Provision In Highway Funding Bill Would Require The IRS To Use Private Debt Collectors

While federal regulators continually work to crack down on private debt collectors that utilize unsavory, illegal tactics to make consumers pay up, government agencies often contract these entities to collect a variety of debts. That practice could continue if a provision in the Highway Trust Fund Bill receives approval. 

The $325 billion Highway Trust Fund bill [PDF] includes a lengthy provision that would require the Internal Revenue Service to use private debt collectors to collect all inactive tax debts.

The provision states:

“In contracting for the services of any person under this section, the Secretary shall utilize private collection contractors and debt collection centers.”

The provision has raised red flags for several consumer advocacy groups as far back as July, when the Senate highway bill was passed.

At that time The National Consumer Law Center, Consumers Union and other groups sent a letter [PDF] to senators warning about the use of private debt collectors.

“We believe that requiring the use of private debt collectors to collect tax debts will harm taxpayers by exposing them to potential abuses that are unfortunately common with that industry,” the groups said in the letter. “It will also disproportionately impact low-income taxpayers. Finally, the use of private collectors is a waste of taxpayer dollars, lining the pockets of private companies at the expense of the U.S. Treasury.”

The groups contend that the requirement to use private collectors would “needlessly expose taxpayers to abuses by the single most-complained about industry in the financial sector.”

“The use of private collectors has repeatedly been shown to be a waste of taxpayer dollars,” the groups say, citing a 1996-1997 pilot program that resulted in a $17 million net loss to the government. A similar program in the mid-2000s resulted in a net loss of almost $4.5 million.

“Meanwhile, the private collectors earned more than $16 million in commissions during the latter program,” the groups state. “A 2013 study by the National Taxpayer Advocate found that the IRS employees were significantly more effective in collecting taxes than private collectors.”

NCLC once again expressed concern over the provision on Monday, noting that nearly 80% of the cases affected by this provision would likely involve low-income taxpayers who simply don’t have the means to pay right away.

Their concerns were heard by a group of 10 lawmakers who introduced an amendment [PDF] to the bill that would strike the lengthy provision.

The House Rules Committee is scheduled to weigh the nearly 270 amendments to the highway funding measure through Tuesday, with a potential floor vote taking place as early as Wednesday or Thursday, according to The Hill.

Nearly 270 amendments filed for House highway bill [The Hill]

by Ashlee Kieler via Consumerist