Managing Debt

Franken Takes Aim at Debt Collection Abuses

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Maybe it was a Star Tribune series on unsavory debt collection practices in Minnesota. Or the recent ABC story revealing abusive and racist comments by a debt collector pursing an $82 debt.  Or the thousands of complaints that have poured into state and federal regulators about debt collection practices.

Whatever got Senator Al Franken’s attention, it was important enough for him to introduce Senate Bill 3888, “The End Debt Collector Abuse Act of 2010.’’ This proposed legislation would:

Require debt collectors to provide more thorough validation notices. Currently, the federal Fair Debt Collection Practices Act requires debt collectors to send consumers verification of a debt upon request. But, except for the name of the creditor and the amount owed, it is quiet on the exact information that must be provided. S. 3888 would require that validation notices include:

  • The date the last payment was made to the creditor, and the balance when the account went into default;
  • The name and address of the last person to extend credit to the consumer with respect to that debt;
  • And itemization of principal, interest, and fees that make up the debt as well as any other charges added after the last payment was made to the creditor;
  • A description of the consumer’s rights, including the right to ask the collector to cease contact, as well as the name and address of a person with a collection agency who handles billing errors and disputes.

These provisions alone could make a huge difference in helping curb abusive debt collection practices by weeding out debt buyers that buy up old debt and try to collect even when they have little documentation to prove who owes what. It could also help prevent collection agencies from illegally inflating debts.

But wait, there’s more!

Thorough investigations of disputes required. Collectors currently often respond to consumer disputes by essentially reiterating their first position, “We say you owe it, so pay up.” Under S. 3888, if a consumer disputes a debt, the collector must undertake a thorough investigation and provide a timely response.

Stop collectors from unfairly using arrest warrants to collect debts. A Star Tribune expose described how the rate of “arrest warrants against debtors (in Franken’s home state of Minnesota) has jumped 60 percent over the past four years, with 845 cases in 2009.” The story details how other states are seeing similar increases.   Not only is this practice often counterproductive (how can you earn money to pay back your debt when you are sitting in a jail cell?) but it shifts the cost of debt collection to taxpayers. This bill would make seeking an arrest warrant an unfair debt collection practice.

Increase civil penalties on debt collectors who break the law. Currently, consumers who successfully sue debt collectors may be awarded actual damages plus statutory damages of up to $1000 (a figure that has not been raised since the 1970s), plus attorney fees. That $1000 limit would be raised based on adjustments in the Consumer Price Index. In his press release, Senator Franken says it would, “discourage them from employing bad practices.”

Allow judges to put a halt to illegal violations of the law by a debt collector. S. 3888 would allow judges to provide injunctive relief to consumers.

Given that debt collectors have generated more complaints to the Federal Trade Commission than any other industry, it would seem that 2010 would be an appropriate time to put an end to debt collector abuse.

Image: AlFranken.com

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