The Federal Trade Commission has announced the results of the first empirical study of debt buyers–companies that are in the business of buying consumer debts and trying to collect on them. As the Commission has found in its prior work, debt collectors who have insufficient information may approach the wrong consumers, try to collect the wrong amount, or both. The report, titled "The Structure and Practices of the Debt Buying Industry," found there is room for improvement in the information debt buyers have when they contact consumers and try to collect.
The study analyzed more than 5,000 portfolios of consumer debt containing nearly 90 million consumer accounts with a face value of $143 billion. By dollar amount, most of the debt studied (71 percent) was credit card debt, but the study also included mortgage, medical, utility, telecommunications, and other consumer debt. The study evaluated the types of information debt buyers received from creditors both at and after the time of purchase, as well as the contracts governing the relationship between debt buyers and creditors.
The report notes that debt buying plays an important role in consumer credit. Debt buyers paid pennies on the dollar (an average of about 4 cents, with older debt selling for less than newer debt) for the billions of dollars in debts they bought from creditors. The proceeds from these sales have helped to reduce creditors’ losses from lending money, allowing them to provide more credit at lower prices.
But, as the report points out, debt buying also raises significant consumer protection concerns: Consumers each year disputed an estimated one million or more debts that debt buyers attempted to collect. Prior FTC experience has found that consumers often dispute the amount of the debt or that they owe the debt at all. Debt buyers verified only about half of the disputed debts, which means that buyers either could not verify or did not attempt to verify about 500,000 debts each year.
The report also found that at the time of purchase, creditors provided debt buyers with some important information concerning debts, including the name, address, and telephone number, and social security number of the debtor; the creditor’s account number; the outstanding balance on the account; and the dates of account opening and last payment.
Buyers, however, did not receive some key information about debts purchased, such as whether consumers previously disputed the debts or whether collectors previously verified the debts. Creditors also imposed limitations on the ability of debt buyers to obtain information and documents about accounts after sale. Most contracts between creditors and debt buyers stated that the creditors did not warrant that the information they provided to buyers about debts was accurate.
The report cites a need for further research. The study focused on nine of the nation’s largest debt buyers, which comprised more than 75 percent of the industry, and did not include data from any smaller debt buyers. The study also did not consider the practices debt buyers used when taking legal action against consumers, or the accuracy of the information debt buyers received and used to collect debts. Further research on these and other debt buyer topics would be beneficial to policymakers.