FDCPA Is the Primary Federal Law Governing Third-party Debt Collection Practices

Congress has passed several laws that govern the practices of creditors or  third parties in the collection of debt, including FDCPA, the Federal Trade  Commission Act (FTC Act), and the Fair Credit Reporting Act (FCRA). While  FDCPA does not apply directly to credit card issuers collecting on their  own debts, some of the practices prohibited by the statute, if engaged in  by financial institutions, may support a claim of unfair or deceptive  practices in violation of the FTC Act, which is the statute on which the  federal depository regulators rely in overseeing collection activities. As with FTC, a number of state regulators make efforts to educate  consumers about their rights under federal and state fair debt collection  laws. Delinquent Credit Card Debt May Be Collected Internally, Outsourced, or Sold

Large credit card issuers first seek to recover delinquent debt using  internal collection departments or first-party collection agencies that  collect debt using the issuer’s name. When large issuers  are unable to collect these accounts, they typically send them to third- party collection agencies or collection law firms. Contracts between issuers and collection agencies  often specify the policies and procedures to be used during the collection  process. Credit Card Debt Often Is Sold and Resold

Issuers often sell portfolios of delinquent credit card debt to debt-buying  companies. Credit card accounts can be resold multiple  times. For  example, accounts that are 91 days to 6 months past due and never  previously placed for collection generally receive the highest prices, while  older accounts and those previously placed for collection typically receive  far lower prices. Certain Issues Exist about Some Debt Collection Practices and FDCPA Does Not Address Some Changes That Have Occurred in Technology and the Marketplace

State and federal enforcement actions, anecdotal evidence, and the  volume of consumer complaints to federal agencies—about such things as  excessive telephone calls or the addition of unauthorized fees—suggest  that problems exist with some processes and practices involved in the  collection of credit card debt, although the prevalence of such problems is  not known. Some state agencies also  collect consumer complaints about debt collection practices. Collection of time-barred debt. According to FTC and other  stakeholders, collection agencies and debt buyers sometimes may not  have adequate information about their accounts and may not always have  access to documentation needed to verify the debt. Collection companies sometimes have faced difficulties in trying to use  these technologies while remaining in compliance with the act:    Answering machines and voice mail. However, the debt  collector may also violate FDCPA if someone other than the debtor  overhears a telephone recording revealing the debt collection effort. FDCPA restricts the hours in which debt collectors can  call consumers and prohibits collectors from imposing additional  telephone charges on consumers. Second, because FDCPA was enacted prior to the advent of technologies  such as mobile telephones, e-mail, and voice mail, its provisions on  communicating with consumers are outdated. Among such modifications, Congress should consider, in particular,  options for modifying FDCPA to    help ensure that debt collectors and debt buyers have adequate  information about the debts transferred and adequate documentation to  verify the debts they seek to collect from consumers, reflect technologies that were not prevalent when the act was originally  enacted, and   provide FTC with the authority to issue rules to implement the act. Appendix I: Objectives, Scope, and Methodology

Our report objectives were to examine (1) the protections provided  consumers under federal and state laws related to credit card debt  collection, and the roles and responsibilities of federal and state agencies  in enforcing these laws; (2) the processes and practices involved in  collecting and selling delinquent credit card debt; and (3) any issues that  may exist related to some of these processes and practices. In addition, we met  with six third-party debt collection agencies, six companies that purchase  credit card debt, one law firm that specializes in debt collection, and one  collection attorney.
Why GAO Did This Study

Approximately 6.6 percent of credit cards were 30 or more days past due in the first quarter of 2009--the highest rate in 18 years. To recover delinquent debt, credit card issuers may use their own collection departments, outside collection agencies, collection law firms, or sell the debt. GAO was asked to examine (1) the federal and state consumer protections and enforcement responsibilities related to credit card debt collection, (2) the processes and practices involved in collecting and selling delinquent credit card debt, and (3) any issues that may exist related to some of these processes and practices. To address these objectives, GAO analyzed documents and interviewed representatives from six large credit card issuers, six third-party debt collection agencies, six debt buyers, two law firms, federal and state agencies, and attorneys and organizations representing consumers and collectors.

What GAO Found

The primary federal law governing third-party debt collection is the Fair Debt Collection Practices Act (FDCPA), which contains provisions on how collectors can communicate with consumers and prohibits collectors from using abusive, deceptive, and unfair collection practices. Some states have fair debt collection laws that provide protections additional to those of FDCPA. The Federal Trade Commission (FTC) is the primary enforcement agency for the debt collection industry; it collects consumer complaints, enforces violations of relevant laws, and undertakes consumer education efforts. Federal depository regulators oversee credit card issuers' collection practices, and various state agencies enforce state fair debt collection laws. Collecting and selling delinquent debt involves multiple parties. Credit card issuers typically collect on accounts less than 6 months delinquent using internal collection departments or "first-party" agencies that collect under the issuer's name, and often hire third-party collection agencies or law firms to collect on older accounts. Contracts between issuers and collectors often specify the collection policies and practices used. Third-party collection agencies rely primarily on telephone calls and postal mail in their operations, but often use automated mail systems and other technologies to do so efficiently in large volume. Credit card accounts often are sold--and may be resold multiple times. Several factors influence the price of these accounts, including their age, location, and number of times previously placed for collection. State and federal enforcement actions, anecdotal evidence, and the volume of consumer complaints to federal agencies--about such things as excessive telephone calls or the addition of unauthorized fees--suggest that problems exist with some processes and practices involved in the collection of credit card debt, although the prevalence of such problems is not known. One issue is that collection agencies and debt buyers often may not have adequate information about their accounts--sometimes leading the collector to try to collect from the wrong consumer or for the wrong amount--or may not have access to billing statements or other documentation needed to verify the debt. Further, with the advent of the debt-buying industry, accounts are frequently sold and resold, which can make verification more difficult as the owner of the debt becomes farther removed from the original creditor. Communications technologies that are ubiquitous today, such as mobile telephones, e-mail, and voice mail, were not prevalent when FDCPA was enacted in 1977. Significant uncertainty exists about how to use these technologies in compliance with the statute--for example, a debt collector may violate FDCPA if someone other than the debtor overhears a voice mail message revealing the debt collection effort. Additionally, FDCPA does not provide FTC with rulemaking authority, which has limited the agency's ability to address concerns related to the adequacy of account information, collectors' use of modern technologies, and other issues that arise in an evolving marketplace.