The Federal Trade Commission (FTC) administers the 1977 landmark federal Fair Debt Collection Practices Act (FDCPA), which established debt collection industry standards and depends on the industry self-regulating or "self-enforcing" the statute through "private action" as opposed to "government law enforcement".
[citation needed] The RTC held auctions around the country allowing various organizations to bid for portfolios of mixed assets.
[15] According to the National Consumer Law Center (NCLC), these two factors contributed to the rapid growth of the debt buying industry.
[20] A July 2006 article in The New York Times reported that the Federal Trade Commission received 66,627 complaints from consumers about "third-party debt collectors" in 2005 compared to 11,820 in 1999.
[21]: i Six of the largest debt buyers participated in a three-year FTC study providing some data related to 5,000 portfolios—mainly credit card debt—purchased for about $6.5 billion representing almost "90 million consumer accounts".
[22] With the passing of Dodd–Frank Wall Street Reform and Consumer Protection Act in 2010, debt buyer industry regulations were tightened.
[23] Consumer third-party agencies are subject to FDCPA, which went into effect in March 1978 and is administered by the Federal Trade Commission (FTC) (15 USC 1692 et seq.)
They may also be subject to regulatory action by state attorneys general or the Federal Trade Commission, which in 2004 shut down Capital Acquisitions and Management Corporation, a debt buyer that allegedly engaged in extensive abusive collection practices.
[30] Following FTC hearings on revisions to the FDCPA in October 2007, the Commission brought "unprecedented enforcement actions against large accounts receivable management (ARM) companies".
[31] In their February 2009 report, the Commission raised concerns about consumer protection as related to "debt collection litigation and arbitration practices".
[32]: 71 The FTC recommended that the federal and state governments, and the debt collection industry, implement reforms to increase the efficiency and fairness of the system.
Many states' laws regulate the debt collection industry and give consumer debtors more extensive protection from abusive and deceptive practices.
"[33] New York City enacted a law in 2009 which "prohibiting debt collection agencies from collecting 'a debt on which the statute of limitations for initiating legal action has expired unless such agency first provides the consumer such information about the consumer's legal rights as the commissioner prescribes by rule.
[citation needed] In a 2005 article published in Business Credit journal, the author Paul Legrady distinguished between first, second and third-party collection agencies.
First-party collection agencies tend to nurture more constructive relationships with the second-party (called consumers or debtors) and are involved in the early months before they selling or passing the debt on to a third-party.
[citation needed] Debt buying has historically taken place via the purchase and sale of whole portfolios consisting of a static group of accounts.
This information protects consumers and is necessary to prove in court that the debtor owes the money and that the debt buyer owns the account.
[43] According to the Consumer Financial Protection Bureau, an official site of the United States government, they purchase delinquent or charged-off accounts for a fraction of the value of the debt.
[44] The firm is a publicly traded NASDAQ Global Select company, a component stock of the Russell 2000, the S&P SmallCap 600, and the Wilshire 4500.
[citation needed] The Receivable Management Services Corporation (RMS), a collection agency, is based in Bethlehem, Pennsylvania.
In 2007 the Commission brought actions against the largest debt buying companies for practices that ethical industry members also deplored.
[31] In her 2006 The Washington Post article, Pulitzer Prize-winning journalist Liz Pulliam Weston described some of the worst practices debt buyer industry attorneys had used.
[5] The U.S. federal Consumer Financial Protection Bureau imposed an enforcement action on Encore for pressuring borrowers "to pay with false statements, with lawsuits and with the use of using so-called robo-signed court documents,"[47] that was also used in mortgage processing in the subprime market.
[26] Collection firms were fraudulently and sloppily "[c]onducting a digital dragnet" troll[ing] through "commercial databases searching for debtors".
[50] They were also barred from "illegal practices that can deceive or intimidate consumers, such as filing lawsuits without determining if debts in question are valid".
[50] The law firm, the partners themselves and the debt buyer were ordered to pay a total of $2.5 million in fines to the CFPB's Civil Penalty Fund.
[48] On May 28, 2015, three defendants—Navient Solutions Inc. (formerly known as Sallie Mae, Inc.), and Navient DE Corporation (formerly known as SLM DE Corporation), and Sallie Mae Bank—were charged with violating the Service members Civil Relief Act (SCRA) from 2005 through 2015 by "failing to provide members of the military the 6 percent interest rate cap to which they were entitled for loans that were incurred before the military service began".
[41] In an article of June 25, 2017, in The Washington Post, journalist Adam Winkler observed that there has been a shift in Supreme Court decisions towards favoring corporations like debt buyers.
[28] In a ruling on May 15, 2017, the Supreme Court found in favor of Midland Credit Management, Inc., a debt collection company, in the Johnson's Chapter 13 bankruptcy case.
Johnson then sued Midland, "seeking actual damages, statutory damages, attorney's fees, and costs for a violation" of the Fair Debt Collection Practices Act,[51] claiming that its filing a proof of claim on an obviously time-barred debt was "false", "deceptive", "misleading", "unconscionable", and "unfair".