Debt Buyers and Bad Actors Should Not Define an Industry
More and more Americans turn to comedy shows for news in addition to entertainment. These shows make plenty of jokes, but they also claim to present facts, presumably accurate, in a journalistic way. While not always a problem, Last Week Tonight’s recent episode on debt buyers conflated several issues and left out some major pieces of the picture.
While you may finish watching the episode with the impression that debt collection is a problem that needs serious regulation, the episode leaves out the significant legal safeguards that are already in place, and conflates debt buying with debt collection in general, and even practicing law.
The Problems Inherent in Debt Buying and Collection
After a few easy Nicholas Cage jokes, Oliver begins a rapid-fire presentation of the various evils of debt: it is ubiquitous in American society and has ruined lives; debt is packaged and sold in bundles, usually as is, with little or no supporting documents, and frequently with just a spreadsheet listing identifying information and the amount owed; debt collectors can be abusive and unscrupulous; debt collectors file a lot of lawsuits, many of which go by default; and no license is required to buy or collect debt.
The format moves so quickly it is difficult to follow the logic that connects it all together. That works to the show’s advantage, because if you slow down and actually consider the points, the arguments conflate different practices and ignore the legal protections in place for consumers.
Medical Bills Are Not Being Sold on Spreadsheets
The show starts with a tearjerker: an older woman telling the story of her husband getting ill, the medical insurance failing to cover it, and the two facing an $80,000 medical bill. This is the most empathetic debt possible: vulnerable people, incurring massive medical debt through no fault of their own. However, after telling us briefly about the situation, the show simply moves on, never to mention it again.
After presenting a tragic situation, medical debt is never discussed. The show correctly identifies the debts being bought and sold on spreadsheets with little or no supporting documentation: consumer debt, mostly payday loans and credit cards. It is important that the viewer understand that the debts discussed for the rest of the show are not like this debt presented at the very start of the show. The debts criticized later are mostly for loans or credit cards. They are mostly under $1,000, and almost all are under $10,000, and none of them are as high as $80,000. The bills that are ruining people’s lives are not the ones criticized in this show. The anecdote raises serious issues about medical costs, about insurance, and about how we pay for medical care in this country, but it has nothing to do with debt buying or collections.
So what is the point of this and the other melodramatic vignettes? Unfortunately, it can only be to prime the viewers’ emotional pumps with a story that is irrelevant.
Lack of Information and Supporting Documents
Once we understand that the medical bills movingly portrayed are not the issue, the presence of inaccurate information or lack of supporting documents seems less startling. When debts are bundled and sold, there are inevitably mistakes made. This is not only true of debt buying, but of any large-scale consumer institution.
But this does not lead to harassment of the wrong debtor. If a collector knowingly attempts to collect a debt that is not owed, the collector is liable for damages in a civil lawsuit, and may also be prosecuted by one of several regulatory agencies. If a collection agency continues to contact you after you have provided information confirming you are not the debtor, or that the debt has been resolved, you should contact an attorney immediately. If a collector calls you with threats or engages in other harassing behavior, you should immediately get an attorney. Consumers also have the right under federal law to demand validation of the debt, and the collector must provide it or cease collection.
The person who is actually injured by false information in these transactions is the debt buyer. This person has paid cash betting that the debtors will be able and willing to pay some of the balance owed. If the debt buyer is contacting people based on bad information, it is opening itself to lawsuits, regulatory prosecution, and financial loss.
Filing a Large Volume of Lawsuits
Oliver points out that debt collectors file more lawsuits than almost any other group. He presents that fact as if it was inherently suspicious, or even wrong, but he never tells us why. In fact, there is nothing wrong with this fact at all. The way our society resolves disputes over money is through lawsuits. When a collector insists a debt is owed, and the debtor refuses to pay it, the collector’s only options are to close the account or file a lawsuit.
Oliver claims that most of these lawsuits go to judgment by default, and implies this can be done without properly vetting the debt or the debtor knowing it has occurred. That is simply false. The Federal Constitution mandates that a defendant receive notice of a lawsuit and be given time to respond. Even once the debtor is served, and the time to respond has expired, the court requires the collector to file paperwork proving the debt is owed. Court’s can and do dismiss cases for failure to serve the defendant, and do also reject default judgments because the collector has failed to prove the debt is owed.
Oliver misses the main reason why a majority of collection lawsuits are defaulted: the debt is valid and owed and the debtor understands she has no defense.
John Oliver also mentions attorney review, or lack of review, rather, in debt collection lawsuits. He cites a famous case where the court determined the attorneys had spent an average of four seconds reviewing the Complaint before it was filed. However, Oliver only knows about these attorneys because they were sued for violating the Fair Debt Collection Practices Act by not providing adequate attorney review, and they lost.
No License Required, But Regulation Is Deep and Consistent
In fact, that is the biggest piece missing from the episode: it fails to even mention the Fair Debt Collection Practices Act (“FDCPA”). The FDCPA is a strong piece of legislation that provides real protections to consumers in all fifty states. The FDCPA was passed in 1977 to stop the very practices that Oliver discusses in the show. The law makes it illegal for a debt collector to call at inconvenient times, to be abusive or harassing, to mislead or lie, or to reveal the debt to any third parties, among many other prohibited activities.
Entities with regulatory oversight over the debt industry include the Consumer Financial Protection Bureau, the Federal Trade Commission, and numerous state agencies. Just this month, the FTC announced that it had obtained a court order against a debt collector from the District Court for the Northern District of Georgia that froze Defendants’ assets, provided the FTC with immediate access to Defendants’ business premises, and granted expedited discovery to determine the existence and location of assets and documents pertinent to the allegations of the Complaint. The recently issued final order prohibits the defendants from, among other things: (i) engaging in debt collection activities; (ii) misrepresenting material facts regarding financial-related products or services; and (iii) disclosing, using, or benefiting from consumers’ personal information, and failing to properly destroy such information when appropriate. Finally, the order imposes a $980,000 judgment to be used as equitable monetary relief, including, but not limited to, consumer redress.
Note that this order was a result of the behavior portrayed in this episode: abusive and deceptive threats. This regulation is in addition to the pressure provided from civil lawsuits by debtors. Reports of collection agencies being shut down by regulators or sued into oblivion are common in industry publications. It is much more common than people realize for collectors, and even collection law firms, to write checks to debtors for violating the law.
Debt collection is a legal economic activity in the United States, and for good reason. The economic benefits to debt collection are many, and are discussed in this article. The horror stories on display in this episode are already illegal under federal law, and debt collection is already regulated by numerous government agencies and subject to punitive civil lawsuits. All of the activities decried by Oliver in this episode are either unrelated to debt collection, such as overwhelming medical debt, or are already illegal, such as harassment and unwarranted threats. The issues presented were successfully addressed forty years ago by passage of the FDCPA.