Debt Collection

Consumer debt has increased exponentially since the 1970s, and the collection business has expanded from one characterized by local "Mom and Pop" debt collectors to a multi-billion dollar industry dominated by large, faceless corporate mega-collectors.  The debt collection tactics used by the majority of these corporations are unethical, abusive, and largely illegal.

Debt collectors buy debt from original creditors and from each other.  Sometimes one collection agency will sell the debt to another and fail to adequately inform the consumer, so the consumer pays the wrong agency.  Often, debt collectors only pay pennies for each dollar of debt they buy, and take the chance that the consumer can be convinced to repay the entire amount.  As a result, debt collection can be very profitable.

In 1977, in response to rampant excesses by debt collectors, Congress took the extraordinary step of federalizing this entire area of the law by enacting the federal Fair Debt Collection Practices Act (FDCPA).  However, because the FDCPA is not adequately enforced, debt collection abuses are at least as prevalent now as they were before the act was passed.  In its annual report, the Federal Trade Commission (PDF) states that it "receives more complaints about the debt collection industry than any other specific industry."

• Facts and Stats

• More about the Fair Debt Collection Practices Act

• Sources for More Information

Debt Collection Facts and Stats

• The Federal Trade Commission (FTC) received 70,951 complaints about debt collection in 2007, although this likely represents only a tiny fraction of the people who were actually harassed by collectors that year.

• The FTC receives more complaints about debt collection than any other specific industry.

• Over $110 billion in face value of debt was purchased in the United States in 2005.

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More about the Fair Debt Collection Practices Act (FDCPA)

Who does it cover? 

The FDCPA applies to third-party debt collectors.  It covers any collection agency, attorney, debt buyer, or other person or entity that regularly collects consumer debts that it obtained after the debtor allegedly went into default.  Excluded from FDCPA coverage are originating creditors and their pre-default assignees.  Congress believed that originating creditors (people who lent money in the first place) are more civil than third-party debt collectors because of their need to maintain the good will of their customer base.

Why hasn't the FDCPA curtailed abusive collection tactics? 

The FDCPA establishes comprehensive and exemplary rules of conduct that, if followed by the collection industry, would eliminate all abusive debt collection in this country.  However, the collection industry has learned that the slight risk of prosecution and the minor costs of violating this federal law – even if caught – are more than outweighed by the benefits derived from abusing and pressuring vulnerable consumers to pay debts that they may not even owe.  Violations of the FDCPA occur routinely as part of the business model of the offending industry members.

Current levels of FDCPA enforcement are not adequate.  Far too few private attorneys are available nationwide to represent even the aggrieved consumers who know to seek such help.  Congress needs to strengthen the FDCPA’s private remedies by increasing penalties and giving the federal courts injunctive power in individual and class action litigation to effectively change entrenched practices.

• The Federal Trade Commission (FTC), the federal agency charged by Congress with enforcement responsibility, has failed to rein in the collection industry.  To the contrary, the FTC’s failure to prosecute routine FDCPA noncompliance by collection industry leaders has actually enabled and emboldened an industry whose unsavory culture already predisposes it to excess.  Effective public enforcement is even more critical now as unpaid debts grow in the current economic downturn. 

• Private lawsuits by attorneys representing abused consumers are constrained by the limits that the FDCPA imposes on penalties, on class actions, and on judges’ powers in debt collection cases.  While it would be helpful for Congress to remove these limits,  private enforcement needs to be seen as an complement to effective public enforcement; it cannot do the job by itself.

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More information about debt collection

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Studies, reports, and more data about debt collection

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AFFIL is grateful to Dick Rubin for his help with this page.
Last Update:  January 2009.