Alert February 05, 2013

FTC Issues Report on the Debt Buying Industry

The FTC released its report on the first comprehensive study on debt buyers and sellers, titled “Structure and Practices of the Debt Buying Industry.” The study was commenced in December 2009 as the result of an increase in consumer complaints related to debt collection. The aim of the study was to gain insights into the selling and buying of debt, including the terms and conditions of purchase and sale agreements. The FTC mandated that 9 of the 10 largest debt buyers from 2008 participate in the study—the consumer debt purchased by these entities included medical, utility and mortgage debt, with the vast majority, 76%, being credit card debt. The report is broken into eight parts that focus on the legal framework for debt collection and debt buying; the study’s methodology; the history and current status of the debt buying industry, including the current debt buying process; an evaluation of the type and sufficiency of documentation that debt sellers provide to debt buyers; and the FTC's general conclusions.

Notably, the study found that most of the conduct that could result in consumer harm or complaints was the result of debt sellers’ failure to provide sufficient documents or time to request additional documents. For example, the report noted that many purchase and sale agreements limit the time periods that debt buyers can request additional documentation for free and, in the case of secondary debt sellers—buyers that purchase debts from resellers of debt—the agreements may not provide them any right to request additional documentation. Moreover, many agreements do not represent or warrant that the information provided is accurate, which could lead to incorrect amounts being collected or incorrect persons being contacted. The report recommends additional research on topics that were not covered by the study, such as debt collection litigation and the practices of small buyers of debt.