If you're behind on you're taxes, you could get a phone call from an unexpected place this year.
For-profit debt collectors have been hired by the IRS to chase down long-overdue taxes that the government agency lacks the resources to work on. Four companies were selected for the new contracts, including one whose parent company is currently being sued by the US government over its student loan debt collection practices.
Pioneer Credit Recovery is a subsidiary of the student loan giant Navient; both companies were the subject of a Consumer Financial Protection Bureau lawsuit filed in January. Pioneer was selected for one of the IRS debt collection contacts last September, alongside ConServe, Performant and CBE Group.
Navient, formerly known as Sallie Mae, currently holds a federal government contract to service about $300 billion in student loans owed by 12 million borrowers. Pioneer, working under Navient, "systematically misled consumers" when attempting to enroll them in a loan rehabilitation program, the Consumer Financial Protection bureau claimed in its January lawsuit.
The IRS was mandated by Congress to hire private-sector debt collectors, in language that was inserted into a $305 billion highway funding bill in late 2015. Navient spent almost $2.4 million lobbying Congress that year, according to data collected by the Center for Responsive Politics, on topics including "issues pertaining to federal collection programs" in the highway bill.
Some experts on consumer protection say the new contracts create more potential for bad behavior.
"I worry whenever a federal agency employs for-profit debt collectors to settle debts," said David Vladeck, a former director of the Federal Trade Commission's consumer protection bureau and a professor at Georgetown Law. "When you align a situation where the IRS is unable to collect, the incentive to really turn the screws hard is pretty high because that’s the only way they’re going to get paid. This is a really toxic combination."
Navient pointed BuzzFeed News to its January statement which calls the bureau's allegations, filed in the final days of the Obama administration, "unsubstantiated, unjustified and politically driven." A company fact sheet says that since 2012, Navient helped nearly 250,000 borrowers successfully rehabilitate their loans using language nearly identical to what regulators used.
The CFPB told BuzzFeed News that it accepts consumer complaints about debt collection.
"The Bureau receives complaints from consumers about a variety of consumer financial products and services, including debt collection," it said in a statement. "In some cases, the Bureau’s Consumer Response office refers or sends a complaint to another regulator. All complaints handled by the Bureau, including those sent to other regulators, serve to inform the Bureau in its work to supervise companies, to enforce consumer financial laws, to write better rules and regulations, and to educate and engage consumers.”
Pioneer Credit Recovery, which specializes in collecting defaulted loans, has come under close government scrutiny in recent years. The Department of Education cut the company's student loan contract after an audit of several sample calls revealed collectors misled consumers. One Florida borrower accused the company this year of harassing phone calls to collect debt, and a Georgia resident sued the company in 2015 alleging it was aggressively retrieving debt from the wrong person altogether.
A spokesperson for the IRS directed BuzzFeed News to its site which states that Pioneer, and the three other companies, are contractually obligated to respect taxpayer rights and follow fair debt collection laws. The agency told BuzzFeed News it will also conduct monthly oversight and annual reviews of each company, including taxpayer complaints.
"The IRS will do everything it can to help taxpayers avoid confusion and understand their rights and tax responsibilities, particularly in light of continual phone scams where callers impersonate IRS agents and request immediate payment," the agency said in September.
But Chi Chi Wu, a staff attorney with the National Consumer Law Center, told BuzzFeed News that the IRS' previous private debt collection experiments showed "dismal results" where "the government ended up losing money."
The NCLC opposed the contracts when they were awarded last year. "Congress forced the IRS to hire the most complained about industry in the financial sector to undertake a vital and core government function,” Wu said at the time.
The IRS last contracted with private debt collectors in 2006 to collect on $1.8 billion in "easy" debts that were 1-3 years old. But an analysis by the Office of the Taxpayer Advocate showed that over the two years it was contracted, the private companies "had little success after working the easy cases."
The IRS on average collected about 62% more than the private collectors, the analysis found.
A 1996 pilot program to use private contractors left the IRS with more money spent than retrieved. It reported $4.1 million in expenses by the end of the program in January 1997, with only $3.1 million in collections, according to a Government Accountability Office report.
Ben Barrett, a program associate with the education policy program at the progressive New America foundation, told BuzzFeed News that the government contracting with a private collector poses certain profit incentives that could open up "unsavory practices, illegal practices."
But he also said a private contractor, with IRS oversight, could collect debts with more efficiency than the government. The Treasury Department said in 2016 that its pilot program to collect on defaulted student loans with a gentler approach failed in comparison to private companies.
"Obviously nobody should be doing anything illegal," he said. "You should never cross that line. In so far as they can adhere to the law and get a delinquent taxpayer on the phone through whatever legal means necessary, that’s not necessarily a bad thing."
Leticia Miranda is a consumer affairs reporter for BuzzFeed News and is based in New York.
Contact Leticia Miranda at email@example.com.
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