The Federal Trade Commission has released a report on the debt purchasing
industry. This report is the first of its kind and takes a critical look
at the structure and practices of the debt buying industry.
As most consumer rights lawyers are well-aware, one of the FTC's main
findings is that the majority of debt buyers do not obtain enough information
about the debts being purchased. For example, the FTC's study shows
that debt buyers do not know whether the amount owed has ever been disputed
or whether the creditors previously verified the debts. Old debt and discharged
debts are sold to debt buyers who may not be aware that the debt is technically
Granted, a bit of reading between the lines is required. While debt buyers
may not have enough information about the debts that they are buying,
the low number of consumers who fight them makes the risk of collecting
on a bad debt extremely low. Even if a few people fight a debt buyer for
collecting on bad debts, the debts are purchased for pennies on the dollar.
This means that for every successful collection, there is a high profit
margin. This, in turn, offsets the cost of settling a dispute with the
occasional consumer who asserts his rights.
Ultimately, the report states that further research into the industry is
required. Given that this report does not touch on the accuracy of the
information given to debt buyers, it fails to address just how flawed
the documentation provided actually is. Additionally, the report's
research did not delve into "the practices debt buyers used when
taking legal action against consumers." This is a very broad category
and it tends to include the lion's share of the issues inherent in
the debt buying industry.
This initial report is a great first step, but until it leads to more significant
regulatory action, it is mostly just potential.