Editorial: Debt collection underworld must be brought into the light

Thinking of putting those holiday purchases on your credit card? You may want to think twice after reading the newly published book, “Bad Paper: Chasing Debt from Wall Street to the Underworld.”

It paints a chilling portrait of the people who buy, sell and try to collect your most sensitive financial information if and when you fall behind on your consumer debt payments. Many of them, author Jake Halpern notes, have extensive criminal histories.

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Federal Trade Comission Chairwoman, Edith Ramirez (center) announces a crackdown on deceptive and abusive debt collection practices,

American consumers collectively are deep in hock, to the tune of $11.8 trillion. About $831 billion of that is delinquent or unpaid. Halpern writes that 30 million consumers are currently being hounded over at least one loan.

To be sure, consumers ought to live within their means, and pay their bills on time. No one disputes that. But when unforeseen circumstances happen — job loss, illness, divorce — people can and do miss payments. If they fall too far behind, the big banks sell off the “bad paper” to the highest bidder for pennies on the dollar.

At that point, the debt can change hands over and over again, and potentially wind up owned or collected on by ex-cons, former drug dealers and thugs. Given the sizable amount of money at stake, it’s shocking that federal regulators have until recently ignored this dark corner of consumer finance.

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At National Asset Recovery, employees able to “sell” debtors on paying back their loans receive incentives. / Atlanta Journal Constitution

On Nov. 4 the Federal Trade Commission, after years of neglect, announced a crackdown on unscrupulous players in the industry. saying it had launched actions against 34 players, and coordinated with states to penalize another 86. Compare that to 2009, the height of the financial collapse, when the FTC received 88,190 complaints about debt collectors, yet brought just one enforcement action, according to Halpern.

Surprisingly, one of the few bright spots in this narrative is Florida. In 2014, the Legislature passed a good bill at the request of the state Office of Financial Regulation. It requires fingerprints and criminal background checks of the owners and officers of debt collection firms as of Oct. 1, 2014, while strengthening that agency’s power to inspect for violations of fair debt collection practices.

No longer is a consumer complaint needed to enable the agency to examine one of the state’s 1,500 debt collection firms, said Gregory Oaks, director of the Florida Division of Consumer Finance.

The state gets about 1,200 debt collection complaints a year, Oaks told The Post Editorial Board. Some come from consumers who say they’re not the individual responsible for the debt in question. Others say the amount is incorrect. Still others report harassment, deception or intimidation.

“In any financial services industry, you have the potential for unscrupulous actors who will attempt to take advantage of consumers who are not in the best of circumstances,” Oaks said. “So you need these regulations in place in order to keep everyone on the same playing field, at the same level.”

The collections firm owners’ fingerprints are kept in an FDLE database, and Oaks says his agency is notified if any principals are arrested. That’s a good first step. But in “Bad Paper,” Halpern notes another obvious step that has yet to be taken.

Without a central consumer debt registry that could ensure that a debt obligation had its own universal tracking number, sort of like a vehicle identification number, anything goes. These debt spreadsheets can be, and are, stolen. They’re in the hands of God knows who.

Other states, and the federal government, would be smart to f0llow Florida’s tough stance on who can be in the debt-buying business. Until they do, we’re all at risk.