In 2010, Marie from Crescent City, Calif., got a phone call from a bill collector who claimed she owed $500 for a purchase made on Home Shopping Network (HSN) eight years earlier. The debt-collection company, which had bought the debt from HSN, demanded that she pay the full amount. Marie disputed the debt because she had already paid it off.
This wasn't the first time Marie had been harassed about the alleged debt—in 2008, a different bill collector contacted her with a similar claim. Neither bill collector could provide Marie with any details about what she had purchased or about the payments she had made. When Marie contacted HSN to get to the bottom of the matter, she was told that the records about her purchase were no longer available.
Marie’s problems happen all too often, according to “The Structure and Practices of the Debt Buying Industry” (PDF), a new Federal Trade Commission report on the debt-buying industry. In analyzing more than 5,000 portfolios of consumer debt owned by nine of the country’s largest debt buyers, the FTC found that consumers disputed an estimated 1 million debts each year but that debt buyers were able to verify only 500,000 of those disputed debts.
Buying and selling debt has become a big, lucrative business. The FTC found that debt buyers typically purchase portfolios of debt for only 4 cents on the dollar, on average, and then collect on those debts for the full face value, netting them a huge profit.
As the debt-buying industry has grown, so have debt-collection abuses. Last year, the FTC reported that it handled more than 180,000 consumer complaints about debt collectors in 2011, more than any other industry.