Government Moves to Rein in Debt Collectors

Mistakes and harassment are cited as reasons for closer scrutiny from regulators. New laws could be next.

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.

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Associate Editor, The Kiplinger Letter