For most people, it’s not a surprise that borrowing from a payday or title loan company is going to come with ridiculously high finance charges and interest rates. A recent report by the Utah Department of Financial Institutions illustrated exactly how exorbitant these rates can be. For someone who is already at the point that many would call a “last resort” when they need to take out such a nontraditional loan, perhaps the last thing they need is additional fees and finance charges, and when they are unable to repay those loans, debt collection enters the picture. A practice that brings to mind mafia loan sharks with lead pipes, debt collection has come into the spotlight recently with the arrests of the owner and six employees of a Georgia-based debt collection agency which misled thousands of people nationwide. Several government agencies are collaborating on a larger scale investigation of abusive debt collection practices.
More than just Shady Debt Collection Practices
The debt collection agency in question is based in Georgia. According to U.S. Attorney Preet Bharara of Manhattan, who is overseeing the case, the collectors at Williams, Scott & Associates were using intimidating and illegal bullying tactics to get people to pay millions of dollars between the years of 2009 and 2014. These tactics included falsely identifying themselves as a “detective” or “investigator” either for local law enforcement or government task forces such as the U.S. Justice Department or Marshals Service. Threats by the debt collection agents for Williams, Scott & Associates included activating felony warrants for check fraud or suspending driver’s licenses.
Bharara stated that a larger investigation is being conducted by the Consumer Financial Protection Bureau, The Federal Trade Commission, the FBI, and federal prosecutors. To date, this would be the first time all of these agencies have worked together on such an investigation.
“We are far from finished looking at the seedy side of debt collection,” Bharara said. “It affects too many people.”
Is Debt Collection Inevitable with Nontraditional Loans?
According to an article from CNN Money citing a recent Urban Institute study, approximately one in three adults with a credit history have some form of debt that has been put into collections. That is approximately 77 million U.S. citizens.
As far as individual states are concerned, Utah’s neighbor to the southwest, Nevada, has the highest percentage of residents with debt in collection. This has been largely attributed to the population of Las Vegas, where roughly 49 percent of residents are being sought for debt collection.
Regarding Williams, Scott & Associates, investigators have said many of the targets of debt collection harassment had taken out payday loans. According to the report from the Utah Department of Financial Institutions, while payday loans’ average annual interest rate percent is down from 2012, it was still averaging 466 percent in 2013. The report found the highest percentage rates to be as much 1,546 percent annual interest. While many Utah legislators are working on regulation legislation for these companies, currently Utah has no cap on the amount of interest that can be charged.
In an article from the Salt Lake Tribune, David Parkinson, spokesman for the Utah Consumer Lending Association of payday loans, said that reporting annual percentage rates are misleading, given the fact that most payday loans are short term, limited to ten weeks. However, critics and advocates for the poor say that people are often pressured into taking out new loans at the end of that period to avoid default.
George Venizelos, the New York FBI assistant director, confirmed this idea regarding Williams, Scott & Associates. “This scheme took advantage of our poorest and most vulnerable citizens from all fifty states.”
Know Your Rights Regarding Debt Collection
While Utah legislators are working toward payday and title loan regulation, certain laws are already in effect when it comes to debt collection practices.
In 1977, the Fair Debt Collections Practice Act was passed. It is currently enforced by the Federal Trade Commission. In addition to the Fair Debt Collections Practice Act, the Consumer Financial Protection Bureau was given the authority to monitor the country’s largest debt collection agencies in 2012. Their powers include the ability to go into the offices of those agencies to make sure customers are being treated fairly, including assuring debt collectors properly identify themselves.
Under the Fair Debt Collections Practice Act, the customer is additionally protected. These protections include not being contacted by a debt collector at unreasonable hours or locations such as work if notified as such. Harassment such as threats of violence, use of obscene language, or repeated phone calls are not permitted, nor are the use of false statements such as those used by Williams, Scott & Associates.
Payday loans and title loans aren’t a great idea, but for some people, they are unavoidable. Going into debt isn’t something people normally choose, but sometimes life has other plans. If you default on your debt and it goes to a collections agency, they do have certain legal rights in which to collect that money and your credit can be negatively affected, but you are also protected from unsavory debt collection practices.