In the first study of debt buyers, the FTC found that debt collectors who do not have enough information may approach the wrong consumer, attempt to collect the wrong amount or both.
The report found that debt buying is an essential part of consumer credit. Debt buyers purchase debt for an average of four cents on the dollar, which helps to reduce creditor losses, thereby allowing them to lend at lower rates and prices.
The practice of debt buying, however, does raise a number of consumer protection concerns. Consumers dispute an estimated one million or more debts each year that debt buyers attempt to collect. Previous data from from the FTC revealed that consumers usually dispute the amount of the debt or the obligation to pay. Debt buyers only verified about half of the disputed debts, meaning that buyers could not verify or failed to verify approximately 500,000 debts every year.
Additionally, the report found that, at the time of purchase, creditors did provide debt buyers with some information concerning debts, including the name, address and social security number of the borrower, though buyers did not receive some crucial pieces of information about the debt, including whether consumers had previously disputed the debts or whether previous collectors verified the debts. Creditors also imposed restrictions on the ability of debt buyers to obtain information about debts after their purchase.
The study analyzed more than 5,000 consumer debt portfolios over nine of the nation’s largest debt buyers, which comprise more than 75 percent of the entire industry.