Mistakes and harassment are cited as reasons for closer scrutiny from regulators. New laws could be next. By Renuka Rayasam, Associate Editor February 3, 2010 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.” For weekly updates on topics to improve your business decisionmaking, click here.