Debt collector sued over aggressive tactics to get overdue Michigan taxes

Many behind on taxes

If you are carrying debt you are not alone.

The vast majority of people in the United States owe money, which makes debt collection a big business. The state of Michigan pays a Texas company over $20 million a year to collect back taxes.

A new class-action lawsuit is alleging that company is way too aggressive in how they go after Michigan debtors.

Almost 2 million people in Michigan are behind on their taxes. There are rules in how to go about collecting that money.

For example, collectors can't go around breaking debtors' kneecaps. But the lawsuit said the Texas company collecting is going too far.

Metro Detroiters specifically are heavy in debt. The entire country is. Eighty percent of Baby Boomers, Generation X and Millenials have either credit card, student loan, auto, medical or tax debt. When the bill collectors come calling it can be a tough decision figuring out who gets paid first.

"Do I pay the house payment? Do I pay the car payment? Do I pay this? And then they get a letter from allegedly the state saying we're going to garnish your wages. Well, what would you do? Oh crap, don't pay anything else, let's pay these guys," said attorney Lawrence Friedman, who filed a class-action lawsuit.

He believes a collection company working in Michigan is out of line.

Aggressive debt collection is nothing new, but the debt being collected is for the state Treasury Department. The state hired GC Services, a private Texas company, and it is allowed to keep 10 percent of what it collects. In the past five years, that's added up to about $1 billion collected and $100 million in commissions.

Friedman wouldn't have a problem except he said the company uses questionable tactics.

"The letters are certainly some of the worst letters that I've seen in 35 years of doing this kind of work," he said.

He said the company is supposed to make it clear it is a private debt collection agency. The letter it sends does indicate that it's a private collection company, but it appears as though it's the state of Michigan doing the collecting.

There is a state of Michigan seal, a state of Michigan email address, and the physical address is in Lansing.

The letter fails to indicate that the debtor can dispute the debt or demand debt validation, but it does include threats.

"A demand letter that said if you don't pay in 10 days, we're going to levy against your property. We're going to garnish your wages," he said.

Debtors who think the letter is from the state tend to pay up out of fear. That's not how it's supposed to work. The company has been sued in New York, Ohio and Texas by the federal government.

In Texas the Federal Trade Commission initiated an agreed-upon consent degree putting a nationwide injunction on GC Services for violating fair debt collection standards.

But in Michigan, the Treasury Department paid the company over $20 million a year and has done little to stop it from deceiving residents in aggressive demand letters.

Phone calls to GC Services legal and public relations departments were not returned.

Local 4 contacted state Treasurer Nick Khouri and a spokesperson responded by scheduling and then canceling an interview before opting to release the following statement:

The Michigan Department of Treasury is dedicated to taxpayer service when resolving state tax debts. Taxpayers are given opportunities to dispute a state debt, as well as provided options for entering into payment plans or offer-in-compromise agreements. Referring a taxpayer to a collections agency is sometimes a necessary step to resolve an outstanding tax debt.

Common practice is to use an outside vendor to supplement collections activity, which takes advantage of best practices in the collections field. GC Services was awarded the contract after meeting or exceeding criteria established in the state competitive bid process.

Here's our Taxpayer rights handbook: [LINK]

Due to the litigation, we can’t respond to questions related to the allegations.

Ron Leix / Spokesperson Michigan Department of Treasury

The statement does not have a single word about looking into why the company is trying to look like a state agency or why it is ignoring the fair debt collection practices.

The Treasury Department did provide a link to the Michigan Taxpayers Rights Handbook, but that link is never attached to the collection letters being sent to debtors.

The company is in the process of signing a brand-new $1 billion contract with the state to keep collecting for another five years.

If you received one of those letters, you could file a complaint with the state attorney general's office. However, when it was asked about the allegations it had no comment.

If you have a complaint, you can file it here with the federal government: ftc.gov/faq/consumer-protection/submit-consumer-complaint-ftc

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