The federal and state authorities are seeking to shut down a network of debt collection companies in New York that have generated numerous consumer complaints due to their use of tactics likened by targets to “emotional terrorism.” These tactics include focusing on the friends, relatives, and employers of debtors to turn them into an “army” that pressures debtors to repay their debts. Debt collection is a major source of complaints made by consumers about financial products and companies, with authorities receiving more complaints about collection agencies than any other type of financial company besides credit reporting agencies.
Debt Collection in New York
A group of regulated debt collection companies in New York used these tactics against approximately 293,000 people between 2015 and 2020, drawing the attention of federal and state authorities who are moving to shut down the companies. The Consumer Financial Protection Bureau, in collaboration with the New York Attorney General, asked a federal court this week to shut down six companies and bar their leaders from ever collecting debts again, as part of a settlement in a lawsuit filed in September 2020. The defendants have agreed to the settlement, which has not yet been approved by the court.
Pressuring Consumers through “Stirring the Pot”
The Consumer Financial Protection Bureau accused the companies of using aggressive and misleading methods to collect debts, including a nefarious tactic referred to as “emotional terrorism” by those targeted. For example, the companies would use social media to find friends, acquaintances, and employers of the debtors, then contact them instead of the debtor, claiming they were trying to locate the debtor when they already had contact information. The callers would imply that the person was in trouble. Such “stirring the pot” would often lead third parties to contact the consumer themselves.
“Thus, the consumer’s family, friends, and colleagues can become the collector’s army, pushing the consumer to deal with the collector’s demands,” according to the lawsuit filed by the bureau.
Legal and Financial Consequences
In addition to shutting down the companies and preventing their owners and managers from collecting debts for life, the defendants will have to pay $4 million in fines if the judge allows the agreed settlement.
If you have a question or comment or a story you would like to share, you can reach out to Deacon at the email dhyatt@thebalance.com.
Would you like to read more content like this? Subscribe to The Balance newsletter for daily insights, analysis, and financial tips, delivered straight to your inbox every morning!
Was this page helpful? Thank you for your feedback! Tell us why! Last
Sources:
– Consumer Financial Protection Bureau. “Consumer Financial Protection Bureau and New York Attorney General Close Debt Collection Ring.”
– Consumer Financial Protection Bureau. “Consumer Complaint Database.”
– Consumer Financial Protection Bureau. “Consumer Financial Protection Bureau and the People of the State of New York, by Letitia James, Attorney General of the State of New York, Plaintiffs, v. JPL Recovery Solutions [and other defendants].”
Source: https://www.thebalancemoney.com/authorities-seek-to-shutter-predatory-debt-collectors-5323464
Leave a Reply