Congress shouldn’t force IRS to use private debt collectors

Soon, Congress will vote on whether to revive a twice-failed effort to use private debt collectors to collect unpaid federal taxes. This proposal forces the IRS to place all inactive tax debt with private debt collectors, the most complained about industry in the financial sector.  The nation would be better off if Congress rejects Section 52106 of H.R. 22, the Senate-approved bill to extend the Highway Trust Fund for six years.

Section 52106 purports to help offset the cost of extending the highway fund, but the move would actually end up costing the government more money.  The IRS tried using private collectors twice before. Both go-rounds were disastrous.

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The first attempt at privatizing tax-debt collection was scrapped a year after the program was launched in the mid-1990s—after taxpayers lost $17 million and some private collectors were found to have violated federal law (the Fair Debt Collections Practices Act). The second experiment began in 2006 and ended three years later after a net loss of almost $4.5 million to the government.  Simply put, as a 2013 study by the independent National Taxpayer Advocate found, IRS employees are significantly more cost-efficient in collecting taxes than private debt collectors.

But it gets worse.  If lawmakers approve Section 52106, they will be subjecting vulnerable taxpayers to abusive tactics that are unfortunately all too common in the collections industry.

In more recent experiment with private debt collectors, Congress received myriad complaints from taxpayers about harassment and ill-treatment. In one instance, a private collector made 150 calls to the elderly parents of a taxpayer.  One of the three original private collectors was dropped by the IRS for questionable practices, and firms were assessed thousands of dollars in penalties for violating taxpayer rights.

The Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission log more complaints about the debt collection industry than any other industry in the financial sector.  This includes over 450 complaints logged with the CFPB against the second of the three original collectors from the 2000s experiment.  And the third original collector was recently dropped by the Department of Education, which ended its contract for student loan collection with that company.

Speaking of student loan collections, there have been numerous abuses by private debt collectors hired by the federal government to collect those government debts, including aggressive tactics and the failure to accurately inform borrowers of their rights, such as the right to loan cancellation or an affordable repayment plan. Other times, as the Government Accountability Office recently documented, private collectors gave inaccurate or misleading information about borrowers’ rights and options.

We fear tax-indebted Americans will suffer the same problems if Congress approves Section 52106.  Private collectors are unlikely to inform taxpayers of their rights and options or to tell them about programs like an Offer-in-Compromise, which allows taxpayers to settle their tax debts for less than what the IRS claims they owe.  With a razor-like focus on their bottom lines, private collectors zealously attempt to squeeze blood out of the proverbial stone in order to take their cut of the money they collect, taxpayer rights be damned.

The independent National Taxpayer Advocate has said that a prior version of Section 52106 “appears to place a bulls‐eye on the backs of low income taxpayers.” According to an IRS analysis, 79 percent of the cases likely to be referred to private collectors involve taxpayers who earn less than 250 percent of the federal poverty level.  These cash-strapped taxpayers are not scofflaws; they simply don’t have the money to pay right awayAnd it is the IRS, not private collectors, that has the statutorily authorized tools to work with these taxpayers. The IRS, not private collectors, can allow financially-overwhelmed taxpayers to skip a payment or two, or close selected cases once the taxpayers repay a portion of their total debt. Inflexible private collectors hound people with one goal in mind—to make money off them.

It is time to bid goodbye once and for all to this terrible proposal. Section 52106 is bad for taxpayers and good only for the private collectors. The 114th Congress should reject this twice-tried and twice-failed idea.

Wu is a staff attorney at the National Consumer Law Center.

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