With state attorneys general pursuing a growing number of cases against debt collectors and creditors, many collection industry insiders wonder whether they’ll ever get a fair shake.
Consumer complaints may be up, but does that mean the industry is always at fault? Are all of these cases valid? What’s more, many new laws and regulations are being enacted amid a highly charged political climate - creating an increasingly difficult business climate for collectors.
Take, for example, the recent case of Florida. The collection industry got caught in a tug-of-war between two candidates running for governor, Alex Sink, the state’s chief financial officer, and Attorney General Bill McCollum. Both candidates argued about who should regulate the state’s collection agencies in the wake of the increasing number of collection calls and complaints due to the recession.
At a February meeting, the state cabinet, which includes Sink and McCollum, along with Governor Charlie Crist and Commissioner Charlie Bronson, approved a 15-point motion to strengthen laws and regulations that address consumer debt collectors.
“They are working together against collection agencies,” says Pam Kirchner, who heads the Florida Collectors Association, and also is CEO at BCA Financial Services Inc. in Miami. “They are absolutely overreaching.”
Of great concern, one item would classify any violation of the Florida Consumer Collection Practices Act as an unfair and deceptive trade practice. That means the attorney general could seek civil penalties of up to $10,000 for each violation.
“An agency could have one complaint and get hit with a $10,000 fine,” says Kirchner.
Another item would eliminate the requirement to have complaints put in writing. Yet another would allow a collector’s license to be revoked or suspended before repeated violations had occurred.
“Every single item on the agenda is an additional overhead cost for agencies at a time when they cannot afford more overhead costs,” says Kirchner.
Florida isn’t the only state where the attorney general is beefing up its investigation into collection companies.
New York Attorney General Andrew Cuomo, a potential contender in the upcoming governor’s race, filed a lawsuit last July against collection agencies and law firms alleging that consumers were never properly notified about collection actions. The case involves more than 100,000 court orders where creditors won judgments worth a total of more than $500 million, according to the attorney general’s office. Cuomo wants the judgments voided.
“These attorney general actions are misdirected toward debt buyers and collectors,” says Barb Sinsley, general counsel of DBA International, the debt buyer’s association. Sinsley notes that it was the process server that failed to notify consumers about the collection actions.
Complicating matters, the industry suffered a black eye when an expose of a so-called collector in Buffalo engaging in shady practices appeared on the TV show “Dateline.” Sinsley met with Cuomo’s office to point out that collectors shouldn’t be lumped together with one bad actor, but, she says, “Unfortunately, the attorney general has continued to proceed against collection lawyers in New York.”
In late January, West Virginia Attorney General Darrell McGraw filed suit against credit card issuer Capital One alleging that the company lured consumers into payment plans with solicitations that looked like offers of new credit. Though some in the collection industry say the charges are unfair because Cap One stopped the practice years ago, the West Virginia attorney general’s office says Cap One has never provided any evidence that the practice has been stopped and consumer complaints are still being filed.
“We assume (Cap One) is still continuing the practice,” says Charli Fulton, senior assistant attorney general, Charleston, W.V. Cap One did not return a request for comment on the story.
In Minnesota, Attorney General Lori Swanson reached an agreement last July with the National Arbitration Forum that it would get out of the business of arbitrating credit card and other consumer collection disputes.
Of more immediate concern is new legislation pending in Minnesota similar to a North Carolina law that cuts off collection remedies past the statute of limitations. Similar bills are under consideration in Kentucky and Massachusetts.
Generally, the reaction from state attorneys general offices is that they’re not being unfair but simply protecting consumers. And industry players realize that’s part of the attorney general’s job. “They are there to protect consumers,” says Rozanne Andersen, CEO at ACA International in Minneapolis, the collection industry’s largest trade group.
Overall, the industry has taken a measured approach, hoping to educate state attorneys general and legislators about what exactly a collection agency or debt buyer does. “These situations are frustrating to members of the industry,” says Andersen, “I am not happy about some attorneys general actions, but there’s a need to continue to work with them.”
Andersen thinks it’s a plus for the industry that attorneys general are getting more involved in the industry. “We are often a very misunderstood industry,” she says. The ACA is active the big attorneys general trade associations of both political parties. “The industry can play a role in consumer complaints,” says Andersen.
ACA’s David Cherner, director of state government affairs, thinks it’s a bad strategy to lie low and hope that collectors don’t get noticed by regulators. “Being politically active is important,” he says. “It’s better to engage.”
When it comes to fairness, industry players contend the rules and laws already on the books should be enforced instead of enacting sweeping new changes. New laws won’t necessarily curtail bad collection practices, they argue. “If (violators) aren’t following existing rules, they won’t follow new rules,” says Kirchner in Florida.
DBA’s Sinsley is working to formulate strategies to oppose new legislation regarding debt buyers. But, she adds, buyers are already revamping their strategies which may adversely impact consumers. For example, debt buyers may decide to sue consumers rather than work out settlements as a result of new laws, says Sinsley, something legislators didn’t consider. “It’s a case of unintended consequences.”
Meanwhile, in Florida, three bills already have been introduced in the wake of the state cabinet’s recent motion to regulate collectors further. “I have a feeling we will get hit with a new bill every week,” says Kirchner. “We will have to start fighting.” She expects the Florida Collectors Association to fight new legislation, and hopes to also have the support of the ACA. But she warns that other states could follow Florida’s lead. “This is bigger than us.”
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