about their operations by the 25th of this month.

The GAO's report also recommended updating the FDCPA to give consumers access to more information, and to address methods of communication that weren't technologically possible when the legislation was initially written. In the future, creditors might have to identify exactly which old debt they're trying to collect and give the borrower detailed information about how much of the money they're seeking comes from the original debt and how much comes from penalties and other accrued fees. They might also have to provide proof that they do, in fact, hold the debt in question.

All of this is sure to please consumers who've been hounded by debt collectors, sometimes for amounts that were too large and sometimes for outstanding debts that weren't even theirs. Consumer advocates are also pleased with the announcement.

In her email to WalletPop, Consumer Action's Sherry wrote, "The collection industry needs a good sweeping to purge bad actors."
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