One of the most profitable sub-industries in the credit card industry is what is known as

“Zombie” debt collection. Zombie debt is old and uncollected debt purchased for pennies on the
dollar and then collect on debt for which they couldn’t otherwise sue. The Fair Debt Collection
Practices Act provides only a minimal deterrent to consumer rights abuses that are often engaged
in 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 Obama’s
desire 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 calls
“Zombie” debt collectors. “Debt buyers” or “re-purchasers” as they are known, buy old and
uncollected 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 State’s 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 1980’s as an unintended side effect from the savings
and loan crisis when the government auctioned off the failed S&L’s receivables. Since its
beginning, there has been unprecedented growth. Large companies like Asset Acceptance
Capital Group has a glossy website marketed to businesses, often with promises that they can
collect 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 purchase
for pennies on the dollar, making this a very simple risk/benefit analysis for these industry
executives. The Zombie debt collectors often successfully collect on debt for which they
couldn’t otherwise sue, and they are notorious for engaging in some of the most vicious behavior
against consumers. Unfortunately, the Fair Debt Collection Practices Act (“FDCPA”) does not
provide a deterrent to these repugnant actions. As to be expected, the lack of specific regulation
of the Zombie 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. Cuomo’s office obtained a court order
to shut down debt several collection agencies run by Tobias Boyland. “This case is one of the
more egregious cases we have found,” said Mr. Cuomo. According to the lawsuit filed by Mr.
Cuomo’s office, Boyland operated out of Buffalo, New York, which is widely recognized as the
collection capital of the United States due to its concentration of collection agencies and
attendant employment opportunities. The lawsuit alleged that thanks mainly to the increased
internet accessibility to information, Boyland’s agencies would use lists of people whose debts
were 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 two
debt collectors in New York State in an attempt to have the court throw out an estimated 100,000
default judgments against New York consumers. According to the suit, the law firms and debt
collectors 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 wages
were 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 to
illustrate 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 changed
since. Although, the attorney’s 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 is
still, as it was then, a meager $1,000.

Considering how much less the dollar is now worth compared to 1978 when the statute was
written and the advent of the profitable Zombie debt collection industry, this statutory penalty is
hardly 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 debtor’s neighbors and employers or by making umpteen harassing and abusive calls to
the debtor and the debtor’s family, the statutory penalty is still only $1,000.

Although some states, such as Pennsylvania, have criminal statutes forbidding debt collectors
from collecting debts absent the original agreement and any assignment thereof, these statutes
are 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 and
modernized to reflect changes in consumer debt, the debt collection industry, and technology.” In
light of its conclusions, the FTC has made several recommendations ranging from mandating
debt collectors to transmit better information to consumers about their rights to modernizing debt
collection laws minimizing the consumer costs when being contacted via cell phones. The FTC
also recommends that it be given the authority to create regulations to employ the FDCPA prior
to congressional action.
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 and
arbitration 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 the
consumer, through their filing of lawsuits, should be the “main means of promoting industry
compliance.”