The Federal Trade Commission recently published a seminal report, “The Structure and Practices of the Debt Buying Industry.” A copy of the report can be downloaded from http://www.ftc.gov/os/2013/01/debtbuyingreport.pdf. While the FTC didn’t go quite far enough (see our press release here), it does contain some riveting information and analysis. Over the next few days, we’ll cover the highlights of the report.
But first things first. In many ways, debt buyers are a different breed of debt collector. While the FTC report covers the largest debt buyers, the smaller debt buyers are the proverbial vultures who peck at the carrion that is old debt. This is often debt that’s been deemed uncollectible any number of times, and so is sold for pennies on the dollar. Once the debt buyer purchases it, those debt collectors have to get creative to make a profit. Truth be told, even the debt collection industry seemingly holds debt buyers at arm’s length. About a year ago, there was a move within industry trade organization ACA International to split debt buyers from the mainstream debt collection community. It wasn’t successful, but debt buyers do have their own trade group, DBA International.
How is the Fair Debt Collection Practices Act applicable to debt buyers? The FDCPA doesn’t cover original creditors (those who initially owned the debt), but does cover third-party debt collectors and debt buyers. Debt buyers have been unsuccessful in arguing that, because they actually own the debt being collected, they are exempt from the FDCPA.
Now, on to the FTC report. The study, which began in 2009, examined nine debt buyers that purchased three-quarters of the debt sold in 2008. The debt buyers were Sherman Financial Group, Encore Capital Group, eCAST Settlement Corp, NCO Portfolio Management, Arrow Financial Services, Portfolio Recovery Associates, Unifund Group, B-Line, and Asta Funding. Of these nine, Arrow Financial Services wasn’t included in the FTC analysis because they stopped buying debt during the study period and weren’t able to provide the data the FTC required. B-Line and eCAST Settlement were also excluded, since they purchase bankruptcy debt (rather than straight consumer debt). The remaining six debt buyers provided the FTC with 5,000+ debt portfolios, from a three-year buying period, that encompassed 90 million accounts with a face value of $143 billion. How much did they pay for this enormous face value? An average of four cents per dollar.
Tomorrow, we’ll delve into the FTC’s analysis of the history of the debt buying industry and how debt portfolios are sliced, diced, and readied for the marketplace.