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Sights Set on Debt Collectors

By Andrew Tangel

Her calls came on weeknights, often after Bradley Kimbell had gone to sleep.

A woman's automated voice telling Kimbell to call Palisades Collection LLC, a subsidiary of Englewood Cliffs-based Asta Funding Inc., and settle a debt for what, her robotic voice did not say.

The phone calls first came weekly last year, then daily. Kimbell, who works in the food industry in Connecticut, tried calling back. Three times he got in touch with a live representative by tricking a phone menu, only to have operators transfer him back into the automated phone system.

"It seemed like a scam to me," said Kimbell, 37. "You're harassing me and giving me no outlet?"

Kimbell's experience with Palisades mirrors other federal suits filed against Palisades claiming violations of the Fair Debt Collection Practices Act, a 1977 law aimed at protecting consumers.

Consumer advocates say such civil suits have been a primary vehicle for enforcement of federal laws to protect consumers facing debt collectors because of what they say has been weak federal oversight.

That may soon change as the Consumer Financial Protection Bureau, the new watchdog created by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, steps up the federal government's enforcement of consumer debt-collection laws. The bureau has proposed regulations that will give it unprecedented examination and supervision powers of debt-collection companies.

"It should be a dramatic change, in that until now the federal government has engaged in only a modest amount of enforcement of the Fair Debt Collection Practices Act," said Charles Delbaum, a staff attorney at the National Consumer Law Center in Boston. "It has really left enforcement up to private attorneys."

Richard Cordray, the bureau's director, has made clear the CFPB has its sights set on debt collectors' practices.

"While debtors need to pay back their creditors, the methods used by some debt collectors are just unconscionable," Cordray told the National Association of Attorneys General in Washington, D.C., earlier this month.

"Harassment. Inexcusable language and threats. Repeated late-night phone calls," Cordray went on. "Collectors erroneously telling relatives they are responsible for the debt of the deceased. Calling military superiors about a service member's debt and threatening their security clearance. Repeated efforts to collect debts from the wrong consumers. Some of this activity is downright illegal, and none of it comports with any proper vision of a civilized society."

Larger firms targeted

In February, the CFPB proposed a rule concerning regulation of larger market participants in the consumer debt industry. That would affect about 175 firms with more than $10 million in annual receipts from debt collections, the CFPB estimates. The public comment period on the rule closes April 17.

The Federal Trade Commission has had oversight in the past and has pursued actions against large companies. In February, for example, the FTC won an injunction against an operation that was allegedly collecting "phantom payday loan" debts that consumers didn't owe.

But the FTC hasn't had the ability to write regulations, nor has it had examination powers, Delbaum said.

While it's not clear how the CFPB's examination process would work, attorneys for debt companies expect the bureau to pull debt firms' records and perhaps listen in on phone calls.

John Culhane, an attorney at the law firm Ballard Spahr LLP in Philadelphia, said he expects the CFPB to make a big impact by going after a large debt collector that has faced a large number of complaints and lawsuits.

"It's crystal clear they're going to be aggressively enforcing," Culhane said. "If you're a debt collector, this is the time to take a step back and look at what you've been doing, and really - if you haven't already done so - clean up your act in anticipation of CFPB exams."

The CFPB also could levy hefty fines for the violations of the Fair Debt Collection Practices Act. Fines could range from $5,000 per day up to $1 million a day for knowing violations.

In lawsuits such as Kimbell's, plaintiffs can only get up to $1,000 in penalties from debt-collection companies that engage in harassment and deception.

Plaintiffs also can sue for actual damages but those are difficult to prove, said Sergei Lemberg, Kimbell's lawyer and whose firm has filed a number of suits against Palisades and Asta.

The open cases involving Palisades and Asta generally involve claims of harassing phone calls, Lemberg said.

"The only person that calls me once a day is my mother, and maybe my wife," he added. "So if my mother was calling me twice a day, I think I'd find it annoying. And if she was calling me 25 times a week, I'd probably find it excessive."

Asta became a public company in 1995, but is effectively controlled by Gary Stern - the company's chairman, president and chief executive officer - and his family, according to company filings with the Securities and Exchange Commission. Palisades is among Asta's subsidiaries and services portfolios of troubled consumer accounts the company purchases and then collects on.

The company has a market capitalization of about $120 million and is traded on the Nasdaq Stock Market. Asta did not respond to The Record's earlier inquiries about its January announcement that it is branching out into financing of personal injury legal claims. Asta executives have refused to comment about the CFPB or complaints against the company.

The state Attorney General's Office has received 158 complaints about Palisades and Asta Funding since 2007, a spokesman said. That office's Division of Consumer Affairs refers those complaints to the FTC, as it does not have jurisdiction.

When civil cases are settled, debt-collection firms typically settle for close to the $1,000 maximum, Lemberg said. Debt collectors usually pay for plaintiffs' legal fees when they lose cases or settle, he said.

Kimbell's case, filed Jan. 12 in federal court in Connecticut, has yet to advance.

Kimbell still has yet to discover what his unpaid debt may be, but he suspects it is about $1,000 related to a canceled gym membership.

After the repeated phone calls he says awoke him and his husband, and because of his inability to communicate with Palisades, Kimbell says he's no longer interested in trying to settle any debt.

"I probably would have [paid] if they would have talked to me humanly and explained it," allowing him to dispute or settle the debt, he said. "But at this point, I think they owe me more restitution than I owe them."