The Debt Buying Industry and How it Affects You

Cogburn Law
Madeleine Jones
April 27, 2013

The FTC recently released a report detailing how the debt buying industry works.  The report found that debt buyers paid an average of 4.0 cents per dollar of face value debt.  Importantly, the FTC also produced statistics showing that many debt buyers may not possess the information necessary to properly comply with the Fair Debt Collection Practices Act (“FDCPA”).  This potential deficiency in information is likely correlated to the de minimis amount debt buyers are paying to purchase debt.  To see the entire report visit http://www.ftc.gov/os/2013/01/debtbuyingreport.pdf.

Specifically, the FDCPA requires a debt collector to “validate” a debt within five days after their initial communication with a consumer.  To properly validate a debt the debt collector must send the consumer a written notice which contains: (1) the amount of the debt; (2) the name of the original creditor; and (3) a statement that the consumer has a right to dispute the validity of the debt, among other things.

The Report found that upon receiving an initial demand letter from a debt collector, consumers only disputed 3.2% of debts that debt buyers attempted to collect themselves.  While this does not appear to be a significant percentage, when applied to the entire debt buying industry this would equate to over a million disputes. In other words, on over a million occasions each year, consumers asserted debt collectors were attempting to collect a debt the consumer did not owe.  With our economy still in recovery we can expect these numbers to increase.

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