As the FTC heightens its scrutiny of debt collection and debt settlement practices at the federal level, states throughout the country are also cracking down on debt settlement and collection firms.
With debt collection practices topping the list of consumer complaints to state attorneys general (AGs) in 2008 (the last year for which data is available), many state attorneys general have stepped up their fraud and deceptive business practices enforcement actions against debt collection and settlement companies, bringing lawsuits under state laws designed to safeguard consumers. Many of the suits allege that the targeted debt settlement firms have misled consumers, capitalizing on these consumers’ precarious economic positions while doing little or nothing to improve their financial standing.
For example, in Illinois, Attorney General Lisa Madigan recently filed suit against seven debt settlement firms and six of their executives under the Illinois Consumer Fraud and Deceptive Practices Business Act, contending that they had engaged in deceptive marketing and imposed excessive consumer fees for their services; the complaints seek to enjoin the accused from practicing in the state and impose restitution and associated fines on the parties.
Last week, the office of the New York Attorney General secured $275,000 in restitution for victims of a debt collection agency that employed scare tactics - including the impersonation of law enforcement officials - to intimidate consumers into settling their debts, despite the fact some of them owed no money at all.
State legislatures have also begun to take action to tighten the regulatory grip on such companies. Lawmakers in North Carolina, Maryland, Idaho, Colorado, New York, and Arkansas have recently enacted laws that restrict the permissible activities of debt collectors. Among the provisions currently under consideration in states such as Minnesota, New Jersey, and Massachusetts are laws that would bar agencies from collecting on long-delinquent debts by convincing consumers to make payments that effectively renew the default date, increase the amount of property that consumers can exempt from collection, and expand penalties against those found guilty of abusive collection practices.
In these difficult economic times, it is not surprising that states are making concerted efforts to delineate acceptable versus unacceptable consumer debt collection practices. Indeed, the fraudulent and deceptive behaviors targeted in these actions and proposed laws appear to address egregious cases. These actions hopefully will not also deter legitimate debt collection and debt settlement agencies and the benefits they provide to businesses and consumers.
- Beth DeSimone and Lindsey Carson
