Debt Collection System “Broken” Says FTC

Posted July 13, 2010 in Creditor/Debtor by Arthur Buono

The Federal Trade Commission issued a report yesterday calling for reform of debt collection practices. The report concludes that the system is broken and fails to provide adequate protection for consumers in litigation and arbitration.

 
  • Debt collection increasingly an automated process
  • Legal system failing to protect consumers from false claims
  • Most claims go uncontested

 

Bad Debts Just Got Worse: Collection Goes High Tech

Call it digital dunning. A law firm that employs 14 lawyers can file over 80,000 debt collection cases per year. The firms use special software that automates the process of filing the cases. Collection agencies buy bad debts in bulk, often from credit card companies, and push them into court. One lawyer calls this the factory approach. Most of the defendants don’t show up to contest the case, or appear without a lawyer. The resulting judgment makes the debt that much easier to collect.

You can be sued years after a debt goes bad. The Minneapolis Star-Tribune reports that collection agencies sometimes sue on 15-year-old debts. Critics claim that the process permits too many mistakes to be made. But a lawyer who heads the largest debt collection practice in Minnesota claims the computer records he uses to sue are more accurate than paper documents.

The FTC receives more complaints about debt collection practices than any other subject. The agency investigates and punishes debt collectors who violate the Fair Debt Collection Practices Act. The report calls for a number of reforms to the system. One would require collectors to include more information about the alleged debt in their complaints. The number one thing you can do to protect yourself from a false claim, or protect your rights against a legal one, is to respond to it, especially with a lawyer.

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