APNewsBreak: Obama seeks debt collector proposal

By David Espo

Associated Press

Published: Tuesday, Oct. 4 2011 1:55 p.m. MDT

According to a report by the Treasury Department's Financial Management Service, the Education and the Health and Human Services departments as well as FMS itself referred debts totaling $35.9 billion to private debt collectors in the 2010 fiscal year.

The Education Department accounted for the largest share by far — $28.8 billion referred to 22 private debt collection companies. The firms collected $685 million outright, and another $1.7 billion was recast into agreements that are designed to be paid monthly, according to the report.

Justin Hamilton, a spokesman for Education Secretary Arne Duncan, defended the proposal as an attempt to help individuals who fall behind on loans from the government. "It's a reality of the 21st century that a growing number of those who are delinquent "are using only a cell phone. If we can't reach them, we can't help them. And that's not good for students or for taxpayers," he said in an email.

According to written responses the department provided to questions, it hires private collection agencies in part so the government can gain "the benefits of greater collections" through the use of new technology that is developed by private industry.

Collection agencies can receive a fee of as much as 17.5 percent of the amount they recover.

A different federal agency, the Federal Trade Commission, collects extensive records about the private debt collection industry in general.

"The FTC receives more complaints about the debt collection industry than any other specific industry," according to an annual report to Congress, more than 100,000 in 2010.

The complaints fall into several categories, citing alleged harassment, demands for impermissibly large payments, failure to provide required consumer notice and threatening dire consequences such as jail time.

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