Debt Collection in the News
Yesterday it was announced that one of the biggest debt collection firms in the United States, Asset Acceptanced, LLC was dished out a $2.5 million fine by the Federal Trade Commission for misleading consumers while trying to collect old debts. Asset Acceptance, LLC specializes in debt buying for the purpose of debt collection activity. In the opinion of this blogger, the actions of the FTC was a mere slap on the wrist for what it should have administered for these type of infractions.
JDB Industry Described
Debt collection companies who specialize in debt buying are often referred to as Junk Debt Buyers (JDB). They buy both newer and older debts from a wide range of creditors at pennies on the dollar. Debt buying companies range in size from a Mom and Pop operation to large corporations like Asset Acceptance, LLC, and they purchase portfolios of debts from creditors that can range in size from being a very small business operation to a large financial institution like a credit card bank.
Likewise, the portfolios bought by the debt buyers can range from a very small portfolio of debts to a very large portfolio. No one knows exactly how financially large the junk debt buying industry is in the United States, but some estimate it collects billions of dollars annually.
How the JDB Industry Works
Usually, a JDB bids on a portfolio from a creditor who has already spent time trying to collect on the portfolio’s debts. After the creditor has tried for a time to collect these debts, the creditors write the debts off for income tax purposes, then they put the debts up for bid on the JDB block.
Because of existing and complicated consumer laws the ownership of a debt can get very murky to say the least. Many creditors can assign the ownership of the debt because they have assignment clauses within the contracts they issue when the debt is first made. That means when it comes to collections of the debts, they or their assignments have a right to collect the debt.
Not all creditors have the right to assign your debt to another party, though. It all depends on the consumer laws the creditor is working within and the contract the creditor is working under.
After having written off the debt, the creditor reports his loss to the IRS and technically can send you a 1099 for the unpaid balance. The reason a creditor can do this is because the money you received not paid back can be viewed as income. The IRS sees the forgiveness of debt as income to you and can expect you to pay the income taxes on the write off.
If debt buying buys your written off debt, and you have somehow paid the taxes on the write off, is it placing you in double jeopardy for the debt buyer to now collect the debt in full?
Other JDB Trouble
Junk Debt Buyers like Asset Acceptance, LLC have been accused of abusing the Fair Collection Practices Act by not telling the debtors the debt they are trying to collect have passed the statute of limitations within their state jurisdiction. That is one of the reasons for the fine levied against Asset Acceptance, LLC yesterday.
Other alleged violations of junk debt buyers include filing lawsuits with no documentation, harassment, and a whole host of others. If you are currently being harassed by debt collectors, you may need the help of a lawyer.
- Collections, Charged Off Debt, and Bankruptcy (betterbankruptcy.com)
- F.T.C. Fines a Collector of Debt $2.5 Million (nytimes.com)
- Debt collector to pay $2.5 million penalty (money.cnn.com)
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