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One of the most profitable sub-industries in the credit card industry is what is known asZombie debt collection. Zombie debt is old and uncollected debt purchased for pennies on thedollar and then collect on debt for which they couldnt otherwise sue. The Fair Debt CollectionPractices Act provides only a minimal deterrent to consumer rights abuses that are often engagedin by many of these debt collectors.

Beware the Zombie Debt Collectors

Against the backdrop of the passage of the new credit card legislation and President Obamasdesire to create a Federal Consumer Protection Agency, a small spotlight was shown on one of the most profitable sub-industries within the credit card industry: what the industry callsZombie debt collectors. Debt buyers or re-purchasers as they are known, buy old anduncollected debt. These uncollected debts are known as Zombie debts. The Zombie moniker comes from the fact that virtually all of this debt remains uncollected beyond a States statute of limitations, has either previously been discharged in bankruptcy or actually paid off as part of a

prior settlement by the so-called debtor.

Zombie Debt Originated in the Savings and Loan Crisis

The Zombie debt industry arose during the 1980s as an unintended side effect from the savingsand loan crisis when the government auctioned off the failed S&Ls receivables. Since its

beginning, there has been unprecedented growth. Large companies like Asset AcceptanceCapital Group has a glossy website marketed to businesses, often with promises that they cancollect and deliver .And deliver they do. The company reported millions in revenues.

Like the fictional zombies, the once-dead debt rises from the dead to live again upon purchasefor pennies on the dollar, making this a very simple risk/benefit analysis for these industryexecutives. The Zombie debt collectors often successfully collect on debt for which they couldntotherwise sue, and they are notorious for engaging in some of the most vicious behavior againstconsumers. Unfortunately, the Fair Debt Collection Practices Act (FDCPA) does not provide adeterrent to these repugnant actions. As to be expected, the lack of specific regulation of theZombie debt collectors practices has spawned several scam companies that have taken their

practices to an even lower level.

Collection Agencies Shut Down in New York

Recently, New York State Attorney General Andrew M. Cuomos office obtained a court order to shut down debt several collection agencies run by Tobias Boyland. This case is one of themore egregious cases we have found, said Mr. Cuomo. According to the lawsuit filed by Mr.Cuomos office, Boyland operated out of Buffalo, New York, which is widely recognized as thecollection capital of the United States due to its concentration of collection agencies andattendant employment opportunities. The lawsuit alleged that thanks mainly to the increased

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internet accessibility to information, Boylands agencies would use lists of people whose debtswere successfully discharged in bankruptcy, many of which were at least ten years old or more,and attempt to collect these no longer valid debts.

Attorney General Cuomo followed up the Boyland case by suing thirty-five law firms and twodebt collectors in New York State in an attempt to have the court throw out an estimated 100,000default judgments against New York consumers. According to the suit, the law firms and debtcollectors used false affidavits to obtain these judgments over a nineteen-month period. Many of the defendants did not know anything about the judgments until they learned that their wageswere garnished or their bank accounts frozen.

FDCPA Penalties Deficient

Although this is an extreme example of how Zombie debt collection can go awry, it does serve toillustrate how open it is to the type of abusive practice that the FDCPA was designed to prevent.The problem with the FDCPA is that the penalties were legislated in 1978 and have not changedsince. Although, the attorneys fees are a mandatory award and the aggrieved party can sue for actual damages, meaning out of pocket losses, and emotional distress, the statutory penalty isstill, as it was then, a meager $1,000.

Considering how much less the dollar is now worth compared to 1978 when the statute waswritten and the advent of the profitable Zombie debt collection industry, this statutory penalty ishardly a deterrent. Moreover, the penalties are not imposed per violation, but per each consumer case. Therefore, in many cases, where the collector has violated the FDCPA by making phone

calls to a debtors neighbors and employers or by making umpteen harassing and abusive calls tothe debtor and the debtors family, the statutory penalty is still only $1,000.

Although some states, such as Pennsylvania, have criminal statutes forbidding debt collectorsfrom collecting debts absent the original agreement and any assignment thereof, these statutesare rarely enforced, so the abuses continue with little incentive to do otherwise.

FTC Findings

The FTC has concluded that the debt collection legal system needs to be reformed andmodernized to reflect changes in consumer debt, the debt collection industry, and technology. Inlight of its conclusions, the FTC has made several recommendations ranging from mandatingdebt collectors to transmit better information to consumers about their rights to modernizing debtcollection laws minimizing the consumer costs when being contacted via cell phones. The FTCalso recommends that it be given the authority to create regulations to employ the FDCPA prior to congressional action.

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The FTC recognizes that collection agencies, collection lawyers, and debt buyers need better information in order to prevent collections from the wrong people or for the wrong amounts.More to the point, the FTC report raises concerns over certain debt collection litigation andarbitration practices, an area that has been particularly ripe for consumer rights violations.Although the FTC expressly recognized that aggressive law enforcement is needed to deter

collection abuses and that the FTC will step up its efforts in doing so, it also emphasized that theconsumer, through their filing of lawsuits, should be the main means of promoting industrycompliance.