CO lawmakers want to give consumers more protection against “zombie-debt” collectors

A bipartisan group of legislators is backing a bill to give Colorado consumers more protection from unsavory debt collection tactics.

The bill would extend for 11 years the state Fair Debt Collection Practices Act, which provides consumers with certain protections against debt collectors. It also would  limit the ability of so-called zombie collectors — those who bundle, buy and sell spreadsheets of debts like commodities — to gain default judgments in Colorado county courts.

The legislation aims to help people like Pilar Chapa, a consumer advocate with her own story of debt collection abuses. She learned about a year ago that some debt buyer had taken her to court when her employer notified her that her wages were being garnished for a $706 debt that, with court costs and added fees, came to $1,001.30.

To this day, she said, she is dumbfounded by the court’s default judgment. Nobody served her with a court date notice. She doesn’t know what the original debt was, or whether it was hers. She doesn’t know who the original creditor was. She paid it off anyway, fearing lasting damage to her credit rating.

“They didn’t tell me anything. You don’t know where this comes from. It was out of the blue,” she told The Colorado Independent. But “you can’t argue the point once the court rules against you.”

Debt collectors have become the number one source of consumer complaints to the state attorney general’s office, and their leading grievance is that some company is trying to collect a debt they do not owe.

The new legislation follows the recommendations of the state Department of Regulatory Agencies, which reviews laws that could expire under the state Sunset Law.

The sponsors are Sen. Bob Gardner, a Republican, and Democratic Reps. Susan Lontine and KC Becker. A hearing is scheduled for April 3 in the Senate Judiciary Committee.

“I think we have to be regulating collection agencies because there’s a potential for abuse,” Becker said. “They have the ability to garnish wages for sometimes very small amounts, damaging a person’s credit history and life.”

If enacted, the bill would:

— Forbid collectors to pursue consumers in court when more than four years have passed since the last payment.

— Require debt sellers to “include all relevant documentation” about each debt and to notify buyers if the debt is disputed.

— Give consumers who win monetary judgments against collectors the right to seek payment from bonds collectors post for licenses.

— Prohibit selling debts that have been paid.

The Independent previously reported that the Center for Responsible Lending found just four debt-buying companies accounted for nearly 40,000 Colorado county court cases in three years. A broad sample of these cases showed most ended with default judgments. No defendant was represented by a lawyer.

The Federal Trade Commission has estimated that debt buyers receive documentation on as few as 6 percent of their accounts, commonly credit card debts sold by banks. Buyers trade these debts for pennies on the dollar, in some cases for a decade or more in the gamble they can get the past-due consumer to pay up. Hence the industry nickname zombie debt — the debt that never dies.

Consumer advocates in Colorado say the fair debt collection bill has taken on added importance because the Trump administration is threatening to dismantle the federal Consumer Financial  Protection Bureau, which offers similar protections nationally and has been raking in complaints.

“We really don’t know what’s going to happen with consumer protections at the federal level,” said Michelle Webster, research director at the Colorado Center on Law and Policy.

At a preliminary hearing, lobbyists for the debt collection industry objected that Colorado is duplicating federal law and the proposed amendments would jack up the costs of pursuing people who fail to pay debts. Tom Romola, of the Associated Collection Agencies of Colorado, Wyoming and New Mexico, suggested repealing the entire Colorado law. “Let’s get rid of the statute and sunset it and move on,” he said.

A coalition supporting the bill, on the other hand, applauds the proposed changes but sees room for improvement. Basically, the coalition wants debt collectors to provide documented proof in court of each claim.

Rich Jones, policy and research director at the Bell Policy Center, said collectors seeking default judgments need to show they own the debt, the alleged debtor is the right person and the amount owed is correct.

In states like North Carolina, which enacted time limits on collection efforts and imposed stricter court standards, “it has reduced the volume of all these cases,” he said. “It’s effective. It’s working.”    

Lead photo by via Flickr: Creative Commons. Inset photo of Pilar Chapa courtesy of Chapa