Did an IRS Contractor Violate Consumer Protection Laws?

This year, the IRS has begun to outsource its tax debt collections to private contractors. But the National Taxpayer Advocate and several senators are asking whether one IRS contractor’s debt collection methods violate federal consumer protection laws.

Law Allows IRS to Outsource Debt Collections

The New York Times recently estimated that the IRS is owed about $138 billion in back taxes. Traditionally, only government employees could contact taxpayers about their tax debts. Strict policies were designed to make it easier for consumers to tell if a request for money was a scam.

But in late 2015, the Fixing America’s Surface Transportation (FAST) Act authorized the IRS to use private contractors to collect “inactive tax receivables”. That includes 140,000 accounts with balances up to $50,000. Between the start of the program, in April 2017, and mid-May, 9,600 accounts had been sent to private debt collection companies. Of these 79% are from taxpayers earning less than 250% of the federal poverty level. 30% earned less than $20,000 a year.

IRS Contractor Faces Consumer Protection Issues

Just two months into the program, Senators and National Taxpayer Advocate Nina E. Olson are concerned that at least one IRS Contractor may be violating the FAST Act and federal consumer protection laws. Scripts used by Pioneer Credit Recovery, a division of Navient Corp., and other private contractors include high-pressure techniques that push consumers to “give us what you can.”

Debt collectors are instructed to encourage taxpayers to make partial payments whenever they are able, saying extra payments or higher payments can be accepted at any time. They also suggest risky financial strategies to pay down tax debt, including:

• Second mortgages (which uses the consumer’s house as collateral) 
• 401(k) loans
• Borrowing money from family, friends, or employers
• Credit card debt
• Installment payments up to 7 years long

But Olson and the senators believe these scripts may violate the FAST Act and federal consumer protection laws as well. They have been referred to the Federal Trade Commission for an investigation.

In January 2017, the Consumer Financial Protection Bureau (CFPB) and two state attorneys general already filed claims based on the company’s treatment of student loan collections on behalf of the Department of Education. The CFPB said Pioneer gave borrowers inaccurate information about their loans at “unacceptably high rates”. They also steered clients away from income-based repayment plans, like the installment payments and offers-in-compromise available to taxpayers facing economic hardships.

Pioneer’s tactics may also make it harder for consumers to tell the difference between private IRS contractors and scammers taking advantage of unsuspecting taxpayers. By using private debt collecting models, rather than the very formal structures of the IRS, Pioneer opens the door to scammers calling consumers and posing as legitimate tax collectors. 

Dani K. Liblang is a collections defense attorney at The Liblang Law Firm, P.C., in Birmingham, Michigan. If you are being harassed by debt collectors, contact The Liblang Law Firm, P.C., today for a free consultation.