Debt-collection tactics under scrutiny
At issue: Coercing debtors into waiving rights they don't know they have.
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In Ms. Maple's case, a $5,000 debt may have been bought by a collection agency for as little as $100. She paid $200, then had another $700 taken out of her bank account without her permission before she finally stopped getting calls. The company realized as much as an 800 percent profit, but may have broken laws in the process, including those that prohibit collectors from verbally threatening or abusing consumers.Skip to next paragraph
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"We have never been in trouble like this before. We're hardworking poor people, so when they threaten us like, 'We're going to issue a warrant and lock your husband up and take your home,' naturally I panicked," says Maple, an airline employee.
Such complaints are skyrocketing, reports the FTC. In 2008, 34 percent of complaints against debt collectors were for harassment, up from 19 percent in 2007. Another 13 percent of those who complained say collectors used obscene, profane, or otherwise abusive language – also an increase from the previous year.
Why all the phone yelling? The short answer: Debt collectors, who often work on commission, are trying to adjust tactics to a recession, when fewer consumers have extra money and often can't get fresh credit to pay off old debts.
Still, the industry as a whole welcomes reform, says Patrick Lunsford, editor of Inside ARM, an industry newsletter.
Governed by both the FTC and Federal Communications Commission (the FCC has a role because telephones are used), debt collectors often work under contradictory rules, Mr. Lunsford says. One example: Leaving voice-mail messages about debts is not allowed because of privacy concerns, but that necessitates repeated phone calls, which consumers often complain are abusive.
"The majority of [debt collectors] are good actors, and they want [more] guidance," says Lunsford.
But the industry is likely to fight one proposed reform: forcing phone collectors to let consumers know upfront that theirs is a time-barred debt that they don't have to pay. That would undermine the entire zombie debt business model, says Mr. Manning.
"This system is not designed to have people knowing their rights, but to dupe people into waiving their rights," says attorney Dick Rubin of Santa Fe, N.M., an expert on zombie debt. "Most people are so well-meaning and trusting that they don't know how to tell these people to get off."
Under the Fair Credit Act, consumers have the right to request that collection agencies validate the debt in writing. But acknowledging an old debt by making a partial payment essentially refreshes the debt, affecting a consumer's credit report.
Charles Walker says he was sued by a debt collector over an old government college loan, but never received notification about the court date, possibly because he had recently moved. The judge found for the debt collector, a process that reawakened the debt on Mr. Walker's credit report, putting his homeownership at risk.
"I don't have anything against them for attempting to collect debt," says Walker, a computer networking technician in Richmond, Va. "But the tactics they use are just so underhanded, so aggressive and downright bullying."
For a long time, Georgia regulators thought they had no jurisdiction over debt-collection practices. A recent Georgia Supreme Court ruling found otherwise. So the state is now investigating two major national collection firms in Atlanta, the home of several national debt collectors. A Superior Court in Cobb County, Ga., will decide whether the state has a right to subpoena records from those firms to investigate complaints. •