Problems with Information Flow in the Debt Collection System

At the workshop there was a broad discussion of the flow of information to debt collectors. A number of commenters identified the inadequacy of credit information as a significant source of problems for both consumers and debt collectors. When accounts are transferred to debt collectors, the accompanying information often is so deficient that the collectors seek payment from the wrong consumer or demand the wrong amount from the correct consumer.152 _NCLC

and NACA commented that debt collectors often lack significant information about the debts they are attempting to collect, including the date the debt was incurred and a breakdown of the fees and charges added to the original debt.153 _{An attorney who represents consumers in actions}

against debt collectors reported that debt buyers she has encountered receive only “an electronic spreadsheet that contains the consumer’s name, Social Security number, last known address, charge-off date, the amount owed, date and amount of last payment” when they purchase account portfolios.154

A leading association of debt buyers, DBA International (“DBA”), acknowledged that it is common for a debt buyer to receive only a computerized summary of the creditor’s business records when it purchases a portfolio, but added that “the due diligence process and representations and warranties in the purchase agreement help ensure the accuracy and integrity of the debts sold and provide some protections if the information provided is insufficient

or incorrect.”155 _{According to one workshop participant, it is industry practice to include in}

contracts between original creditors and initial, or “primary,” debt buyers the right to receive from the creditor, upon request, documentation needed to address consumer disputes or to support a lawsuit “for a particular amount of accounts in the portfolio and/or for a particular period of time.”156 _{Some contracts between primary debt buyers and secondary debt buyers}

provide that, if the secondary debt buyer requests documentation to address consumer disputes or 152. See, e.g., NCLC-NACA Comment at 26-27; Margot Saunders, Tr. II at 213-14; Laura Udis, Tr. II at 216; Bev

Evancic, Tr. I at 287-89; Anthony G. Looney, Tr. I at 291; Cary L. Flitter, Tr. I at 292-93; District Council 37 Municipal Employees Legal Services (DC 37) Comment at 3; Ron Jones Comment at 1.

153. NCLC-NACA Comment at 27-28.

154. Neighborhood Economic Development Advocacy Project (NEDAP) Comment at 5.

155. DBA Comment (June 2, 2007) at 12. DBA noted that “[a] debt buyer may request exclusion of accounts that (1) are pending or have been pending in bankruptcy, (2) involve alleged or established fraud, (3) have been paid prior to purchase, (4) are the accounts of deceased debtors, and/or (5) are other ‘problem’ accounts.” Id. at 7.

to support a lawsuit, the primary debt buyer will attempt to obtain it from the original creditor.157

It does not appear, however, that secondary or subsequent debt buyers often use such contractual rights to obtain information from creditors through primary debt buyers.

Many participants at the workshop asserted that the owners of a debt should transfer adequate amounts of information whenever they assign an account to a contingency collector or collection attorney, or sell an account to a debt buyer. Debt collection industry representatives voiced strong support for improving the quality of information conveyed to debt collectors when accounts are transferred. For example, DBA commented that, “[b]ecause more information promotes a fair and appropriate result for consumers and therefore also results in higher

collection rates, DBA has been and continues to be a very strong advocate for the transfer of all relevant information about a debt at the time of purchase.”158

Workshop participants and commenters offered several possible reasons why creditors often transfer inadequate information to collectors. A collection industry consultant noted that, although the ability to share information exists, the technology necessary to enable a creditor to transfer all documentation at the time of sale of the portfolio may be prohibitively expensive for many creditors.159 _{Some industry commenters reported a concern that the cost to creditors of}

transferring all information may exceed the information’s value to debt collectors.160 _{A collection}

attorney reported that, although new technology may make it feasible for creditors and debt collectors to store large quantities of data about accounts in collection, such documentation would be relevant to disputes less than one percent of the time his firm brings a collection claim.161

Creditor representatives also voiced privacy and security concerns about the routine transfer of large amounts of information along with accounts. For example, ACA, which represents creditors as well as third-party debt collectors and debt buyers, argued that a number of privacy laws restrict creditors’ sharing of consumers’ personal financial information with others in the debt collection system.162 _{A collection industry consultant further noted that concerns about}

data security help drive decisions on whether to share information with other parties in the debt collection chain.163

157. Pruitt, Tr. II at 64-65.

158. DBA Comment (Nov. 9, 2007) at 1. 159. Evancic, Tr. I at 296.

160. See, e.g., Robert Markoff, Tr. I at 215-16. 161. Markoff, Tr. I at 215-16.

162. ACA Comment (June 6, 2007) at 76-78.

163. Evancic, Tr. I at 308-09. Ms. Evancic noted that the creditor must control the transfer of information to ensure that personally-identifying information is kept secure. Id. at 288, 308-09.

Collection industry members also voiced concern that current legislative proposals would prevent them from obtaining consumers’ Social Security numbers when creditors assign or sell debts to them.164 _{The collection industry consultant noted that, although debt collectors}

find SSNs particularly helpful in identifying the correct individual debtor, creditors remain cautious about releasing this sensitive information.165 _{A representative of a consumer database}

company used by debt collectors reported that his company’s technology is much more likely to find the correct consumer if the collector has an SSN.166 _{The SSN, he added, “is a key link that}

differentiates one individual from someone else with a similar name.”167

Based on the workshop record and other sources, the Commission concludes that the

information received by debt collectors is often inadequate and results in attempts to collect from the wrong consumer or to collect the wrong amount.