C. D. Book

Why You Should Not Pay Debt Collectors Part 1

In Economy, Uncategorized on March 18, 2011 at 10:10 pm

Part 1

According to the Wall Street Journal “roughly 94% of collection cases  (XO: lawsuits) filed against borrowers result in default judgements in favor of the debt buyer”. You may think this is because the consumer actually owes the debt and is obligated to pay. You would be wrong.

In their 2010 Annual Report to Congress  regarding the Fair Debt Collection Practices Act (FDCPA)  the Federal Trade Commission (FTC) stated that consumer complaints about  third- party debt collectors had risen to 88, 190 in 2009 from 78,925 in 2008.  Complaints filed with the FTC about in-house, or original creditor collectors rose from 26,652 in 2008 to 32, 076 in 2009. In the report to Congress the FTC admits:

Based on the FTC’s experience, many consumers never file a complaint with any organization other than the debt collector itself.   Others complain only to the underlying creditor or to enforcement agencies other than the FTC. Some consumers may not be aware that the conduct they have experienced violates the FDCPA or that the FTC enforces the FDCPA. Therefore, the total number of consumer complaints the FTC receives may understate the extent to which consumers have concerns about the practices of debt collectors.

The report further acknowledges that third-party debt collectors contact millions of consumers per year and “the number of complaints the FTC receives about these collectors is therefore only a small percentage of the overall number of consumers contacted. Nevertheless the FTC receives more complaints about the debt collection industry than any other specific industry. ”

The above indicates an underreporting by consumers of complaints regarding debt collectors. Reasons for this may include:

  • Consumers are intimidated by third-party debt collectors and their hired guns: lawyers.
  • Consumers believe they have to hire a lawyer themselves to answer a lawsuit filed by a third-part collector.
  • Consumers are unaware of the FDCPA and its’ protections afforded to them.
  • Consumers are unaware that the FTC enforces the FDCPA.
  • Consumers are unaware that a third-party can legally purchase their debt from an original creditor and attempt to collect that debt. Consumers therefore may not recognize the new “creditor”.

Third-party debt collection is big business and big money especially in the past several years’ declining economy.   Encore Capital Group, Inc , a publicly traded company that purchases distressed debt files hundreds of thousands of lawsuits a year. The debt is purchased for pennies on the dollar and the third-party collector attempts to collect the original debt plus interest plus court and attorney fees if they decide to file a lawsuit. And they will file that lawsuit; this is not your father’s debt collector. According to the Wall Street Journal article mentioned above:

Debt collectors used to harry nonpaying borrowers for months with letters and phone calls. But those tactics are less effective now that many more borrowers are deeply in debt. So the new breed of debt collectors turns much more quickly to court to squeeze money out of distressed paper.

The WSJ  article cites two judges, one in Cook County, Illinois and the other in Indianapolis who are overburdened by the number of debt collection cases filed in their courtrooms. The Illinois judge stated “There exists a real danger that the courts will be perceived as mere extensions of collection agencies”.  The Indiana judge was forced to impose a limit of 500 new debt collection cases that could be filed in her courtroom every two weeks on a local law firm.

As stated at the beginning of this post, overall roughly 94% of lawsuits filed by third-party debt collectors end in a default judgement for the collector. Default judgement means the defendant (consumer) did not appear in court to answer the summons.  When the defendant doesn’t show a judgement is awarded to the plaintiff and an information subpoena is issued to the defendant; the consumer must then hand over employment and bank account information  for garnishment. Done deal.

To be continued…

copyright 2011 XtraOpinion C.D. Book

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  1. […] Most third -party debt  collection lawsuits brought have no standing. (Please read my three-part series regarding debt collection). Americans are doing themselves a horrendous disservice by not […]

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