The Federal Trade Commission’s $2.5 million settlement with Asset Acceptance Capital Corp. is intended to signal it will move against abusive practices in the debt collection industry, agency officials said.
Under the agreement with the company’s Asset Acceptance LLC unit announced yesterday, consumers whose debt may have passed the legal time limit for collection in their state won’t be threatened with lawsuits, the officials said.
“We do hope that this settlement will be seen by the industry as a framework on how to interact with consumers on time-barred debt,” Reilly Dolan, assistant director for the division of financial practices at the FTC, said today in a telephone interview.
The FTC has brought eight cases against debt collectors in the past two years as it steps up enforcement in the industry in response to growing complaints, Dolan said. The Asset Acceptance fine is the second-largest placed on a debt collector by the FTC, after the $2.8 million penalty levied against West Asset Management Inc. in March. Asset Acceptance reported net income of $7.8 million in the first nine months of the year.
Under the FTC settlement, Asset Acceptance must also investigate disputes over debt to ensure it has a reasonable basis for claiming the consumer owes the money. It is barred from placing negative information on consumers’ credit reports without their knowledge, which violates the Fair Credit Reporting Act, the agency said.
‘Sending a Signal’
“We are sending a signal that we’ve been long critical about some of the practices of debt buyers,” said David Vladeck, director of the FTC’s bureau of consumer protection, on a conference call with reporters yesterday.
Asset Acceptance, based in Warren, Michigan, pays pennies on the dollar for debt owed to companies including credit card issuers, health clubs and telecommunication and utility providers, according to the regulator. It has bought tens of millions of consumer accounts, targeting those more than a year past due that other collectors have given up on.
Some of the debt is too old to be legally enforceable under state statutes, the FTC said.
“It’s time to rein in debt collection abuses with some common sense rules that protect consumers from unfair harassment,” said Suzanne Martindale, staff attorney for Consumers Union, a non-profit organization based in New York and the publisher of “Consumer Reports” magazine. “Some debt collectors unfairly target consumers even when the statute of limitations has passed or when they don’t have the proper documentation to prove the debt is owed.”
Consumers Union said more reforms are needed, including increased oversight to ensure consumers are properly notified of lawsuits and the establishment of a “sell-by” date for old debt that would make it illegal under federal law to sell or attempt to collect debt that is more than seven years old -- too old to be reported on a credit report under the federal Fair Credit Reporting Act.
Asset Acceptance said the settlement won’t have a “material adverse effect” on its business and doesn’t represent any admission of the FTC’s claims, according to a statement. The company said it agreed to “undertake industry-leading consumer protection practices” under the accord.
“The requirement that disclosures be made to debtors whose debt is past the statute of limitations is something we view as new measures for the debt collection industry,” Edwin “Skip” Herbert, general counsel for Asset Acceptance, said in a telephone interview. “We worked very closely with the FTC to come up with something clear and workable: ‘Given the age of the debt we will not sue you.’”
The FTC has issued a new publication to help consumers understand how debt collectors attempt to collect old debts, along with their rights in these cases. The publication, “Time-Barred Debts: Understanding Your Rights When It Comes to Old Debts,” is a guide on when debt is too old for a collector to sue and what consumers should do if a collector calls about such a debt, the regulator said.
The case is U.S. v. Asset Acceptance LLC, 12-cv-182, U.S. District Court, Middle District of Florida (Tampa).