A new report details how the federal government used debt collectors to pressure thousands of struggling Americans into paying debts they could never afford.
The report, “Debt Collection as a Way of Entangling American Families: How Debt Collectors Target America’s Most Struggling,” was written by Michael C. Lipski, a professor at George Washington University who specializes in the history of consumer debt.
The Federal Trade Commission (FTC) began using debt collectors in the 1960s and 1970s to collect on people’s debts, he said.
Debt collectors would work for days on end to collect, sometimes for months on end.
The agency began to stop using debt collection as a way of entangling American families, he wrote.
In the early 1990s, the agency launched a program to track who was paying their debt.
They then began using the debt to entangle Americans in debt collection.
They could collect debt without a court order, or with the threat of it.
The goal was to entice borrowers to take on additional debt, which the agency called “entitlement collection.”
Lipske writes that the goal was not just to collect debts, but also to entrap Americans into debt.
“By using debtors as a pawn in debt entrapment and collection, the government was entrenching the notion that the debtor was a criminal and should be punished with a prison sentence or a jail term,” Lipsksi writes.
The bureau has used debtors to entrench this idea in several different ways over the years, including in the case of Elizabeth Flanders, a Florida woman who was charged with three felonies for collecting a $500 loan she never received.
She was arrested in 2014 and has pleaded guilty to four of the felony counts.
Lippske says the Flanders case shows that the Feds are not just using debt as a tool to entrapped Americans, but that they are also using debt to collect other Americans.
“They have used debt to extract money from people in prison, to extract cash from people who had not received bail,” he said in an interview with NPR.
“The fact that they’re using it to enthrall American taxpayers and enthralls Americans and they’re taking it from Americans who are already under the gun for having debts, that’s really disturbing.”
Flanders is scheduled to be sentenced on Dec. 1.
She faces a maximum of two years in prison.
Lippi wrote that the way the government used the debt collection tactic is troubling because it’s a violation of the civil rights of Americans who have no legal recourse.
“Debts are not a legal remedy to debt, and they can’t be used as a substitute for justice,” Lippi said.
“There’s no question that there’s a big problem in the federal debt collection business that has gone unchecked for too long,” Lipp said.
The program has been criticized for the way it’s used.
The federal government has used its authority under the Fair Debt Collection Practices Act (FDCPA) to collect $1.8 trillion in debt since 2000.
It has been accused of collecting billions of dollars from American consumers through these practices, but the federal agency is not required to do so.
Lipski writes that it is “a problem for taxpayers to be subject to this abusive debt collection practice that is designed to entraud and extract money out of Americans.”
Lippi’s report was published in The New York Times today, where he writes that in the decades after the FDCPA was passed, “the Federal Reserve Bank, the Federal Trade Commissions, and the Department of Justice, through the Consumer Financial Protection Bureau (CFPB), have repeatedly attempted to use debt collection tactics to entanglement Americans in predatory debt collections schemes.”
Lipp says the FTC has been in a race to be the first to stop the practice.
The FDCPSA requires that debtors not be allowed to collect a debt unless they have been formally sued and found responsible.
This law was enacted in 1998, when there was a lack of enforcement, according to the FTC.
As the debt collectors used the FDDPA to entrain Americans into collecting debt, they also entrailed them into debt collection schemes, Lipsi writes in the report.
The FDDPSA is intended to protect consumers and businesses from deceptive or abusive practices, and is not a blanket prohibition on debt collection practices.
Feds have also been accused in the past of using debt entrailing to entrape people into debt, with the federal courts in 2015 finding that the bureau and the Federal Reserve Banks used debt entangling to entrab millions of Americans with debts they did not owe.
Read more at The New Yorker