The Federal Trade Commission ("FTC") recently announced that a debt collector will pay $24.3 million to settle an agency investigation into the unlawful practice of “debt parking.” The civil penalty will be paid by Midwest Recovery Systems, LLC ("Midwest"), a debt collection company that engaged in unlawfully reporting debts to consumer credit reporting services without first investigating the debts, attempting to collect the debts or even contacting the debtors. See FTC news release here. The owners of Midwest are also being punished personally.
In addition to the punishment against Midwest and its owners, the FTC has used the case to establish the general principle that debt parking is unlawful. As the FTC statement says, debt parking is now to be deemed an “other prohibited practice” under federal law which can subject violators to "... law enforcement action for violations of the FTC Act, the Fair Debt Collection Practices Act, and the Fair Credit Reporting Act." This is good news for consumers and is an acknowledgment by the FTC that debtors have rights and that those rights must be given the highest protection.
In the case, starting in 2015, Midwest reported almost $100 million in debts that it had acquired to various consumer credit reporting services. However, many of the debts were disputed in several ways. Some of the debts were subject to pending and/or unresolved claims of fraud and some were claimed to be outright counterfeits. Further, some of the alleged debts reported by Midwest were either subject to a pending bankruptcy or had been discharged. Other debts that Midwest reported were in the process of being rebilled (such as bills that might be covered by insurance) or debts that were already repaid. Under various consumer protection statutes, reporting these sorts of debts to credit reporting services is unlawful.
In the investigation, the FTC charged Midwest with many legal violations for their debt parking practices.
For example, the FTC charged Midwest with violating the Federal Trade Act by making false statements and making unsubstantiated claims that:
- The debts were due
- The debts were delinquent and/or
- The consumers were required to pay Midwest
These were false statements because the debts were disputed. When a debt is disputed, a collection agency cannot claim that the debt must be repaid.
Likewise, the FTC charged Midwest with violating the Fair Debt Collection Practices Act ("FDCPA") which makes it unlawful for a debt collector to falsely represent the character, amount, and/or legal status of consumer debts. The FDCPA also punishes debt collectors who report debts to reporting services if the debt collector knows or has reason to suspect the debt may be disputed. Because many of the debts at issue were disputed, the FTC charged Midwest with violating these parts of the FDCPA. In addition, the FDCPA prohibits using any sort of false or deceptive means to collect a debt. According to the FTC, debt parking practices are deemed a form of false or deceptive means used to collect debts. Such practices are deemed particularly false and deceptive when the debt collector fails to communicate with the consumer before making the report. This is precisely what Midwest did and, thus, Midwest also violated this provision of the FDCPA. Finally, the FDCPA requires that debt collectors provide various notices to consumers. Midwest failed to provide such notices, yet another violation of the FDCPA.
The FTC also charged Midwest with violating the Fair Credit Reporting Act ("FCRA"). Among other mandates, the FCRA requires that debt collectors conduct a reasonable investigation if debts are disputed and must report the results of those investigations prior to reporting debts to credit services. Midwest violated the FCRA by failing to conduct any sort of investigation and by failing to communicate with the debtors at all.
As noted, this is a good result for consumers across the country and provides another powerful legal tool which can be used to punish unfair debt collection practices.
Contact an Experienced Debt Relief and Debtor Rights Attorney
For more information or if you think you have been subject to unlawful debt parking, contact the Debtor's Rights attorneys at Guardian Litigation Group. We can also help with other debt-relief legal services like bankruptcy and debt settlement. We have the tools and experience you need. Our Mission is to provide unparalleled legal services and support to financially distressed individuals. We can be reached via our contact page.