Last week, a Minnesota-based debt collection firm with a long history of shady practices and consumer complaints was slapped with a whopping $1.75 million fine by the Federal Trade Commission. It was the second-highest fine ever issued in a civil trial against a debt collection company. Among the offenses committed by the company, Allied Interstate, Inc., were charges that it violated the Fair Debt Collection Practices Act, the FTC said. Allied also tried to collect debt without proof or checking for accuracy - the same accusation that's now roiling the foreclosed mortgage market.
The circumstances that brought the messy state of foreclosure documentation to light have also helped shine a light on similar practices that some assert have long existed in the debt collection business. The New York Times explored the day-to-day jobs of debt collection employees whose job it was to review and sign documents verifying the legitimacy of the debts the company held.
One former collection agency worker testified in 2007 that she signed an affidavit literally every 13 seconds (about 2,000 a day). Each affidavit was supposed to verify that the information connected to an outstanding debt was correct and complete, but there's obviously no way anyone could do that kind of fact-checking in 13 seconds.
Debt collectors, perhaps predictably, defended their practices in the article, which went on to point out that sometimes the bad information came straight from the banks. Instead of catching and correcting this information, debt buyers took for granted that it was the truth. As a result, many Americans have been harassed by debt collectors wielding inaccurate information.
"Companies who are foreclosing are really abusing the legal system, committing perjury on a daily basis. You can multiply that by what happens on a daily basis in the debt collection industry," Ira Rheingold, executive director of the National Association of Consumer Advocates, tells WalletPop. "Often times, all they have is a stream of electronic data," he says.
Nevertheless, these companies continue to pursue people because, frankly, it's a numbers game. If even a small fraction pay up or are forced - erroneously or otherwise - to pay by the court system, debt buyers make big bucks.
Consumer advocates hope the FTC's legal action against Allied Interstate is just the beginning of a crackdown on debt collection firms that skirt or outright flout the law. The National Consumer Law Center offers this online brochure telling consumers how to deal with debt collectors, including if you're being unfairly targeted. If a collection company is hassling you for a debt you don't owe, contact the FTC's Consumer Response Center by calling (877) 382-4357 or going online to www.ftc.gov to file a complaint. Also, you can read our story 10 Tips for Dealing with Debt Collectors.
Take the first steps to building your portfolio.View Course »