WASHINGTON—Two private debt collection companies that work for the Education Department paid more than $4 million combined in civil penalties in the past year after another federal agency accused them of using abusive language with consumers, making illegal threats and committing other violations of the law.
One of the firms, West Asset Management Inc., agreed in March to pay $2.8 million, a sum the Federal Trade Commission said was the largest civil penalty it had ever obtained in a debt collection case.
The second, Allied Interstate Inc., agreed in October 2010 to pay $1.75 million.
Education Department officials were aware of the enforcement actions at the time, and said -- without providing any substantiation -- that none of its borrowers had been impacted. It is unclear what impact, if any, the cases had on the firms' contracts to recover funds from holders of delinquent student loans.
"We closely monitor government contractors to ensure they are working in the best interests of students and taxpayers and, most importantly, that they are obeying the law," said Justin Hamilton, a department spokesman.
"If we believe a contractor has violated the public trust and broken the law, that case will be referred to the inspector general for investigation," he added.
It was not known whether that had been the case for West Asset Management, which was seeking collections on $745 million in delinquent payments for the Education Department as of June 30, or Allied Interstate, pursuing $895 million.
As part of their agreements, neither company acknowledged violating federal law, and both agreed not to do so in the future.
The enforcement actions came as part of what the FTC said was an effort "to protect consumers affected by the struggling economy," an objective that coincides with yet another administration goal of pursuing payment of debts owned the government in hopes of reducing federal deficits.
Along those lines, the Obama administration has asked Congress to loosen the rules under which collection agencies may call the cell phones of consumers who are delinquent on their debts to the federal government. Under the proposal, a ban on robocalls to cellphones would be lifted, a step the administration says "is expected to provide substantial increases in collections, particularly as an increasing share of households no longer have landlines and rely instead on cellphones."
While the proposal was included in the president's plan to reduce deficits by $3 trillion over a decade, officials have yet to provide an estimate of the money it would raise.
Supporters of the change point out it would apply only to cases in which a debt to the federal government is involved.
Critics argue that it would lead to harassment of consumers who are struggling in an economy where unemployment is 9.1 percent and long-term joblessness is growing.
Government figures indicate that a significant portion of any increase in collections likely would come from money owed the Education Department, the federal agency that makes the most use of private bill collectors. According to the most recent figures available, the department referred $28.8 billion in debt to 23 private collection agencies in the 2010 fiscal year, much of it overdue student loans.
One of them, Marietta, Ga.-based West Asset Management, employs 1,500 debt collectors in 13 states and one offshore location, and has collected on more than 24 million accounts on behalf of its clients in government and private business, according to the FTC.
The FTC alleged abuses ranging from threatening illegal actions to illegally posing as an attorney to calling consumers at improper hours and using "rude and abusive language."
The company "also allegedly withdrew funds from consumers' bank accounts or charged their credit cards without consent," the agency said.
Greg Hogenmiller, the company's lawyer, said its "business has changed pretty dramatically" in recent years. "We feel pretty good about where we are from a compliance" standpoint, he said.
Hogenmiller said the FTC complaints were unrelated to its work for the Education Department, but "we notified them at some point of the situation."
Allied Interstate, based in Minneapolis, Minn., was accused by the FTC of "making improper harassing phone calls to consumers (using abusive or calling many times a day for weeks or months)" as well as revealing alleged debts to a third party without permission and continuing collection activities after consumers explained that they did not owe the money.
The company declined comment.