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FTC Settlement: Tax Relief Scammers Agree to Pay More Than $15 Million

Under an agreement with the Federal Trade Commission, the defendants in a scheme that allegedly bilked consumers out of more than $100 million by falsely claiming they could reduce their tax debts must surrender more than $15 million in cash and assets to settle charges that they violated federal law. Under the settlement order, American Tax Relief LLC and its leader, Alexander Seung Hahn, are banned from telemarketing, and they and Hahn’s wife, Joo Hyun Park, are permanently prohibited from selling debt relief services. As part of the FTC’s ongoing efforts to protect consumers in financial distress, this is the agency’s first action against a tax relief company.

The FTC filed charges against American Tax Relief, Hahn, and Park in September 2010. A court subsequently halted the allegedly illegal practices, froze the defendants’ assets, and appointed a receiver to manage the company pending resolution of the case.

In August 2012, the court entered partial summary judgment in favor of the FTC, finding that the defendants falsely claimed they already had significantly reduced the tax debts of thousands of people and falsely told individual consumers they qualified for tax relief programs that would significantly reduce their tax debts. The court found Hahn personally liable for the challenged practices.

The settlement order imposes a $103.3 million judgment against ATR, Hahn, and Joo Hyun Park. It also imposes judgments of $18 million and $595,000, respectively, against relief defendants Young Soon Park and Il Kon Park, Joo Park’s parents, who were not charged with participating in the scheme but were found by the court to have received significant sums. The judgments will be suspended once the defendants and relief defendants have surrendered assets that total more than $15 million, including cash, a home in Beverly Hills and a condo in Los Angeles, jewelry and gold items, and a 2005 Ferrari. The full judgments will become due immediately if the defendants or relief defendants are found to have misrepresented their financial condition.

The order also prohibits ATR, Hahn, and Park from misrepresenting material facts about any products or services, collecting payments from the scheme’s customers, selling or otherwise benefitting from customers’ personal information, and failing to properly dispose of customer information.

The Commission vote to approve the proposed stipulated final judgment was 5-0. The stipulated final judgment was entered by the U.S. District Court for the Central District of California on January 29, 2013.

Consumers having trouble meeting their tax obligations should read the FTC’s Tax Relief Companies.

NOTE: This stipulated final judgment is for settlement purposes only and does not constitute an admission by the defendants or relief defendants of the allegations in the complaint. Stipulated final judgments have the force of law when approved and signed by the District Court judge.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.

FTC Staff Report Recommends Ways to Improve Mobile Privacy Disclosures

The Federal Trade Commission, the nation’s chief privacy agency, issued a staff report recommending ways that key players in the rapidly expanding mobile marketplace can better inform consumers about their data practices.

The report makes recommendations for critical players in the mobile marketplace: mobile platforms (operating system providers, such as Amazon, Apple, BlackBerry, Google, and Microsoft), application (app) developers, advertising networks and analytics companies, and app developer trade associations. Most of the recommendations involve making sure that consumers get timely, easy-to-understand disclosures about what data they collect and how the data is used.

“The mobile world is expanding and innovating at breathtaking speed, allowing consumers to do things that would have been hard to imagine only a few years ago,” said FTC Chairman Jon Leibowitz. “These best practices will help to safeguard consumer privacy and build trust in the mobile marketplace, ensuring that the market can continue to thrive.”

The FTC staff report is based on the FTC’s enforcement and policy experience with mobile issues and a May 2012 FTC workshop, which brought together representatives from industry, trade associations, academia, and consumer privacy groups to explore privacy disclosures on mobile devices.

The report describes the explosive growth of mobile services: in the fourth quarter of 2012, consumers worldwide bought approximately 217 million smartphones. Smartphones and tablets offer a wide variety of benefits to consumers. They can be used to make audio and video phone calls, find the nearest coffee shop or gas station, check traffic, browse a digital library while waiting for an appointment, and connect with friends for spontaneous get-togethers.

At the same time, the report states that mobile technology raises unique privacy concerns. More than other types of technology, mobile devices are typically personal to an individual, almost always on, and with the user. This can facilitate unprecedented amounts of data collection. In addition, since a single mobile device can facilitate data collection and sharing among many entities, consumers may wonder where they should turn if they have questions about their privacy.

The report cites recent data showing that consumers increasingly are concerned about their privacy on mobile devices. For example, 57 percent of all app users have either uninstalled an app over concerns about having to share their personal information, or declined to install an app in the first place for similar reasons. Less than one-third of Americans feel they are in control of their personal information on their mobile devices.

Based on the Commission’s prior work in this area and information obtained through the panel discussions, written submissions, and the report offers several suggestions for the major participants in the mobile ecosystem as they work to improve mobile privacy disclosures.

The report recommends that mobile platforms should:

Provide just-in-time disclosures to consumers and obtain their affirmative express consent before allowing apps to access sensitive content like geolocation;
Consider providing just-in-time disclosures and obtaining affirmative express consent for other content that consumers would find sensitive in many contexts, such as contacts, photos, calendar entries, or the recording of audio or video content;
Consider developing a one-stop “dashboard” approach to allow consumers to review the types of content accessed by the apps they have downloaded;
Consider developing icons to depict the transmission of user data;
Promote app developer best practices. For example, platforms can require developers to make privacy disclosures, reasonably enforce these requirements, and educate app developers;
Consider providing consumers with clear disclosures about the extent to which platforms review apps prior to making them available for download in the app stores and conduct compliance checks after the apps have been placed in the app stores; and
Consider offering a Do Not Track (DNT) mechanism for smartphone users. A mobile DNT mechanism, which a majority of the Commission has endorsed, would allow consumers to choose to prevent tracking by ad networks or other third parties as they navigate among apps on their phones.

App developers should:

Have a privacy policy and make sure it is easily accessible through the app stores;
Provide just-in-time disclosures and obtain affirmative express consent before collecting and sharing sensitive information (to the extent the platforms have not already provided such disclosures and obtained such consent);
Improve coordination and communication with ad networks and other third parties that provide services for apps, such as analytics companies, so the app developers can better understand the software they are using and, in turn, provide accurate disclosures to consumers. For example, app developers often integrate third-party code to facilitate advertising or analytics within an app with little understanding of what information the third party is collecting and how it is being used.
Consider participating in self-regulatory programs, trade associations, and industry organizations, which can provide guidance on how to make uniform, short-form privacy disclosures.

Advertising networks and other third parties should:

Communicate with app developers so that the developers can provide truthful disclosures to consumers;
Work with platforms to ensure effective implementation of DNT for mobile.

App developer trade associations, along with academics, usability experts and privacy researchers can:

Develop short form disclosures for app developers;
Promote standardized app developer privacy policies that will enable consumers to compare data practices across apps;
Educate app developers on privacy issues.

“FTC staff strongly encourages companies in the mobile ecosystem to work expeditiously to implement the recommendations in this report. Doing so likely will result in enhancing the consumer trust that is so vital to companies operating in the mobile environment. Moving forward, as the mobile landscape evolves, the FTC will continue to closely monitor developments in this space and consider additional ways it can help businesses effectively provide privacy information to consumers,” the report states.

The National Telecommunications and Information Agency, within the U.S. Department of Commerce, is working with other stakeholders to develop a code of conduct on mobile application transparency. To the extent that strong privacy codes are developed, the FTC will view adherence to such codes favorably in connection with its law enforcement work.

The FTC also introduces Mobile App Developers: Start with Security, a new business guide that encourages developers to aim for reasonable data security, evaluate the app ecosystem before development, and includes tips such as making someone responsible for data security and taking stock of the data collected and maintained.

The vote approving the report was 4-0-1, with Commissioner Joshua D. Wright not participating.

Path Social Networking App Settles FTC Charges it Deceived Consumers and Improperly Collected Personal Information from Users’ Mobile Address Books

The operator of the Path social networking app has agreed to settle Federal Trade Commission charges that it deceived users by collecting personal information from their mobile device address books without their knowledge and consent. The settlement requires Path, Inc. to establish a comprehensive privacy program and to obtain independent privacy assessments every other year for the next 20 years. The company also will pay $800,000 to settle charges that it illegally collected personal information from children without their parents’ consent.

The settlement with Path is part of the FTC’s ongoing effort to make sure companies live up to the privacy promises they make to consumers, and that kids’ personal information isn’t collected or shared online without their parents’ consent.

“Over the years the FTC has been vigilant in responding to a long list of threats to consumer privacy, whether it’s mortgage applications thrown into open trash dumpsters, kids information culled by music fan websites, or unencrypted credit card information left vulnerable to hackers,” said FTC Chairman Jon Leibowitz. “This settlement with Path shows that no matter what new technologies emerge, the agency will continue to safeguard the privacy of Americans.”

Path operates a social networking service that allows users to keep journals about “moments” in their life and to share that journal with a network of up to 150 friends. Through the Path app, users can upload, store, and share photos, written “thoughts,” the user’s location, and the names of songs to which the user is listening.

In its complaint, the FTC charged that the user interface in Path’s iOS app was misleading and provided consumers no meaningful choice regarding the collection of their personal information. In version 2.0 of its app for iOS, Path offered an “Add Friends” feature to help users add new connections to their networks. The feature provided users with three options: “Find friends from your contacts;” “Find friends from Facebook;” or “Invite friends to join Path by email or SMS.” However, Path automatically collected and stored personal information from the user’s mobile device address book even if the user had not selected the “Find friends from your contacts” option. For each contact in the user’s mobile device address book, Path automatically collected and stored any available first and last names, addresses, phone numbers, email addresses, Facebook and Twitter usernames, and dates of birth.

The FTC also alleged that Path’s privacy policy deceived consumers by claiming that it automatically collected only certain user information such as IP address, operating system, browser type, address of referring site, and site activity information. In fact, version 2.0 of the Path app for iOS automatically collected and stored personal information from the user’s mobile device address book when the user first launched version 2.0 of the app and each time the user signed back into the account.

The agency also charged that Path, which collects birth date information during user registration, violated the Children’s Online Privacy Protection Act (COPPA) Rule by collecting personal information from approximately 3,000 children under the age of 13 without first getting parents’ consent. Through its apps for both iOS and Android, as well as its website, Path enabled children to create personal journals and upload, store and share photos, written “thoughts,” their precise location, and the names of songs to which the child was listening. Path version 2.0 also collected personal information from a child’s address book, including full names, addresses, phone numbers, email addresses, dates of birth and other information, where available.

The COPPA Rule requires that operators of online sites or services directed to children, or operators that have actual knowledge of child users on their sites or services, notify parents and obtain their consent before they collect, use, or disclose personal information from children under 13. Operators covered by the Rule also have to post a privacy policy that is clear, understandable, and complete.

The FTC charged that Path violated the COPPA Rule by:

not spelling out its collection, use and disclosure policy for children’s personal information;
not providing parents with direct notice of its collection, use and disclosure policy for children’s personal information; and

not obtaining verifiable parental consent before collecting children’s personal information.

In addition to the $800,000 civil penalty, Path is prohibited from making any misrepresentations about the extent to which it maintains the privacy and confidentiality of consumers’ personal information. The proposed settlement also requires Path to delete information collected from children under age 13 and bars future violations of COPPA. Path has already deleted the address book information that it collected during the time period its deceptive practices were in place.

The Commission vote to authorize the staff to refer the complaint to the Department of Justice and to approve the proposed consent decree was 5-0. The DOJ filed the complaint on behalf of the Commission in U.S. District Court for the Northern District of California on January 31, 2013. The proposed consent decree will be filed with the same U.S. District Court today and is subject to court approval.

NOTE: The Commission authorizes the filing of a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendants have actually violated the law. This consent decree is for settlement purposes only and does not constitute an admission by the defendants of a law violation. Consent decrees have the force of law when signed by the District Court judge.

FTC Seeks Public Comments on Proposed Amendments to the Premerger Notification Rules Related to the Withdrawal of HSR Filings

The Federal Trade Commission is seeking public comment on a set of proposed changes to its premerger rulesto establish procedures for the withdrawal of a Hart Scott Rodino (HSR) premerger notification filing in certain circumstances.

As part of the agency’s ongoing review of its rules and procedures to promote efficient government, the proposed rules formalize the long-standing position of the FTC’s Premerger Notification Office regarding the withdrawal of an HSR filing, as well as the withdrawal and refiling of an HSR filing without paying an additional fee. The withdraw and refile procedure, entirely under the control of HSR filers, allows additional time to review a transaction during the initial waiting period, thus potentially avoiding a costly second request. This procedure has been used informally for 30 years and the Commission believes that making it part of the HSR rules will make it more effective and useful for filing parties.

The proposed rules also establish a procedure for the automatic withdrawal of an HSR filing when filings are made with the U.S. Securities and Exchange Commission (SEC) announcing that a transaction has been terminated.

“The proposed rule has been narrowly crafted to create consistency in the treatment of a transaction based upon the parties’ official statements to the SEC regarding a transaction’s viability,” said Richard Feinstein, Director of the Bureau of Competition. “As a result, we will be better able to allocate our resources and, in the rare instances that this procedure is invoked, the public interest will be served.”

The FTC conducts regular reviews of all its rules and guides on a rotating basis to make sure they are up-to-date, effective, and not overly burdensome. Under the Hart-Scott-Rodino Act, the FTC and the DOJ review most of the proposed transactions that affect commerce in the United States and are over a certain size to ensure that they do not substantially lessen competition. The law requires that companies file premerger reports with the agencies and wait a specified period before completing such transactions.

The FTC believes the proposed amendments announced today will enhance the efficiency of its premerger notification program.

The Commission vote approving the Notice of Proposed Rulemaking and its publication in the Federal Register was 5-0. Commissioner Joshua D. Wright issued a concurring statement. Public comments will be accepted through April 15, 2013. Comments should be sent to: FTC, Office of the Secretary, Room H-113, Annex H, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. Comments also can be filed electronically.

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust{at}ftc{dot}gov, or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 601 New Jersey Ave., Room 7117, Washington, DC 20001. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.

(FTC File No. P859910)

FTC Extends Public Comment Period on Proposed Settlement Order Concerning Google and Motorola Mobility LLC. through February 22, 2013

At the request of several members of the public, the Federal Trade Commission has extended the time to submit public comments on the proposed settlement order concerning Google and Motorola Mobility LLC. (MMI) through February 22, 2013. The comment period originally was scheduled to end on February 4, 2013.

The proposed order settles charges that Google reneged on prior commitments and pursued – or threatened to pursue – injunctions against companies that need to use MMI’s standard-essential patents in their devices and were willing to license them on “fair, reasonable, and non-discriminatory,” or FRAND, terms. Specifically, the company pursued injunctions in federal district court and at the United States International Trade Commission to block competing technology companies from using MMI standard-essential patents. Comments should be sent to: FTC, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. Comments also can be submitted electronically.

The Commission vote approving the extension of the public comment period was 4-0-1, with Commissioner Joshua D. Wright recused. (FTC File No. 111-0120; the staff contact is Peter Levitas, Bureau of Competition, 202-326-2555; see press release dated January 3, 2013.)

FTC to Present Report on Mobile Privacy, Announce Enforcement Action

The Federal Trade Commission will host a call-in media availability Friday, Feb. 1, at 10:30 a.m. EST, to announce the publication of a new staff report that recommends ways in which mobile marketplace leaders can keep consumers informed about their data and privacy practices. In addition, the commission will announce a related law enforcement action. FTC Chairman Jon Leibowitz will be available to answer questions about the report and the action, as well as members of the FTC staff.

WHO:	Jon Leibowitz, Chairman, Federal Trade Commission
WHAT:	Call-in Media Availability Reporters can call in with questions using the following information: Call-in Number: (800) 230-1951 Conference ID Number: 281018 Conference Host: Bruce Jennings
WHEN:	10:30 a.m. EST, Friday, Feb. 1 Phone lines will open at 10:15 a.m. EST
TWITTER CHAT:	1:00 p.m. EST Join FTC staff on Twitter from 1:00-2:00 p.m. to discuss the report and law enforcement action. Follow @FTC and submit questions with the hashtag #FTCpriv.
MEDIA CONTACT:	Peter Kaplan FTC Office of Public Affairs (202) 326-2334 Jay Mayfield FTC Office of Public Affairs (202) 326-2181

FTC Action Leads to Shutdown of Texas-based Debt Collector that Allegedly Used Deception, Insults, and False Threats Against Consumers

At the request of the Federal Trade Commission, a U.S. district court shut down a Houston-based debt collection operation that allegedly illegally used insults, lies, and false threats to collect on payday loans – including telling a Virginia woman that she would be arrested and jailed for three years, and would lose her disability payments if she did not pay a $980 debt.

The court also froze the operation’s assets, banned the defendants from engaging in debt collection, and appointed a receiver to take control of the business while the FTC moves forward with the case.

In addition to using false threats of arrest and imprisonment, the operation allegedly told some consumers their minor children would be taken into government custody; disclosed debts to family members and military superiors; falsely claimed to work hand-in-hand with local sheriff’s offices; and collected bogus late fees and attorneys’ fees, the FTC complaint alleged.

As part of its continuing crackdown on scams that target consumers in financial distress, the FTC filed a complaint against Goldman Schwartz, Inc., three affiliated companies, and three individuals who own or manage them. The operation did business nationwide collecting debts for numerous payday loan companies, including Ace Cash Express, Advance America, Allied Cash Advance, Checkmate, First Cash Advance, and MoneyMart.

The complaint charges the defendants with multiple violations of the FTC Act and the Fair Debt Collection Practices Act, including:

falsely representing that Goldman Schwartz is a law firm and owner Gerald Wright is an attorney named Barry Schwartz.
falsely claiming that consumers have committed crimes by not paying their debts, will be arrested or jailed, and will lose custody of their minor children.
falsely claiming to be affiliated with or work in conjunction with law enforcement agencies.
harassing and abusing consumers by using obscene or profane language, calling repeatedly or continuously, and calling late in the evening or early in the morning.
adding unauthorized late fees and attorney’s fees to the amount consumers owe on their debts, and
failing to inform consumers of their rights to dispute the debts, have the debts verified, and obtain the names of the original creditors.

For consumer information about dealing with debt collectors, see Debt Collection.

The FTC would like to thank the Harris County (Texas) Constable Precinct 5, the Harris County District Attorney’s Office, and the Better Business Bureau of Greater Houston and South Texas for their invaluable assistance in this investigation.

The Commission vote authorizing the staff to file the complaint was 4-0-1, with former Commissioner J. Thomas Rosch not participating. The FTC filed the complaint and the request for a temporary restraining order in the U.S. District Court for the Southern District of Texas, Houston Division. On January 16, 2013, the court granted the FTC’s request for a temporary restraining order with an asset freeze and the appointment of a monitor. Following a hearing on January 28, 2013, the court entered a preliminary injunction against all defendants that continued the asset freeze, banned collection activity, and appointed a receiver.

The complaint names as defendants Goldman Schwartz Inc, also doing business as Goldman, Schwartz, Lieberman & Stein; Debtcom, Inc., also doing business as Cole, Tanner, & Wright; Harris County Check Recovery Inc.; The G. Wright Group Inc., also doing business as The Wright Group; Gerald Wright, also known as Barry Schwartz; Starlette Foster, also known as Star Foster; and Jennifer Zamora.

NOTE: The Commission files a complaint when it has reason to believe that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.

FTC Robocall Challenge Garners More Than 700 Submissions

The Federal Trade Commission wrapped up a three-month submission period for the FTC Robocall Challenge, which seeks the best technical solution to block illegal sales robocalls on landlines and mobile phones. The FTC received 798 eligible submissions before the Challenge closed Jan. 17, 2013.

Judging begins next week. A brief description of each entry is available in the Challenge submission gallery. The technical proposals are only available to Challenge administrators and judges. Steve Bellovin, FTC Chief Technologist; Henning Schulzrinne, FCC Chief Technologist; and Kara Swisher, Co-Executive Editor, All Things D, will judge the FTC Robocall Challenge. Judges will look at the following criteria:

Does it work? (50 percent)
Is it easy to use? (25 percent)
Can it be rolled out? (25 percent)

The contest was free and open to the public competing for one of two award tracks: Best Overall Solution for individuals, teams, and small organizations ($50,000 prize) or the FTC’s Technology Achievement Award (non-cash prize) for a solution from an organization that employs 10 or more people.

FTC staff expects to announce any winners in early April 2013.

The FTC launched its first public Challenge in October 2012 as part of an ongoing campaign against illegal, prerecorded telemarketing calls. Commission staff persists in aggressive law enforcement to combat these calls, and continues to work with industry insiders and other experts to identify potential solutions. For more information about the FTC’s ongoing robocall initiatives, see www.ftc.gov/robocalls.

FTC Action Leads to Court Order: Home Insulation Marketer to Pay $350,000

A federal court ordered a home insulation marketer to pay a $350,000 civil penalty for making deceptive and unsubstantiated claims about his products’ insulation capabilities. On the Federal Trade Commission’s behalf, the U.S. Department of Justice won the order on the merits of the case without a trial. The $350,000 figure is the largest civil penalty awarded in a home insulation case.

Edward Sumpolec, doing business as Thermalkool, Thermalcool, and Energy Conservation Specialists, violated the FTC Act and the agency’s R-value Rule in selling liquid coating and foil radiant barrier products. Sumpolec’s advertising included false claims such as “R-100 paint,” “This . . . reflective coating will reduce wall and roof temperatures by 50-95 degrees . . .” and “Saves 40 to 60% on your energy bills.”

A product’s R-value is a measure of its resistance to heat flow: the higher the R-value, the greater the insulating power. The R-value Rule requires home insulation manufacturers, professional installers, new home sellers, and retailers to provide R-value information, based on the results of standard tests, to help inform consumers.

In addition to imposing a $350,000 civil penalty against Sumpolec, the court order permanently prohibits him from making a claim about a product’s insulation value or energy savings unless it is true, not misleading, and based on competent and reliable scientific evidence. It also bars Sumpolec from violating the R-value Rule by failing to base R-value claims only on proper tests, failing to make product fact sheets available to customers prior to sale, and failing to make mandatory advertising disclosures, including type of insulation, R-value at a specific thickness, coverage area for that thickness, and the statement: “The higher the R-value, the greater the insulating power. Ask your seller for the fact sheet on R-values.” The order also bars him from failing to have a reasonable basis for claims that insulation can cut fuel bills or fuel use, failing to make the mandatory disclosure regarding such claims, and failing to keep records of all data about such claims for at least three years.

The order was entered by the U.S. District Court for the Middle District of Florida, Orlando Division on January 9, 2013.

The FTC appreciates DOJ’s assistance in bringing this case. DOJ’s Consumer Protection Branch successfully litigated this matter to summary judgment in 2011.

The First of Its Kind, FTC Study Shines a Light on the Debt Buying Industry, Finds Consumers Would Benefit from Use of Better Data in Debt Collection

The Federal Trade Commission today announced the results of the first empirical study of debt buyers – companies that are in the business of buying consumer debts and trying to collect on them.

As the Commission has found in its prior work, debt collectors who have insufficient information may approach the wrong consumers, try to collect the wrong amount, or both. The report, titled The Structure and Practices of the Debt Buying Industry, found there is room for improvement in the information debt buyers have when they contact consumers and try to collect.

The study analyzed more than 5,000 portfolios of consumer debt containing nearly 90 million consumer accounts with a face value of $143 billion. By dollar amount, most of the debt studied (71 percent) was credit card debt, but the study also included mortgage, medical, utility, telecommunications, and other consumer debt. The study evaluated the types of information debt buyers received from creditors both at and after the time of purchase, as well as the contracts governing the relationship between debt buyers and creditors.

The report notes that debt buying plays an important role in consumer credit. Debt buyers paid pennies on the dollar (an average of about 4 cents, with older debt selling for less than newer debt) for the billions of dollars in debts they bought from creditors. The proceeds from these sales have helped to reduce creditors’ losses from lending money, allowing them to provide more credit at lower prices.

But, as the report points out, debt buying also raises significant consumer protection concerns: Consumers each year disputed an estimated one million or more debts that debt buyers attempted to collect. Prior FTC experience has found that consumers often dispute the amount of the debt or that they owe the debt at all. Debt buyers verified only about half of the disputed debts, which means that buyers either could not verify or did not attempt to verify about 500,000 debts each year.

The report also found that at the time of purchase, creditors provided debt buyers with some important information concerning debts, including the name, address, and telephone number, and social security number of the debtor; the creditor’s account number; the outstanding balance on the account; and the dates of account opening and last payment. Buyers, however, did not receive some key information about debts purchased, such as whether consumers previously disputed the debts or whether collectors previously verified the debts. Creditors also imposed limitations on the ability of debt buyers to obtain information and documents about accounts after sale. Most contracts between creditors and debt buyers stated that the creditors did not warrant that the information they provided to buyers about debts was accurate.

The report cites a need for further research. The study focused on nine of the nation’s largest debt buyers, which comprised more than 75 percent of the industry, and did not include data from any smaller debt buyers. The study also did not consider the practices debt buyers used when taking legal action against consumers, or the accuracy of the information debt buyers received and used to collect debts. Further research on these and other debt buyer topics would be beneficial to policymakers.

The Commission vote to issue the report was 4-0-1, with Commissioner Joshua D. Wright not participating.

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