Collection Agencies and the IRS

The collection industry has been under attack lately. ABC's 20/20 ran a investigative piece on Friday about the seedy world of collections. The upcoming documentary, Maxed Out, has posted a shocking clip showing collectors talking about accessing data and calling customers. And this month, the collection industry is also getting some negative attention from a report by the national taxpayer advocate to Congress.

The collections agency behavior that is driving all this attention is unfortunately nothing new. Private debt collection agencies are notorious for intimidating debtors and defying the consumer protection rules established under the Fair Debt Collection Practices Act. Calling in the middle of the night, threatening consumers making untrue statements about the consequences of not paying debts, I've heard all kinds of horror stories from consumers.

Collection agencies have a surprisingly wide and diverse client list: video stores, gyms, credit card issuers, lenders, landlords, libraries, medical offices and even the IRS. That's right, the federal tax agency can sell your unpaid tax debts to a collection agency. It is a policy that is bad for the consumer and not even profitable for the IRS. According to the national taxpayer advocate, Nina E. Olson, "the IRS collects only about 15 cents on the dollar on tax debts that are two years old and virtually nothing on tax debts that are older than three year."

But there is good news! Based on Ms. Olson's report, the Senate introduced a bill last week that would prohibit the Internal Revenue Service from using private debt collection companies. The bill is called  S.335 and was sponsored by Senator Byron Dorgan from North Dakota, who is my new favorite person of the day.  I can't access the full text of the bill just yet, but stay posted for more updates on this exciting development.