FTC hits major debt collector with $3.2 million penalty

One of the world's largest debt collection companies will pay $3.2 million to settle allegations that it wrongfully harassed people using illegal tactics such as calling people multiple times a day and not verifying whether they actually owed the money.

Expert Global Solutions of Plano, Texas, was handed the largest civil monetary penalty ever leveled by the Federal Trade Commission against a third-party debt collector.

One of Expert Global's major subsidiaries was fined $250,000 last year by the Minnesota Department of Commerce for employing felons and failing to notify state regulators when it fired agents for harassing customers and swearing at them. The subsidiary, NCO Financial Systems Inc., was highlighted in a 2010 Star Tribune investigative series about the illegal practices among debt collectors.

Expert Global Solutions, which employs more than 32,000 people and had revenue in 2011 of $1.2 billion, is backed by One Equity Partners, a private equity arm of JPMorgan Chase & Co. Expert Global signed the settlement without admitting wrongdoing. The agreement is subject to court approval in Texas.

The new $3.2 million FTC penalty comes amid a growing crackdown on the country's large debt collections industry, whose fast and loose practices have alarmed state and federal regulators in the wake of the Great Recession. The FTC has been a primary enforcement agency for debt collection, a duty it now shares with the new Consumer Financial Protection Bureau, and has been intensifying enforcement.

The settlement covers Expert Global Solutions and its subsidiaries NCO Financial Systems, ALW Sourcing LLC and Transworld Systems Inc., which also does business as North Shore Agency Inc. Both NCO Financial Systems and Transworld Systems have offices in Minnesota.

The agreement includes injunctions against practices such as excessive phone calls, bothering debtors at work and pursuing a debt without evidence the people owe the money, among other things. It spells out what a collector must to do verify a debt and restricts when collectors can leave messages that identify a debtor's full name and saying the person owes money.

"We believe that the quality of our consumer interaction is best-in-class in our industry today, and have worked hard over the past several years to help ensure compliance and fair treatment of consumers on all of our points of contact," said the statement, provided by senior vice president Tom Hoy.

Ron Elwood, supervising attorney at the St. Paul-based Legal Services Advocacy Project, which represents low-income Minnesotans, called the $3.2 million penalty amount significant. "It's a lot for this type of thing," said Elwood.

In the past three years, consumers have lodged more than 525,000 complaints to the FTC about debt collections practices, Elwood said, and debt collection problems are routinely one of the top two topics for consumer complaints to the FTC.

Since January 2010 the FTC has brought 15 cases involving debt collection and received more than $56 million in judgments, according to Christopher Koegel, the FTC's assistant director in the division of financial practices.

Minnesota Attorney General Lori Swanson has taken aim at a particularly troubling area of the industry — the relatively young debt-buying industry, where companies buy electronic portfolios of old consumer debt, such as credit card bills and phone bills, and try to collect on them. After Swanson settled with a major debt buyer last year, state lawmakers passed a law to strengthen consumer protections.

The law also requires debt buyers to send the debtor a notice before going to court, telling the debtor that he or she is going to be sued for a default judgment, and prohibits debt buyers from pursuing bills that are more than six years old.

"It's really one of the strongest bills in the country now around these purchase debts," Elwood said.

The attorney general's office said Tuesday that it's continuing to investigate collections activities and debt buyers operating in Minnesota.

Mark Schiffman, spokesman for the Minneapolis-based ACA International, which represents third-party debt collection companies, said he doesn't comment on specific company legal matters. Collections are a fact of life in a credit-based economy, he said, and consumers have important rights and "deserve to be treated fairly."

Much of the attention has been on third-party debt collectors and buyers. But the debt collection and selling practices of major banks and other first-party collectors have been drawing attention. The Office of the Comptroller of the Currency, which regulates major banks, has acknowledged concerns about debt sale practices among national banks and issued guidance to bank examiners, but a spokesman would not confirm whether it's conducting an investigation.

Banks and others extending credit to consumers are not necessarily subject to the same rules as third-party bill collectors under the Fair Debt Collection Practices Act, Elwood said.

"That's the one glaring gap in the Fair Debt Collection Practices Act — it doesn't apply to first-party collectors," he said.