Consumer Survey Underscores Issue of Mis-placed Regulatory Focus

Stephanie Eidelman

The Consumer Federation of America and the North American Consumer Protection Investigators conduct an annual survey of state and local consumer agencies to ask about the top complaints they received in the previous year, the worst and fastest-growing complaints, new types of complaints, their biggest challenges and achievements, and their suggestions for new laws to better protect consumers. This year, 37 agencies in 21 states across America responded to the survey. This report, released on Wednesday, details the findings.

Some of the report highlights:

• The 37 agencies in the survey received a total of 281,639 complaints last year. This does not reflect the much larger number of consumers who benefitted from enforcement actions that the agencies took or the public education they provided.
• Based on figures provided by 35 agencies, the total amount they saved or recovered for consumers through complaint mediation, administrative procedures and enforcement actions exceeded $123 million.
• The top three complaints continue to be auto-related problems, home improvement and construction, and credit and debt issues. Since these problems often result in significant impacts on consumers’ lives and involve some of the most egregious practices, consumers are more likely to make complaints about them than other issues.
• The top fastest-growing complaint last year was identity theft. This is not surprising given the epidemic of data breaches around the country. Some agencies cited the use of consumers’ stolen personal information to impersonate them in order to claim their tax refunds as a particularly fast-growing and troublesome problem.
• The top worst complaint last year was debt collection. These complaints included scammers posing as debt collectors attempting to extort money from consumers for phony debts as well as abusive practices to collect debts that consumers legitimately owed.
• New complaints that agencies dealt with last year ranged from livestock thefts to phony offers to help students pay off or consolidate their loans. One new problem that several agencies mentioned was businesses that closed and reopened under the same names but with new owners refusing to honor agreements that consumers had made with the original owners.
• While several agencies said that operating with budget cuts and limited resources was their biggest challenge in 2014, other challenges they faced included coping with retirements and other internal issues, dealing with disasters, keeping up with marketplace changes, improving systems and services, and effectively reaching constituents.
• When asked what new laws are needed to better protect consumers, several agencies suggested that lawmakers should address “the sharing economy.” Consumer laws, which typically apply to business-to-consumer transactions, do not necessarily fit well with new forms of commerce such as when individuals provide services to other individuals through platforms such as Airbnb and Uber. Thus it may be unclear who is legally responsible if there are problems with these types of transactions.

The top five fastest-growing complaints in 2014:

1. Identity theft
2. Erroneous health care billing
3. Home improvement
4. IRS imposter scams
5. Timeshare resales

Of course the top two have a significant effect on debt collection activities, as problems that originate at this level often get discovered during the collection process.

The report suggests that complaints about erroneous health care billing may be due in part to the failure of health care providers to submit information to consumers’ insurers in a proper and timely manner, which some agencies cited as a “new” complaint last year. Consumer confusion about what insurance will cover is probably another factor. A recent survey by Consumer Reports National Research found that nearly a third of privately insured Americans have been hit with medical bills that they thought their insurance would pay.

CFA defines an additional category, called “Worst Complaints,” as those survey respondents would categorize as worst based on the number of complaints about a particular topic or company, the dollar amount involved, the impact on vulnerable consumers, the outrageousness of the situation, or other factors.

The top five “worst complaints” for 2014:

1. Debt collection
2. Immigration service scams
3. Do not call and robocall violations
4. Door-to-door sales
5. Used car sales

The survey asked respondents for their suggestions for new laws to better protect consumers. In addition to addressing the brand new world of “the sharing economy,” these were suggestions related to credit and debt were mentioned:

• Require debt consolidation companies to be registered with the state and bonded, and to provide clear disclosures about what they do.
• Require debt collectors and debt brokers to be registered.
• Ban subprime auto loans with exorbitant interest rates.

The survey also asked about the biggest challenges agencies faced in the last year. Among others, several cited reaching vulnerable consumers with information about the constantly changing scams that target them; despite all of the community outreach that consumer agencies do, it is hard to ensure that people will recognize scams or will call for advice before they fall for them.

For instance, debt deceit/debt collection was among the worst complaints made to the District of Columbia Attorney General’s Office last year, and there was an increase in the number of complaints about fake debt collectors who make harassing phone calls or send threatening emails to scare consumers into sending money or providing their credit card or bank account information to satisfy a loan that doesn’t exist.

In some cases, they pretend to be from law enforcement agencies. One consumer received an email with what appeared to be an arrest warrant from the United States District Court and stating “In the Matter of Arrest for NON-PAID LOAN AND CHEQUE FRAUD.”

The CFA notes that courts do not send warrants by email, and the word “cheque” is another red flag of fraud; that is how “check” is spelled in Canada, where many scammers that target U.S consumers are located.

The CFA offers this advice to consumers

If someone calls about a debt that you don’t think is yours, it could be a mistake, a sign that you’re the victim of identity theft, or a fraudster trying to steal your money. Don’t send any payment or provide any financial or other personal information. Tell the person to send you the information in writing. Be very suspicious of unexpected emails about debts. If they have attachments, don’t open them, as they could contain malware – a program that would allow scammers to get into your computer. Look online for contact information for whoever the email appears to be from and check directly with them.

Additionally, it is a violation of the Fair Debt Collection Practices Act when company representatives misrepresent to consumers that they are from a law firm or law enforcement agency, threaten consumers with arrest or imprisonment, call them before 8 a.m. or after 9 p.m., contact their employers and divulge details of the debts to third parties, and collect amounts that exceeded what consumers owed under the original agreements creating the debts. Under federal law, you have the right to tell debt collectors not to contact you again. It’s illegal for them to call with annoying frequency or at certain hours, falsely say they’re going to take legal action, use obscene language, threaten bodily harm, or reveal information about your debt to someone else. You may also have rights under state law; check with your state or local consumer protection agency.

insideARM Perspective

The advice described above that the CFA offers to consumers is good. It is also representative of the problems I have seen for years in my analysis of complaints to the Federal Trade Commission (FTC), and then to the Consumer Financial Protection Bureau (CFPB). The biggest problem I see is that the majority of egregious complaints about debt collection are really about scammers; they are not about debt collectors. Do legitimate companies make mistakes? Yes. However the categories of those mistakes tend to be the more technical violations, not the terrible “dig up your mother” stories. The worst stories with the most harm are about companies that don’t properly identify themselves or are difficult to find.

When you look at complaint data related to scams vs. complaints related to legitimate firms, it looks different. Data about scams is really sparse. Maybe there is a phone number (if you call it, it’s likely been disconnected, or answered by an individual in a very unprofessional manner), there is almost never an address. There is rarely a company name — and if there is, it’s not a name of an actual, legitimate company. Complaints about legitimate companies have all of this information. Because they are legitimate. And while they sometimes mess up – and may deserve to be called out for it – they act in fundamentally legitimate ways. Which is why, generally, the complaints are resolvable.

Here is the best evidence:

Before the CFPB started collecting complaints, the FTC was the primary collector (no pun intended) of complaints at the federal level. In 2011-2012 the rate of reported complaints was approximately 50,000 per quarter. These were completely un-vetted for validity, duplication, or existence of an actual company.

The CFPB began collecting complaints in 2013, and handles them in a different way; they confirm the identity of the “complainee,” and the complaint does not appear in their numbers (or online reporting) if the company cannot be identified. For the 2^nd quarter of 2015, the CFPB recorded approximately 7,300 debt collection complaints – less than 15% of the volume reported by the FTC. And of course, you recognize the company names because they are legitimate companies. I’m sure that the “most complaints” are not indeed against Enhanced Recovery Company, Encore Capital Group, or Portfolio Recovery Associates… they are against “companies” nobody has ever heard of and can’t locate.

Local and federal authorities rightfully spend a lot of their enforcement efforts on finding and shutting down scammers. They should consider carefully the many laws/rules in development that will make it so much harder for legitimate companies to operate, while scammers, by definition, will not follow the rules no matter what they are.

I wrote more about this a few weeks ago, when the CFPB published its first monthly report about complaints, and highlighted debt collection.