Consumers Say Credit Wrongfully Ruined by Reckless Debt Collectors

HOUSTON -- World-traveling business executive Stefano Rosellini never saw himself as the type of person to get calls or letters from debt collectors. After all, he says, he takes great pride in paying all his personal bills on time every month, defending his credit score like a mother bear would defend her cubs.

So, when the Credit Protection Association began sending him collection notices about an old Comcast cable bill, Rosellini couldn’t believe his eyes. Not only did Rosellini dispute the debt, but he says Comcast agrees that he actually overpaid them when he closed the account a few years ago.

KHOU: "Comcast told you they owed you money?"

Rosellini: "Absolutely, yes."

So this meticulous businessman accessed a library of files he keeps on old bills that dates back for years. Then he fired off copies of receipts from Comcast in a certified-mail letter to the collection agency, telling them to back off.

However, despite paying his bills and even after doing everything consumers advocates recommend, Rosellini was about to join a growing hoard of consumers crying foul about debt collectors who wrongfully ruin credit scores.

In fact, a three-month KHOU-TV investigation has discovered that the government is allowing the vast majority of those questioned companies to operate without so much as a slap on the wrist. This just as complaints to the Federal Trade Commission are going up about abusive debt collectors, making them one of the most complained about industries in America.

To help uncover this story, KHOU used the Freedom of Information Act to obtain a database of every consumer complaint filed with the Federal Trade Commission since 2006. We discovered:

•The vast majority of complaints at the Federal Trade Commission are never looked at by an investigator. Most complaints are simply entered into a giant database and never examined again except for in the rare instance the agency considers an enforcement action against a company of interest.

•Companies who are complained about are virtually never told about the complaint, making it difficult for debt collectors with good intentions to identify or fix problems that may wrongfully harm consumers.

•An overworked Federal Trade Commission staff includes just six investigators in the FTC’s financial practices division in Washington D.C. Not one of those six investigators is assigned full-time to investigate complaints about debt collectors. Instead, they have to split their time looking at every single industry the FTC regulates.

•National consumer advocates say the debt collectors know about the FTC’s lack of resources and, in some cases, companies willfully break the rules because they know they will not likely face a penalty.

•A federal law caps the amount of money individual consumers can recover from an abusive debt collector for bad behavior, or what is called “statutory damages” in a lawsuit, at $1,000. The cap was set more than 30 years ago and has never been updated.

•The FTC received nearly 80,000 complaints about debt collectors in 2008, but over the last 10 years has, on average, taken enforcement action against just two per year.

“How is the American consumer doing? We're doing terribly,” said Ira Rheingold, executive director of the National Association of Consumer Advocates in Washington D.C.

He says the secret is out, at least among the most abusive debt collectors.

“You have an industry that’s saying, 'Here’s the law, but if we violate the law I can make a lot more money. If I harass people, if I threaten people, what are the odds anyone’s gonna catch me?'”

In Rosellini’s case, despite sending his certified letter, the collection letters for that old Comcast account continued to arrive in his mailbox.

Eventually, he called up the Credit Protection Association to complain and recorded the clerk on the other end of the line as she told him, “This is not affecting your credit.”

However, Rosellini discovered that at some point after that phone call, the collector still reported him as delinquent to all three credit bureaus. As a result, his credit score plunged.

“It's ridiculous,” he said. “These companies have the power to ruin your credit.”

Nate Levine is the owner and founder of Credit Protection Associates, a company that specializes in helping the cable industry collect from consumers who don’t pay their bills.

“If you could get the government to change its policy, you'd be a hero,” Levine said, referring to a pattern of inaction against debt collectors that KHOU discovered at both the FTC and even with some state attorney generals.

Levine confirmed that the FTC does not inform his company when a consumer complains. We asked Levine about Rosellini, who complained to the Better Business Bureau.

"I'd be upset if I were him too,” Levine said.

Of note, Levine was the only debt collector to sit down with KHOU for an on-camera interview for this story. He maintains he owns one of the “good” companies in the industry, and points to his “A” rating with the BBB as evidence. He told us what happened with Rosellini was a mistake he wants to correct.

“We'll contact the credit bureau and let them know it was an error,” Levine said.

We shared with Levine all of the findings of our investigation. We asked him where he thought it leaves consumers as far as protection.

“The consumer is left to fend for himself,” Levine concluded.

Jessica Cole is one of those consumers who feels like she’s on her own.

“They kept calling and calling and calling,” she said.

Cole says the collection agency, Allied Interstate, would simply not leave her alone.

“(They called) almost every day, from February to June, which is what? February, March, April May, June -- which is five months.”

KHOU: "You think they called more than 100 times?"

COLE: "Oh yeah! Because sometimes I’d get two or three phone calls a day."

Even more surprising, it turns out the money Allied Interstate wanted to collect wasn’t even owed by her.

“They were calling about my little brother” she said.

Fed up, she eventually called up Allied Interstate and threatened to complain to the Federal Trade Commission.

“I got the supervisor and he said, 'That’s fine, report us,'” she said. “(It) didn’t seem to be a hair off his shoulder.”

One reason that might be the case: Federal data from the FTC show Allied Interstate piled up nearly 6,000 consumer complaints since 2006. That is more than every company in America, except for one, over that time period. The company also has an “F” rating with the Better Business Bureau, who has received more than 1,000 complaints about them. In addition, they have the third most complaints on record with the Texas Attorney General in recent years. However, neither the FTC nor the Texas Attorney General has ever even fined the company.

In fact, of the Federal Trade Commission’s five most complained about debt collectors in their complaints database, four had never been fined by the agency.

NCO Financial Systems is the one that did get penalized. In 2004, the FTC levied a $1.5 million fine against the company, one of the highest fines in FTC history.

Public records filed with the Security and Exchange Commission show the company takes in more than $1 billion a year.

We checked, and discovered since paying that fine, NCO has gone on to tally up an additional 8,400 consumer complaints since 2006. That means they piled up more complaints than any other agency in America over that time, and the FTC has taken no follow-up enforcement action against NCO of any kind.

“It is a signal to the debt collection industry that, 'Man we can get away with murder because there's really no cops on the beat,'” Ira Rheingold of the National Association of Consumer Advocates said.

NCO company representatives at their headquarters would not return calls for comment from KHOU. So, we decided to visit NCO at their local branch office in Houston.

KHOU: "What kind of operation are you running?"

NCO Manager: "No comment."

The Federal Trade Commission’s Reilly Dolan agreed to sit down for an interview with KHOU.

Dolan is the Assistant Director for the Division of Financial Practices at FTC, the division that oversees third-party debt collectors.

“We’ve brought 22 actions in the last 10 years,” he told us.

KHOU: "I mean, this is the federal government. Two actions a year for 10 years?"

FTC: "The investigations are very time-consuming."

KHOU also asked Dolan about companies like Allied Interstate, its nearly 6,000 complaints with FTC and its “F” rating at the BBB.

KHOU: "I didn't see so much as a slap on the wrist against Allied Interstate. What's going on?"

FTC: "Um, we have not taken an enforcement action against Allied Interstate as of yet."

KHOU: "In fact, you've probably not brought a lawsuit or fined the vast majority of companies that have “F” ratings in this industry. True?"

FTC: "There's an awful lot of companies that have "F" ratings, and we can't bring a lawsuit against every single company."

KHOU checked and discovered there are currently 735 debt collectors who have an “F” rating with the BBB. The BBB has no regulatory authority and cannot force a company out of business.

At the FTC’s current pace of issuing two enforcement actions a year, it would take them more than 300 years to fine all 735 companies. To put that in perspective, that is longer than the United States of America has been around as a nation.

After we left messages with Allied Interstate seeking comment for this story, a representative for a company called IQOR called us back. Jennifer Harvey said IQOR is the Madison Avenue, New York-based parent company for Allied Interstate.

We asked her to respond to the many complaints against the company. In a written statement, Harvey said: “Thank you for bringing these issues to our attention. Allied Interstate takes all compliance-related issues very seriously and abides by all the rules and regulations of state and federal law that govern this sector. If there are breaches, as alleged, we will undertake an internal review, pinpoint the problem and work hard to make sure they don't happen again.”

With so little action from regulators, the National Association of Consumer Advocates says you can still fight back. If you contact them or search their Web site, they can refer you to a consumer lawyer near you who is used to filing lawsuits against debt collectors for wrongful actions.

Rheingold says most wrongful attempts to collect a debt take place from companies demanding small amounts of money, sometimes less than $200. With so much risk on the line from having a credit score lowered, he says many consumers decide to pay debts they don’t owe because they do not believe it is worth the money to hire an attorney.

However, he says, many companies count on this behavior. That is why his organization has gathered a list of lawyers who often will not charge you anything to file a lawsuit against a debt collector who is violating the Fair Debt Collection Practices Act. The lawyers get paid if they can recover attorney’s fees, and you may be eligible to receive up to $1,000 if you win on top of any actual damages you can recover. Rheingold says even while the $1,000 cap on statutory penalties is not high enough in his opinion to deter bad behavior from companies that may look at it is a “cost of doing business”, he says consumers should still attempt to collect it if they are truly victims.

Various state attorney generals, such as the one in New York, have taken action against debt collectors where the FTC has not. The Texas Attorney General declined an on-camera interview for this story.

 

KHOU producer Yang Wang contributed to data analysis for this report .