FTC is Giving Out Bad Advice

The Federal Trade Commission (USA) has a page quite often referenced regarding debt collection issues concerning fake debt collectors. This is a very real problem, and people do need to be aware of it, whether they have outstanding debts or not. The FTC certainly seems to intend to help consumers avoid being tricked out of their money by this type of scam.

FTC Consumer Alert

However, one part of the advice the FTC offers is misleading, and puts some consumers at risk. The part with the problem is the first paragraph under “If you think that a caller may be a fake debt collector”.  It begins with “Ask the caller for his name, company, street address, and telephone number”.

The advice the FTC gives is to refuse to discuss a debt until you get a written “validation notice”.  This is the bad advice.  The reason it is bad is because a “validation notice” is worthless and does not distinguish between a legitimate debt collector and a fake debt collector.  The reason this is worthless is because the law (FDCPA) that specifies what this “validation notice” is only requires legitimate debt collectors to do nothing more than provide information that identifies what debt is involved.  There is no requirement that the collector provide any actual proof that the debt exists, or any actual proof the consumer being called is the debtor for this debt, or most importantly, provide any actual proof that this collector really holds the legal right to collect this debt.

There are, of course, real problems giving any advice around this issue because of the flaw in the law.  Legitimate debt collectors will generally refuse to provide any proof of anything, or any other evidence or information beyond the minimum required by law.  The flaw is that the minimum is way too small to provide a means to distinguish a real debt collector from a fake one.

So, on the basis of this bad advice from the FTC, you could receive this “validation notice” even from a fake debt collector, and think it is somehow legitimate.

Fake debt collectors are able to operate mostly because they have managed to acquire information about a consumer, and possibly information about real debts owed, probably by that exact consumer.  Acquiring this information is easy because so many businesses are totally ignorant about computer security.

Debt collectors, even though legitimate, fall into this category of “ignorant about security” far more than other businesses.  One aspect of their business involves actually providing information about debts when they sell debt accounts (receivables).  In some cases when they are selling accounts they do not have an interest in doing collections on, they might provide a sample of accounts to a potential buyer, without performing the due diligence to be sure the buyer will maintain this information entirely within the scope of the legitimate accounts receivable industry.

And many others just won’t keep their computers secure, allowing hackers to easily download all the same information.  Often this happens just because they are trying to cut costs at the expense of consumers.

Remember, just because the caller happens to know a lot of information about YOU, and/or about a debt that is really owed, none of that means you owe it to THEM.  The tough advice I give is to never pay them anything until they prove they are the ones the debt is owed to (now).  Such proof would be something which can be used in court should it happen that someone ELSE comes along later claiming that THEY are the ones to whom the same debt is owed to.  This is tough advice because such proof is hard to establish, and even legitimate debt collectors are unlikely to provide it until they take the debtor to court.  So by protecting yourself from scammers operating like debt collectors, you are also creating a situation where legitimate debt collectors might take you to court.  This is the flaw in the law (that the FTC seems to not really understand).

The remainder of the advice on that page is generally good advice.

Find out more about the FDCPA at http://en.wikipedia.org/wiki/Fair_Debt_Collection_Practices_Act

You can read the FDCPA law online at http://www.law.cornell.edu/uscode/text/15/chapter-41/subchapter-V … or download this PDF document:  http://ftc.gov/bcp/edu/pubs/consumer/credit/cre27.pdf  The relevant section to read for “validation notice” is 15 USC § 1692G(a).

The FTC recent got a court order to halt a fake debt collector operation that was making the calls from India.  It still disturbs me that it takes this much to stop such operations.  Read more here:  http://ftc.gov/opa/2012/04/broadway.shtm

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