Asset Acceptance LLC, a Warren, Mich.-based debt buyer, has agreed to pay a $2.5 million civil penalty to settle Federal Trade Commission charges that it made a range of misrepresentations when trying to collect old debts.

The company also agreed to tell consumers whose debt may be too old to be legally enforceable that it will not sue to collect on that debt.

The proposed settlement order resolving the agency's charges also requires that when consumers dispute the accuracy of a debt, Asset Acceptance must investigate the dispute, and make clear whether it has a "reasonable basis for any claims the consumer owes the debt, before continuing its collection efforts."

The proposed order also bars the company from placing debt on consumers' credit reports without notifying them about the negative report. The U.S. Department of Justice filed the proposed settlement order Monday at the FTC's request.

“Most consumers do not know their legal rights with respect to collection of old debts past the statute of limitations,” says David Vladeck, director of the FTC’s Bureau of Consumer Protection. “When a collector tells a consumer that she owes money and demands payment, it may create the misleading impression that the collector can sue the consumer in court to collect that debt.  This FTC settlement signals that, even with old debt, the prohibitions against deceptive and unfair collection methods apply.”

Asset Acceptance officials were not immediately available for comment on the settlement.

The FTC's action alleged that Asset Acceptance violated the FTC Act, the Fair Debt Collection Practices Act and the Fair Credit Reporting Act.  

Asset Acceptance buys unpaid debts from credit originators such as credit card companies, health clubs and telecommunications and utilities providers, as well as other debt buyers, and attempts to collect them. 

The FTC's nine-count complaint charged Asset Acceptance with:

  • misrepresenting that consumers owed a debt when it could not substantiate its representations;
  • failing to disclose that debts are too old to be legally enforceable or that a partial payment would extend the time a debt could be legally enforceable;

  • providing information to credit reporting agencies, while knowing or having reasonable cause to believe that the information was inaccurate;

  • failing to notify consumers in writing that it provided negative information to a credit reporting agency;

  • failing to conduct a reasonable investigation when it received a notice of dispute from a credit reporting agency;

    repeatedly calling third parties who do not owe a debt;

  • informing third parties about a debt;

  • using illegal debt-collection practices, including misrepresenting the character, amount, or legal status of a debt; providing inaccurate information to credit reporting agencies; and making false representations to collect a debt; and

  • failing to provide verification of the debt and continuing to attempt to collect a debt when it is disputed by the consumer.

    The proposed settlement requires that when Asset Acceptance knows or should know debt may not be legally enforceable under state law – often referred to as "time-barred" debt – it must disclose to the consumer that it will not sue on the debt and, if true, that it may report non-payment to the credit reporting agencies.
    Once it has made that disclosure, it may not sue the consumer, even if the consumer makes a partial payment that otherwise would make the debt no longer time-barred.

    The order also prohibits the company from:

    • Making any material misrepresentation to consumers and making any representation that a consumer owes a particular debt, or as to the amount of the debt, unless it has a reasonable basis for the representation. To ensure it has such a basis, the order requires Asset Acceptance to investigate consumer disputes before continuing collection efforts;

    • "Parking" – or placing – debt on a consumer's credit report when it has failed to notify the consumer in writing about the negative report, and

    • Violating the Fair Credit Reporting Act and the Fair Debt Collection Practices Act, in the ways alleged in the complaint.

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