Lemberg & Associates released the following statement on February 1 in response to the Federal Trade Commission’s study on debt buyers:

Fair debt attorney Sergei Lemberg commended the recently released Federal Trade Commission’s (FTC) study on debt buyers, “The Structure and Practices of the Debt Buying Industry,” but noted that it doesn’t go far enough. “Debt buyers are the underbelly of the debt collection industry, so it’s crucial that the FTC pulled back the curtain to reveal how they do business,” said Lemberg. “Nevertheless, the FTC report only peripherally addressed the heart of the problem – the inadequacies in the way debt buyers handle consumer disputes, the abuse of the court system in seeking summary judgments against consumers, and the disproportionate role that smaller debt buyers play in violations of the Fair Debt Collection Practices Act.”

Debt buyers purchase debt deemed “uncollectible” and charged off by original creditors or purchase debt portfolios from other debt buyers. The FTC study examined data from 90 million consumer accounts purchased by nine of the country’s largest debt buyers, which together accounted for three-quarters of the debt sold in 2008. The FTC found that debt buyers literally paid pennies on the dollar for old debt – four cents per dollar, on average. When debt portfolios are sold, the accuracy of the information is not guaranteed, which led the regulatory agency to estimate that consumers dispute one million debts each year.

Lemberg, who was targeted as the “most active consumer attorney” of 2012 by debt collection industry insider WebRecon LLC, said the findings of the FTC study mirror the experience of many of his clients who attempt to dispute debts. “Often, the debt does not belong to the client or the amount is incorrect,” said Lemberg. “Sometimes, the client has previously disputed the debt, but as the FTC points out, the dispute history of a debt isn’t included when a debt portfolio is sold. And, as the study correctly notes, collectors who work on behalf of debt buyers often ‘validate’ the debt simply by looking at the information on their spreadsheet rather than providing the proper underlying documentation.”

The FTC study noted that, as time passes and debt portfolios are resold, the process of debt collection becomes even more problematic. Further inaccuracies creep into the records and aging debts become time-barred. Each state has a statute of limitations, usually between three and six years, after which time debt collectors aren’t allowed to sue a consumer to recover the money. Lemberg says that this doesn’t stop collectors from trying. “Debt collection agencies – and debt buyers in particular – file tens of thousands of lawsuits against consumers each year yet generally don’t have to prove that the debt is valid or within the statute of limitations,” he said. “To add insult to injury, it is up to the consumer – who often isn’t even aware that he or she is being sued – to prove that the debt is time-barred.” Lemberg noted that this practice often results in summary judgments, whereby debt buyers are given the ability to pursue wage garnishment and recover money from consumer bank accounts. “The current situation is a recipe for disaster. If a debt buyer says John Doe owes money, and John Doe isn’t present to defend himself, the debt buyer can obtain a judgment and freeze John Doe’s bank account,” he said.

While the FTC study found that the largest debt buyers purchased a majority of portfolios from original creditors, a fifth of the debt purchased was between three and six years old and 11 percent was between six and fifteen years old. The FTC issued a caveat, saying, “[M]any purchasers of older debts and debts with larger numbers of past placements with third-party collectors are smaller firms.” This echoes Lemberg’s experience. He said, “Smaller debt buyers get the hard-to-collect leftovers, which often tempts them to cross the line into questionable behavior or even practices that violate the Fair Debt Collection Practices Act.” One such behavior, Lemberg said, is to try and convince unsuspecting consumers to make a small payment on a time-barred account. “People don’t realize that making any payment – whether a penny or a hundred dollars – resets the clock and destroys protections afforded by the statute of limitations,” he said.

Lemberg applauded the Federal Trade Commission study, but said it needs to be expanded. “Smaller debt buyers need to be studied in order to get a true picture of the debt buying industry,” he said. “Debt buyers don’t share information about the debts they are trying collect, and then use the courts to obtain judgments against consumers who may not know they’re being sued. The current process leaves people’s lives in tatters, is an enormous burden on the taxpayer-funded court system, and is simply immoral.”