Thursday, May 15, 2008

Debt collectors are getting a bad rap now, but most may well be OK

Television station NBC4 in Washington this evening reported on the problem of abusive debt collectors. The problem may be escalated by the current bad economy and subprime crisis.

The Debt Collection industry is regulated by the Fair Debt Collection Practices Act (FDCPA). The Federal Trade Commission (FTC) link is here (PDF). There are many provisions. Any phone call has to start with a mini-miranda that informs the consumer of the purpose of the call. Any consumer can ask not to be called again, and any debt claim can be disputed. There are strict rules against disclosing the debt to third parties except spouses (in some states, not even spouses may be told). Parents cannot be told. People who claim to be guardians or caregivers cannot be told without permission.

However, legitimate debts, if not paid, will be reported on a consumer’s credit report and affect the consumer’s score. Accounts in collections can be reported. In some cases, legal action resulting in garnishment can occur.

I worked as a debt collector for a company called RMA while living in Minnesota in the summer of 2003. Collectors are paid an hourly wage, and it is not high. We went through several days of training, including the requirements of the FDCPA. Before we could work on the floor, we had to answer every question on a multiple choice test correctly.

The media has reported abusive calls by collectors, but most companies today conduct the business in an ethical manner. The general philosophy is that there are enough people who want help clearing debts that they will negotiate repayment plans. So good and ethical collectors focus on finding consumers who really are willing to talk to them. There is attention in the business to the "quality of calls" as well as number.

Collection companies divide their workforce into different client groups: bank credit cards, telecomm companies, gas and oil, and medical, which requires additional training because of HIPAA regulations. Collectors are often authorized to negotiate partial payments (sometimes as low as 70%) to get the consumer out of collections. Payment mechanism include check by phone and Western Union. Consumers may be pressured to pay immediately. Many consumers do pay by mail in practice. Internet banking could make some of these payment methods antiquated, but many consumers may not have good Internet access.

Sometimes debt collection companies buy debts from banks, and then try to partially collect them. I found such a debt on my credit report in 2000, a Chemical Bank (now Chase) card from 1980 that I had lost track of during moves. They claimed that a $125 debt had now become $600. I called the company, National Credit Systems, and first they located the debt. Suddenly I got a very rude call from a manager demanding to pay up or there would be a lawsuit. Collectors cannot threaten to sue, and this threat was illegal, although I didn’t know that at the time. I paid, even though I wanted to dispute the bill. Legally, they had to let me dispute the bill and prove that it was valid. At the time, I thought I would try to buy a house, and had to pay up.

There is an Association of Credit and Collection Professionals (ACA) which maintains that the industry does not support abuse of consumers. Their website is here.

On Monday, May 19, USA Today ran a story by Kathy Chu on p B1, "More people complain about debt collectors; as economy slumps, tactics become more aggressive."

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