Today, the Center for Responsible Lending (CRL) released research showing that in Colorado, companies that purchase bad debts and attempt to collect on them frequently pursue the wrong person, try to collect the wrong amount, or pursue a debt that is not owed.
Debt buyers flood the courts with lawsuits, though they often do not have the documentation to ensure that they are pursing the right person for the right debt. Debt buyers pay pennies on the dollar for bad debts and then attempt to collect the full amount. Further, the debt buyers count on the fact that most people will not hire a lawyer or defend the suits for themselves.
While problems with debt collection and debt buying exist nationwide, CRL has reason to be particularly concerned in Colorado. Key findings in the state include:
- Lawsuits based on insufficient documentation, brought by four large debt buyers drain more than $25 million a year from Colorado residents.
- In a Colorado sample, 71% of those sued lost in a default judgment, meaning they mounted no defense.
- In 38% of cases in Colorado, the person's wages were garnished.
- In Colorado, four large debt buyers accounted for more than 40,000 cases in a two-year period.
"The consequences are devastating, such as damaged credit scores, which make finding a home or job more difficult," said Ellen Harnick, CRL's Western regional office director. "Remember, this is often for a debt not even owed, and a defendant without the resources to go to court for themselves."
Some states are implementing policies by statute or court rules to address debt buyer issues. CRL will continue to support these efforts in Colorado and across the country. Specifically, CRL recommends states and courts enact the following reforms:
- Ensure debt collectors prove that the debt is actually owed.
- Discourage debt collectors from acting as "lawsuit factories" by holding them accountable for initiating unwarranted legal actions.
- Require that debt collectors be transparent with consumers.
For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact Ricardo Quinto at firstname.lastname@example.org.