CFPB Orders Debt Collection Agencies To Refund Millions

The 77 million Americans pursued and often harassed by debt collection agencies won a moment of relief when the Consumer Financial Protection Bureau (CFPB) ordered the nation’s two largest debt buying companies to stop collecting on $128 million in debt and refund consumers $61 million.

The CFPB hit Encore Capital Group with a $10 million fine and Portfolio Recovery Associates (PRA) with $8 million in fines for illegally collecting debts and using deceptive practices. The federal agency told the two companies to overhaul their debt collection and litigation practices and stop reselling debts to third parties.

It was a remarkable putdown for the two debt collection agencies. Encore said it collected more than $1 billion in debts in 2014 and PRA’s 2015 mid-year statement said it already had collected $448.5 million this year.

“Encore and Portfolio Recovery Associates threatened and deceived consumers to collect on debt they should have known were inaccurate or had other problems,” CFPB Director Richard Cordray said. “We will continue to take action to protect consumers from illegal and obnoxious debt collection practices.”

Debt Collectors Get Most Complaints

The debt collection business generates more consumer complaints than any industry. According to the CFPB there have been 163,000 complaints since July 10, 2013. The bureau said that Encore must refund $42 million and PRA must give back $19 million for failing to verify the debt and pressuring consumers with false statements and lawsuits. The two companies were ordered to contact customers affected by the refunds.

Encore and PRA, like many debt collection agencies, purchases delinquent debts and charged off accounts for pennies on the dollar. They attempt to collect all, or large parts of the amount claimed by the original lender, often adding interest and fees that increase the final amount dramatically.

The CFPB says the two companies purchased more than $200 billion of debts related to credit cards, phone bills and other accounts. In many cases, the companies wouldn’t bother trying to collect the debt. Instead, they immediately would file lawsuits against consumers and win the majority of those suits because consumers failed to appear in court to defend themselves.

Statute Of Limitations, Harassment Cited

The CFPB said that the companies should have known that much of the debt they purchased was either inaccurate or could not legally be enforced. In many cases, the statute of limitations on the debt already had run out. The CFPB said that Encore and PRA gave consumers incorrect balances, interest rates and payment due dates to consumers in their attempts to collect on the debts.

Some of the other tactics used by Encore and PRA to get their share of that money.

  • Sent letters offering a time-limited opportunity to settle a debt.
  • Told consumers the burden of proof was on them to disprove the debt.
  • Misrepresented themselves as attorneys and said they planned to pursue legal action if the consumer did not make payments on the debt.
  • Continuously made harassing phone calls before the legal hour of 8 a.m. and after the legal hour of 9 p.m.

Medical Bills, Credit Cards Source Of Problem

A 2014 study by the Urban Institute said that one out of three adults in the U.S. with a credit file has at least one debt in collections. Consumers owe an average of $5,178 and the debt is typically spread over mortgages, credit card balance, medical and utility bills.

Etta Money, President and Chief Executive Officer at InCharge Debt Solutions, a non-profit credit counseling agency, said people in debt that far over their heads are vulnerable to the tactics the CFPB described.

“People in that situation have enough to worry about without being misled or worse, intimidated.” Money said. “Most of the people we talk to want to pay off their debt. They just aren’t aware of the other avenues available.

“They need to know that when you fall behind there are ways to solve the problem without letting it get to collection agencies.”

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it seven years ago, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering college and professional sports, which are the fantasy worlds of finance. His work has been published by the Associated Press, New York Times, Washington Post, Chicago Tribune, Sports Illustrated and Sporting News, among others. His interest in sports has waned some, but his interest in never reaching for his wallet is as passionate as ever. Bill can be reached at bfay@debt.org.

Debt is Due Now On Paper

3 Minute Read

Table of Contents
    Add a header to begin generating the table of contents

    Home > Blog > CFPB Orders Debt Collection Agencies To Refund Millions

    Sources:

    1. Ratcliffe, C., McKernan, S., Theodos, B., Kalish, E. (2014, July 29) Delinquent Debt in America. Retrieved from http://www.urban.org/sites/default/files/alfresco/publication-pdfs/413191-Delinquent-Debt-in-America.PDF
    2. NA, (2015, August 10) PRA Group Reports Second Quarter 2015 Results. Retrieved from http://ir.pragroup.com/releasedetail.cfm?ReleaseID=926946
    3. NA, ND. Encore Capital Group. Retrieved from http://www.encorecapital.com/about