By ISAAC WOLF
Scripps Howard News Service
January 14, 2010
In its first investigation of the $60-billion consumer debt resale market, the Federal Trade Commission has directed the nine companies that buy the most second-hand debt to turn over essentially all purchase and sales records for a six-month period in 2009.
That's just one part of a sweeping request included in a 15-page demand for information issued by the FTC in late December and obtained by the Scripps Howard News Service this week. Sent to the country's nine largest purchasers of unpaid credit card bills, hospital fees and other debts, the request is formally known as an "Order to File a Special Report."
The FTC's examination focuses on a segment of the debt collection industry that has mushroomed in the last decade and is drawing criticism for some of its practices. A Scripps Howard News Service investigation beginning in November documented serious problems spawned by this market.
The Scripps articles showed that when old credit card and other debts are sold, the new owners frequently do not receive documentation of the original debt. That, in turn, can lead collectors to use bad information to try to collect unsubstantiated debt, sue consumers without proof and damage their credit scores.
No federal law requires collectors to verify the alleged debt owed by a consumer or to transfer the proof of the debt to the new debt purchaser, the Scripps report found.
Following the Scripps reports, the FTC announced last week it has started its first-probe of the debt resale market. Agency officials say they want to pinpoint where, how, and when there is an information breakdown about these old debts.
The FTC's order -- which received a unanimous thumbs-up from the FTC's four commissioners -- seeks all transaction information for debts that were bought and sold during the specified period last year.
"The FTC is making it clear that they're out there to help consumers protect their rights," said Gerri Detweiler, co-author of "Debt Collection Answers" who has written four other books on credit and debt. But even as federal authorities take a more aggressive stance, consumers who feel they have been mistreated should stand up for themselves, Detweiler said.
"It still is important for consumers to speak up," Detweiler said. "Let the regulators know what's really going on."
The information requests to the firms aren't voluntary. The FTC's order carries weight similar to a subpoena, said Tom Pahl, assistant director of the FTC's division of financial practices.
But it's unclear how the nine companies will respond to the information orders. Each company either did not respond to interview requests or declined to comment, with one exception: Niles, Il-based Arrow Financial Services. Arrow is owned by Sallie Mae, the student loan giant based in Reston, Va.
"Arrow is cooperating fully with the FTC's study of the consumer debt resale market," company spokeswoman Martha Holler said.
The FTC -- which oversees debt collectors -- is asking for an array of records, including contracts between debt buyers and sellers, policies on providing information and detailed statistical calculations. The debt collectors have until February 25 to turn in their records, explanations and statistics.
To Detweiler, the debt expert, the rule change that would most help consumers would be a requirement for collectors to verify and itemize a debt. "The one thing I hear from consumers is 'I don't understand why they think I owe this much'," Detweiler said. "When consumers pay these debts, they should at least understand what they're paying and how soon they'll be able to retire the debt."
According to the FTC, the nine companies are:
-- Arrow Financial Services LLC, based in Niles, Ill. and part of Sallie Mae
-- Asta Funding, Inc., based in Englewood Cliffs, N.J.
-- B-Line, LLC, based in Seattle, Wash.
-- eCast Settlement Corp., affiliated with New York-based JP Morgan
-- Encore Capital Group Inc., based in San Diego, Calif.
-- NCO Portfolio Management, Inc., based in Horsham, Pa.
-- Portfolio Recovery Associates, L.L.C., based in Norfolk, Va.
-- Sherman Financial Group LLC, based in New York, N.Y.
-- Unifund Corp., based in Cincinnati, Ohio
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