Business Regulation
Government Moves to Rein in
Debt Collectors
Mistakes and harassment are cited as reasons for closer scrutiny from regulators. New laws could be next.
By Renuka Rayasam, Associate Editor, The Kiplinger Letter
February 3, 2010
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The federal government is setting its sights on debt collection practices. Rising credit card delinquencies and charge-offs by lenders mean more borrowers are being hounded by companies that buy bad debt hoping to collect on it. But too often, collectors get bad information, leading to mistakes and unfair harassment, which has helped send complaints about abuses soaring -- from 79,000 in 2008 to more than 100,000 in 2009. “The debt collection industry is broken,” says Ira Rheingold, executive director and general counsel of the National Association of Consumer Advocates.
One big problem: Debt is often bought and sold multiple times, and along the way, key pieces of information go missing, according to a report from the Government Accountability Office. As a result, debt collectors go after the wrong borrower or the wrong amount. They try to collect debt that has been discharged in bankruptcy or already settled. Collectors only have to show the borrower the total amount of debt, which can confuse borrowers into paying debt they don’t legally owe.
To deal with the problem, the Federal Trade Commission is stepping up enforcement of debt collection cases. Officials are extracting bigger settlements and holding company mangers personally responsible for any wrongdoing. “That’s designed to increase deterrence,” says FTC official Thomas Pahl. The FTC also has formally requested that the nine largest debt collectors, which together buy and sell 75% of U.S. debt, turn over information by Feb. 25 on how they process claims. “We may make policy recommendations to Congress on things that are causing problems but may not currently be unlawful,” says Pahl.
The findings could spur lawmakers to get in on the act, requiring collectors to notify borrowers of the name of the original creditor and the breakdown of total debt when they come knocking on the door. They could also be required to keep more information on file and intact. In addition, expect updated rules on how modern technology is used. The industry welcomes rules that clear up confusion over when and how to contact customers, says Barbara Sinsley, who specializes in debt collection cases at Barron, Newburger & Sinsley PLLC. “Debt collectors want nothing more than bright lines.”
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Reader Comments (14)
Posted by: fred at 02/04/2010 09:07:29 PM
my credit is ruined because sleazy attorneys bought my old credit card debt. got a judgement against me. now i have garnishments against me, my mother because my name is on her account (she is 92, has alzheimers, and is in a home) this country and the slime that run it and the banks should have to give up their luxury cars, mansions and have their bank accounts frozen and live on the streets. these SLIME have ruined america
Posted by: question at 02/04/2010 11:10:50 PM
is it the slime that collects the debt that ruined america, or the slime that doesn't pay their debts?
Posted by: joe at 02/04/2010 11:12:19 PM
is it the slime that collects debt that ruined america, or those that don't pay their debts?
Posted by: Escortrider at 02/05/2010 03:37:48 AM
Gee whiz, Fred. Since you don't claim you didn't owe the debt, I would conclude that you did owe it. So whose fault it is that you have garnishments against you? Better you should look in the mirror. Who, exactly, is "sleazy" and "slimy"? Didn't those people who ran up unreasonable debt contribute equally with the big banks, etc. to ruining America? What happened to the concept of being responsible for one's own actions?
Posted by: cabdriver at 02/05/2010 08:54:49 AM
Gee, after all the abuse that gets put out to the customer, we get the likes of you. Fred has some valid points but that's exactly what the banks do not wish to hear. They are long on promises, then change the rules the minute you walk out the door! & somehow that's OUR fault?
Posted by: Leah at 02/05/2010 01:05:55 PM
The ones that get me are for medical debt. I had a collection company contact me to collect on a supposed debt, but they couldn't or wouldn't tell me when it was incurred, who the doctor was or what it was for. They told me what hospital it was at....that was all (this was years after the supposed debt was incurred). They said it was due to privacy laws that they could not give me more information. If it was my debt, then why could they not give me more information? I told them that I was not billed for it, and if they could not give me anymore information about the debt, then I certainly wasn't going to pay it. Nothing ever showed up on my credit report, and if it had, I would have disputed it. This is what they are talking about above!
Posted by: Escortrider at 02/06/2010 01:51:15 PM
Well, Cabdriver, what "valid points" does Fred have? I don't see a single one. He had a debt. He didn't pay it. Now he has garnishments against him. Justice was done. Leah, by contrast, does have some valid points. Some practices of debt collectors ARE sleazy, which is what the original article was about, and Leah has given us a good example. You obviously have had some bad experiences with banks; perhaps your anger is justified. But that doesn't make Fred right just because he is angry too.
Posted by: John at 02/07/2010 03:33:34 PM
Credit card companies started soliciting and giving credit to my daughter when she was 18 years old.....no college, never worked, no credit history (and very little judgement). She's 25 now and still no college, no work, etc. Collectors have been harassing her for 7 years. In my opinion if the credit card companies were that stupid they deserve to have bad debts....
Posted by: paul at 02/08/2010 12:45:48 PM
John, you felt the credit card company was "stupid" to give your daughter a chance. You then go on to justify why she shouldn't pay it back and they should take a loss. Think about it the other direction, your daughter has no credit, good or more important bad at age 18, how are they supposed to get it other than giving her a chance? Have you co-sign, maybe smarter but something tells me you'd still be passing the buck, no pun intended, to the credit card company....
Posted by: Greg at 02/08/2010 01:24:08 PM
I am with Leah 100%. Many of these medical billings are the worse. I have been pushing hard that doctors offices should have similar constraints to auto mechanics - if I'm going to own you more than my insurance covers you should be required to tell me that BEFORE you do anything so I can decide if I want to pay it. Treating people and then sending them a bill for thousands of dollars after the fact is just wrong. This is how those mystery bills are showing up in many cases.
Posted by: Joe at 02/09/2010 02:42:31 PM
A debt collector began harassing me for a debt I didn't owe and I sued them under the Fair Debt Collection Practices Act. They settled for a grand for me and a few grand for my attorney. I was sort of hoping another collector would begin harassing me so I could make another quick grand, but if this legislation goes through, it may be no dice.
Posted by: Ali Hall at 02/21/2010 12:09:21 PM
You have tested it and writing form your personal experience or you find some information online?
Posted by: AGH at 02/21/2010 01:46:05 PM
Research (e.g. Google and read) "FDCPA" or the "Federal Debt Collection Practices Act." Inform yourself of your rights, the rules debt collection, etc. One of the key takeaways of the FDCPA is that you should ALWAYS deal with collectors via Certified Mail and keep very good written records. There are also rules on what you can ask for in terms of validating a debt via a written request vs. what collectors owe you (WILL GIVE YOU) on the phone. LEARN YOUR RIGHTS AND FIGHT BACK!!!
Posted by: lipstick at 03/23/2010 06:00:44 PM
Its about time these conartist vultures, need to be held accountable, and mandates of privacy, and regulations made to protect the public! First of all, ones credit record should be voluntary, and not public! The credit agencys are unforgiving, and can last seven years! Often times one is targeted by say an alledged public utility, in error, and surprise it comes up on the credit report! I always thought I was a person! as it turns out I am just a investment with a credit score over my head! This can determine: whether one can get housing, a credit card, or a loan! What about the people that are "cash and carry" that pay their bills and get a low score because they have not established credit! Its immoral, nobody's business, and a con game! The interests, on these accounts make the person unlikely and unwilling to pay it back, and it still remains on the report!