Rep. Gregory W. Meeks introduced a bill Thursday that would bar the Department of Treasury from using private debt collectors to recoup money from disaster recovery victims.
When debt cases are referred to Treasury, the agency in some cases can add 28 percent to 30 percent interest on top of collection amounts. Agency officials say the fees cover costs of collection, which can include using private debt collectors.
“To me, that is not equitable,” Meeks said Friday in an interview.
After 2012’s superstorm Sandy, the Federal Emergency Management Agency awarded more than $1.4 billion in aid to individuals and households in New York.
The agency is required to review payments and collect money if it was paid in error, charging 1 percent annual interest depending on the age or status of the debt. After 120 days, the debt is transferred to Treasury, where the penalties accrue much faster.
As of Thursday, FEMA was trying to get back nearly $15.8 million from 2,361 cases in New York, FEMA’s director of public affairs Rafael Lemaitre said.
Of those, 606 cases have been sent to Treasury, but Lemaitre could not provide the total amount of money sought.
He could not comment on Meeks’ legislation because it is pending.
In September, Newsday filed a Freedom of Information Act request seeking a breakdown of where demand letters have been sent and what agency was attempting to collect. The agency has not complied with the request, saying it is being processed.
Treasury did not return a call for comment Friday.
FEMA officials have said less than 2 percent of claims were paid in error and the agency was working to recoup nearly $24 million. But in October, the inspector general’s office for the Department of Homeland Security, which oversees FEMA, said the agency could have awarded $250 million in disaster assistance to more than 29,000 superstorm Sandy victims who may have received duplicate payouts from private insurance in violation of federal law. More than 50 cases totaling about $1.2 million were referred to FEMA’s fraud and investigations division.
Daniel Strafer, staff attorney at Touro Law School’s disaster relief clinic, is representing or has represented 23 clients from whom FEMA wants money back. He says the process is murky, hearings are hard to arrange and Treasury fees can be insurmountable.
“If the bill is passed, it would be a positive for the people who have recoupment after them, but there is still a lot more to be done to address the systematic issues with FEMA.”
He also said, based on his experience, many more cases end up in recoupment than should. In about 70 percent of his cases, he has managed to get the debt terminated or reduced. “If you sort of extrapolated it out, it could be millions of dollars in money that they shouldn’t really be taking back,” he said.
The bill from the St. Albans Democrat is included in a broader bill about the government’s use of private debt collection agencies, which have come under fire for using heavy-handed measures.
Private collection companies pursuing government debt are not bound by the Fair Debt Collection Protection Act, which protects consumers from abusive and unfair conduct. The bill, which is similar to one introduced last year by Sens. Cory Booker (D-N.J.) and Mike Lee (R-Utah), expands the existing bill to include agencies working for the government.
“We’re trying to make sure there is no loophole,” Meeks said in an interview Friday.
The bill has been referred to the House Committee on Financial Services.
Next week, Meeks plans to introduce a bill that would prevent Treasury from collecting interest fees beyond the debt.