Washington -The Justice Department said a Michigan-based debt collector has agreed to pay a $2.5 million civil penalty and make sweeping changes designed to protect consumers.
Warren-based Asset Acceptance LLC, one of the largest purchasers of old debts in the United States, was accused by the government of a host of improper activities in collecting old debts.
They included failing to tell consumers that if they made partial payments on uncollectible debts, in doing so they made the full debts legally collectible. Activities also included failing to investigate claims made by consumers that they didn't owe debts.
The settlement will end an investigation launched by the Federal Trade Commission in February 2006.
The company specializes in purchasing old consumer debts from other companies, and then holding and collecting on these debts over a long period of time.
As of Sept. 30, 2010, Asset held more than 34 million individual accounts with an original value of more than $42 billion.
The proposed consent decree, filed today in the U.S. District Court for the Middle District of Florida in Tampa, will settle charges alleging that Asset violated the Federal Trade Commission Act, the Fair Credit Reporting Act and the Fair Debt Collection Practices Act.
Asset's parent company — Asset Acceptance Capital Corp — said the deal resolves the FTC investigation without an admission of wrongdoing by the company.
"Asset Acceptance is an industry leader in the amount of information we give consumers. This agreement gives consumers even more visibility into how we will work with them and sets new standards for the industry. We are pleased to have this matter behind us, and to have clarity on the FTC's policies and expectations of the debt collection industry," said Rion Needs, Asset's president and CEO. "As we have already implemented many of the requirements of the consent decree, we now welcome the opportunity to work with the FTC to make these measures the new standards in debt collection."
According to the complaint filed Monday, many of the debts Asset purchased are outside of the statute of limitations and consumers have no enforceable legal obligation to pay that debt.
In some states, consumers reset the statute of limitations if they promise to pay the debt or make a partial payment on the debt.
Asset is alleged to have collected on this so-called "zombie" debt without informing consumers that these debts were not legally enforceable, or that in making a partial payment or promise to pay, they may have unwittingly breathed life back into these debts, the government said.
The Justice Department also said Asset systematically failed to conduct a reasonable investigation when a consumer told the company that a debt the company called about was not the consumer's debt, that the debt had already been paid or that the consumer had been the victim of identity theft. Asset also allegedly reported negative information about consumers to credit bureaus, even when the company was aware that a consumer had not received a written notice of that fact because the notice was returned as undelivered mail, the Justice Department said. According to the complaint, some of these consumers would only learn that Asset had reported them to a credit bureau when applying for a mortgage or auto loan.
Even if they believed the debt was invalid, some consumers would pay Asset to avoid losing out on a new loan they needed to get quickly.
The Justice Department charges that Asset repeatedly called the wrong person when attempting to collect on a debt, even after being told that the company had reached the wrong number.
"Debt collectors can play a legitimate role in our economy, but only if they follow the law," said Tony West, assistant attorney general for the civil division at the Justice Department. "As this resolution demonstrates, those who do not deal fairly and honestly with consumers will be held accountable. The consent decree we are filing today — which requires Asset Acceptance to pay a stiff penalty and change the way it does business — can serve as a model for the entire debt collection industry."
Under the terms of the settlement, when Asset attempts to collect a debt that may be beyond the statute of limitations, the company must inform the consumer that he or she will not be sued on the debt; further, the company must remind consumers of this promise in any situation where the consumer is likely to have forgotten the disclosure or its effects.
The settlement also requires other changes to Asset's business practices that create safeguards for consumers. Asset must now conduct a reasonable investigation into the legitimacy of a debt when it becomes aware of a consumer dispute or if the company who sold a debt to Asset provided unreliable information about the original debt.
The company can no longer consider undelivered mail to constitute notice that information about a consumer is being reported to a credit reporting agency or repeatedly contact third parties in a way that violates the Fair Debt Collection Practices Act.
