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The pandemic affected many facets of the economy, including the way people interacted with debt collectors. Despite negative trends around unemployment and spending, more people engaged with their debt collectors in 2020.
This is particularly surprising as the widespread national financial hardships caused many lenders to give breaks on outstanding loans. Federal student loans were put on pause for several months, and some mortgage lenders offered deferments. Still, a lender and a debt collection agency are different institutions.
According to data from TrueAccord, a debt collection company, more consumers engage with debt collection services when their confidence about the economy and the outlook of their own finances are higher. They say, “Our work with consumers has shown us that engagement tends to increase when consumer confidence about the economy (and their own financial situation) is high and decrease when consumers are more skeptical.” This would suggest that most interactions with debt collectors in 2020 were instigated by the collection agency and not the consumer.
Additionally, the National Retail Federation’s (NRF) 2021 survey showed that 54 percent of consumers expect to put their tax refund directly into savings, while 32 percent report planning to use it to pay down debt. These numbers have stayed relatively consistent year over year. For example, the 2018 NRF study found 35 percent of Americans planned to use their tax return to pay down debt. Clearly, the pandemic changed some financial patterns while maintaining others.
Here’s how debt collection complaints and behavior changed during 2020.
10 percent increase in the number of complaints against debt collectors to the CFPB
The CFPB says that, “From January through December 31, 2020, the Bureau received approximately 82,700 debt collection complaints—an increase of approximately 10 percent compared to 2019.” While many industries greatly suffered throughout the pandemic, the debt collection industry seemed to thrive. In fact, one of the largest debt buyers in the country—Encore Capital—announced in 2020 that it had doubled its earnings for the previous quarter.
So, complaints from consumers were up, and the debt collection agencies’ revenues were also up. Where is all this success coming from during a period of economic uncertainty?
There are several potential reasons for the increase in complaints. During a time when everyone feared for their job security, debt collectors could have become desperate to keep their jobs and doubled down on their efforts.
However, a more likely explanation is that the CARES Act delivered billions in stimulus checks and unemployment benefits to Americans. As a result, debt collectors knew—almost for certain—that their accounts had access to cash, and they acted aggressively to get that money.
Most complaints were about being contacted for a debt they didn’t owe
In 2020, the issue that saw the most significant increase in volume compared to 2019 was complaints of being contacted for a debt they didn’t owe. In fact, almost half (49 percent) of all debt complaints were for “attempts to collect debt not owed.”
“Debts not owed” can cover a range of circumstances, including debt that belongs to another person, debt for services or products the person never received and debt they’re not aware of.
Lastly, another type of debt that falls into this category is “phantom debt collection.” This is debt that can no longer legally be collected. Around 19 percent of complaints were about debt that was already paid or discharged in bankruptcy, and 3 percent were for debt that was no longer owed.
Phantom debt collection is illegal but remains a major issue in the debt collection industry. In April 2021, the Federal Trade Commission (FTC) passed a ruling against debt collection agency Stark Law. This company was found guilty of a phantom debt collection scheme that impacted over 10,000 consumers. FTC ruled that Stark Law would have to pay back $4 million in settlements to impacted consumers.
Almost one in three said they had been the victim of identity theft
Identity theft has risen substantially from 2019. Approximately 29 percent of the attempts to collect debt not owed were a result of identity theft. Consumers report finding out about outstanding debts from identity theft when reviewing their credit reports.
Data shows that identity theft was up overall during the pandemic, with fraudsters targeting Americans working from home. Scammers knew they could target people who were at home, away from the network security that’s standard in most businesses. Additionally, many Americans were targeted with COVID-19 scams, such as phishing emails with COVID-19 updates or fake e-commerce websites for personal protective equipment.
Lastly, social media continues to be a common avenue for identity theft. Fraudsters can easily find a person’s full name, town of residence, phone number, birthday and other sensitive information on social media profiles.
Many consumers reported not receiving enough information to validate the debt
Of the consumers who complained about not receiving sufficient notification or paperwork to validate the debt, many of them reported learning about the debt for the first time and having difficulty proving they were victims of identity fraud.
Notable statistics from the CFPB report include:
- 72 percent of people who received a written notification said it did not contain enough information to verify the debt.
- Many consumers reported realizing that they were the victims of identity theft by examining their credit reports. However, a credit report typically contains minimal information about line items, such as outstanding debt. This presents an extra challenge to understanding the source of the debt or its details.
- 25 percent of complaints assert they didn’t receive a notice of their right to dispute.
- 3 percent of consumers reported the notification didn’t disclose it was an attempt to collect a debt.
Debt collectors have federal laws they have to abide by when contacting and interacting with consumers. The FTC foresaw issues coming from debt collectors during the pandemic. In April 2020, just a couple months into the pandemic, the organization released an article on “Dealing with debt collectors during the pandemic.” This article encouraged readers to always verify their debts and understand their rights.
Collectors falsely threatening to take legal action was the third most common complaint
Of all the types of debt collection complaints, “took or threatened to take negative or legal action” was the third most common complaint. This issue accounted for 10 percent of all complaints. The “took or threatened to take negative or legal action” complaints break down as follows:
- 40 percent threats or suggestions that the person’s credit history would be damaged
- 23 percent threats to sue on a dated debt
- 12 percent threats to arrest consumers if they refused to pay
- 9 percent lawsuits occurring without proper notification
- 8 percent attempted or successful seizure of property
- 5 percent attempted or successful collection of exempt funds, such as unemployment benefits or child support
- 2 percent being sued in a different state (than the original contract or the current address of the consumer)
- 0.2 percent threats around deportation
The above are illegal debt collection actions and can lead to severe consequences if reported. For example, in October 2020, the FTC announced it had shut down the operations of Critical Resolution Mediation LLC. The debt collection agency’s workers were accused of pretending to be police or attorneys when calling consumers, attempting to collect phantom debts and making threats to lower credit scores or jail people for not paying their debts.
How to protect yourself from illegal debt collection practices
Consumers can protect themselves by understanding their rights and being proactive. Individuals shouldn’t be afraid to negotiate with debt collectors. The important thing is to contact them as soon as they reach out, especially if you don’t recognize the debt. Consumers have a limited timeline in which to validate the debt amount with the collection agency.
If a debt collection company is pursuing you for a debt you’ve already paid off, harassing you or engaging in any other illegal practices, you can report their behavior to the CFPB or FTC.
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