Debt Collectors: The Good, The Bad... By Caroline Mayer

[David A. Szwak]

Debt Collectors: The Good, the Bad...
Debt collectors are good for you--and the economy!
http://blog.washingtonpost.com/thecheck ... the_b.html

I bet you didn't know that. Neither did I until I read the latest study from ACA International, the association that represents debt collectors. Normally I would throw such a study away, discounting it as self-serving dribble. But the study's findings are so intriguing I had to share them. And of course, I'd love to hear your thoughts on them:

According to the study done for ACA by PricewaterhouseCoopersLLP:

* The number of employees in the third-party debt collection industry has grown from 70,000 in 1990 to 150,000 in 2005.

* The industry payroll reached nearly $5 billion in 2005. Including business and personal purchases by collection agency owners and workers, the industry directly and indirectly supported a total of 426,700 American jobs with a payroll totaling $15 billion in 2005.

* In 2005, the collection industry returned $39.3 billion to businesses that extended consumers credit. That meant that debt collectors saved the average American household $351 because businesses would have otherwise had to raise their prices to cover bad debt.

Put another way--as ACA's CEO Gary Rippentrop said in a press release: "The annual savings is the average household equivalent of 19 bags of groceries, 155 gallons of gas or more than four months of electric bills." The $39 billion "returned to the U.S. economy was equal to three percent of all U.S. corporate pre-tax profits," Rippentrop added. "Many companies might even end up in the red or in bankruptcy without the assistance of debt collection services."

The study also found that one of the fastest growing users of third-party debt collectors is the government (local, state and federal). In its 2005 fiscal year, the federal government referred $13.7 billion in delinquent receivables to private collection agencies, resulting in collections of $603.1 million, up from $351.3 million in 2000.

Clearly, the debt collector as bad guy is an outdated myth, ACA says.

However, that's not quite the same picture as that painted by the Federal Trade Commission or
New York Attorney General Eliot Spitzer.

Last week, the FTC reached a settlement with a Texas collection agency that allegedly used lies and threats to collect debts. Whitewing Financial Group agreed to pay a $150,000 judgment and refrain from illegal practices when collecting debts. The FTC had accused Whitewing of buying and attempting to sell very old debts, many so old they were no longer legally collectible or even eligible to be placed on a person's credit report. Many of the debts had been discharged in bankruptcy, the FTC said.

The settlement came as debt-collection complaints continue to pour into the FTC. In 2005, nearly one-fifth of all the complaints the FTC received (66,627 of them) involved debt collectors--more than any other industry. That's up from 58,698 in 2004, when debt-collection complaints accounted for 17 percent of all complaints filed with the FTC. With the ACA numbers reflecting the sharp growth in the number of debt collectors, it's no wonder that the FTC has been bombarded with complaints.

And for those of you who think the FTC numbers are low, consider what the agency told Congress in its annual report: "The commission believes that the number of consumers who complain to the agency represents a relatively small percentage of the total number of consumers who actually encounter problems with debt collectors."

Meanwhile, late last month, New York's Spitzer charged a national debt collection company -- JBC & Associates, its successor companies, JBC Legal Group and Boyajian Law Offices and their operator, Jack Boyajian of New
Jersey -- with numerous illegal and abusive practices. Several other states have sued the same collection agency in the past few years.

In the New York lawsuit, Spitzer charged the group with the following:

* Falsely threatening to file lawsuits in cases where New York's six-year statute of limitations for bounced checks has expired.

* Trying to collect more than allowed under state law.

* Harassing consumers by calling them late at night and at work and improperly contacting neighbors, relatives and employers about the debtors.

New York said more than 200 people had filed camplaints against JBC and Boyajian since January 2003. Boyajian's office did not respond to my query.

By Caroline Mayer | July 12, 2006; 7:00 AM ET