WASHINGTON – Taking aim at illegal debt collectors, officials on Wednesday rolled out a new coordinated effort by federal, state and local authorities to crack down on bullying tactics as well as schemes to collect so-called “phantom and zombie debt.”
Federal Trade Commission Chairwoman Edith Ramirez was flanked by Minnesota’s commerce commissioner and Illinois’ attorney general at a news conference, where Ramirez played a recording of a debt collector threatening to ruin the reputation of a schoolteacher whom he said owed money.
Lawful debt collection plays a role in the credit system, Ramirez said. But there is an increasing need to protect consumers from “intimidation.”
“We launched this initiative because we thought we needed to take a new approach,” she explained.
Coordination across agencies and levels of government is designed to produce more and better enforcement actions. The FTC announced five new enforcement actions as examples of cooperation.
Mike Rothman, commissioner of the Minnesota Department of Commerce, stressed the role of regulators in bringing bad actors to heel. He pointed to the licensing and audit powers of his agency in making debt collectors in Minnesota behave legally.
Rothman talked at length about the case of Tucker, Albin & Associates, a Texas firm that allegedly threatened more than 100 small businesses across Minnesota.
“Their debt collectors were trained to break the law,” Rothman explained.
He called the company’s training manual “a smoking bazooka” in making a case that led Tucker, Albin to sign a July 2015 settlement that required the company to pay $250,000 in fines and suspended another $250,000 in fines contingent on retraining personnel, rewriting all manuals and committing no new legal violations.
Rothman said, Tucker, Albin debt collectors learned how to “spoof” telephone numbers of family and friends on caller IDs so debtors would answer their phones. Collectors also posed as private investigators, making legal threats which they had no power to follow through on.
Beyond harassment, Illinois Attorney General Lisa Madigan said failure by collectors to accurately document debt remains a big problem. Madigan talked of cracking down on “phantom and zombie debt.” That’s where unscrupulous collectors either overstate amounts owed, don’t substantiate that debts are legally collectible or pursue debts that have already been paid.
“Scammers” may even buy consumer information and call incessantly to collect debts that never existed, Madigan said.
One issue that continues unresolved is the sale of IOU’s from financial institutions and credit card companies to debt buyers who pay pennies on the dollar and make their money by squeezing those who owe. Debt buyers often resell debts to other companies who, in turn, resell them to yet more companies. The deeper into the collection system these obligations descend, the greater the chance of confusion or abuse of the debtor, Rothman said.
“All along that route, things need to be tightened up,” Rothman said.
In Minnesota, the state does not limit the number of times a debt can be sold. Nor does the state license debt buyers as it does debt collection businesses and debt collectors. Debt collectors and collection agencies collect on behalf of others, a commerce spokesman said, explaining the distinction. Debt buyers collect for themselves because they own the debt.
A licensure bill for debt buyers failed in the most recent session of the state legislature.
At the federal level, Ramirez said the Consumer Finance Protection Bureau is working on new rules with regard to the sale of overdue debts.
“I think that’s an appropriate response,” Ramirez said. “We’ll see what they come up with.”