State lawmakers seek to bolster consumer protections against collection agencies
DENVER– The House passed legislation Monday meant to tighten guidelines on debt collection agency practices, offering Colorado debtors an added measure of protection from unscrupulous and illegal collection tactics at a time when more Americans are defaulting on credit card debt than ever before.
HB 1222, sponsored Aurora Democrats Rep. Karen Middleton and Sen. Morgan Carroll, indefinitely extends a section of the Colorado Fair Debt Collections Act set to expire in July. The section requires that agencies collecting debts in Colorado maintain physical offices in the state, even if the company headquarters are out of state.
In July 2009 there were a total of 642 licensed collection agencies in Colorado, but 79 percent of these agencies – 509 in total – maintained headquarters out of state, according to an Oct 2009 Colorado Department of Regulatory Agencies “sunset review report” that led the sponsors to draft HB 1222. Many consumers are unaware of the in state office requirement and therefore don’t utilize it, the same report stated. The report recommended mandating debt collection agencies to notify consumers in the initial written contact that such an office exists and where it can be found.
HB 1222 does this, and extends the out-of-state collection agency office requirement until 2017. It also adds a new mandate that collection agencies accept physical on-site payments, an effort to reduce the payment scams that have plagued the industry.
The bill’s introduction comes at a time when the Federal Trade Commission is scrutinizing national debt settlement and collection practices and when more than half a dozen states have introduced legislation to crack down on unfair collection practices.
“Evidence suggests that very few Colorado consumers are currently visiting these offices. This could be because of the limited services such offices provide, or because consumers are simply unaware the offices exist. In fact collection agencies – including those based in Colorado – are under no obligation to accept in-person payments at the in-state office, or to provide the address of such office to consumers.
“Presumably, the General Assembly established the in-state office requirement to assure that Coloradans would have a way to transact business face-to-face with out-of-state collection agencies. As written, the requirement is not fulfilling its intended purpose. With revision, however, the in-state office has potential to provide Coloradans with critical opportunity to interact face-to-face with collection agencies,” according to the report.
The U.S. Federal Reserve reports that Americans are carrying more than $900 billion in credit card debt and that less debtors are able or willing to pay up. As times get tougher for collection agencies, ethics lapse and agencies beginning illegally pressuring debtors, from placing harassing phone calls and using foul language to fabricating threats of arrest and deportation. Complaints against collection agencies topped the National Associate of Attorneys General’s Top 10 list for 2008, the last year for which stats are available.
In late January, a Colorado scam involving a fraudulent collection agency’s demand for immediate payment of $293.11 prompted Attorney General John Suthers to issue a news release warning consumers to be on the lookout for emails from a company calling itself IAC Recovery Systems, LTD, telling recipients they owe $293.11 to an unnamed creditor.
The email listed a fake Denver collection agency address and phone number for a Glendale eatery, investigators said at the time. The press release was issued after Suthers’ office received around 40 consumer complaints about IAC.
It wasn’t the first investigation. Nationwide, state attorneys general offices are stepping up fraud investigations and filing lawsuits alleging debt settlement firms have misled consumers, capitalizing on their precarious economic positions and doing little or nothing to improve their financial standing.
In February, New York consumers saw their first victory, when the New York Attorney General Secured $275,000 in restitution for victims of a debt collection agency that employed scare tactics – including impersonation of law enforcement officials – to intimate consumers into settling their debts, despite the fact some of them owned no money at all.
Part of the rogue mentality is due to the fact that the recession has hit debt collectors hard. In the first quarter of last year a record one-third of collection companies and four out of ten debt buyers reported layoffs, according to a February survey by collections agency consulting firm Kaulkin Ginsberg Co.