The year was 1978. Jimmy Carter was president and Obama was in high school. The Grammy award for "Record of the Year" went to The Eagles for "Hotel California," and gas for your VW Bug set you back 63 cents a gallon.
Also in 1978, Congress enacted a debt-collection law known as the FDCPA, or "Fair Debt Collection Practices Act," which we're still working under today, 34 years later.
Hemlines have changed a zillion times since then, but our debt-collection laws have just plugged along like a rattling old jalopy, seriously mismatched to our current society. That situation would merely be quaint except that with each passing year, consumers are the ones that suffer from the law not being sufficiently updated.
Fortunately, the citizens of Massachusetts don't need to hope that gridlock will evaporate in Washington for something to be done about the debt-collection laws. Martha Coakley, the Massachusetts attorney general, is doing her part to make reform a reality right now.
Attorney General Coakley first proposed revised regulations about a year ago, and then held hearings last year to consider all sides of the issue. Even so, after she announced final regulations last month, some in the debt-collection industry squealed in pain at the thought of how the new rules will be so draconian. Let's look at some of the more controversial, "unreasonable" rules:
It will now be considered an unfair-trade practice for a debt collector to threaten to proceed with an action that it doesn't take or at least attempt to take. This is in response to an abusive industry practice of threatening to sue a consumer when the debt collector knew that the debt was so old that it had gone beyond the statute of limitations to sue -- but the collector would threaten to sue anyway. This type of debt is called "time-barred."
The new rules also prohibit collection activity on time-barred debt without explaining in clear language that the collector can no longer sue to collect it. That is hardly a radical rule, yet it's been necessary because one of the favorite tactics of unscrupulous debt collectors has been to threaten with lawsuits, arrest, and jail.
The new regulations in Massachusetts now limit the number of calls and text messages to two per week. Some debt collectors must be stunned at the thought of a lousy two calls per week to their targets, considering how someone received almost 1,000 calls from a single company.
Another provision requires that creditors collecting on their own debts must be able to verify that the debt is valid, and so must third-party buyers of debt. This rule puts a real cramp in the style of some collectors who much prefer to receive a computer file with names, phone numbers, and payment amounts, and who don't see the need for pesky details like whether the consumer actually owes the debt. As common-sense as this concept sounds, it's been necessary for Attorney General Coakley to create a regulation to protect consumers from collectors who would ignore the little detail of who actually owed the debt.
Attorney General Coakley summarized her reasons for the new regulations:
"Given the industry's recent advances in technology, we concentrated on how we could bring our regulations up-to-date and streamline them to be consistent with other state and federal agencies. These amendments ensure that the playing field is level for both creditors and consumers so that all parties are better protected."
Massachusetts and the rest of the nation still have a long way to go before we see more common sense than common criminals in the ranks of debt collectors and their accomplices. After a Massachusetts woman fell behind on her car payments, a collector filed suit. Never mind that the notice of suit was returned undelivered to the consumer -- the collector won a judgment against her because she never appeared in court for a suit she knew nothing about. Deputy sheriffs then hauled away her car and put a lien on her home. Because the consumer couldn't pay the $5,600 fee to store her car, it was auctioned off.
Regulations are not "good." In fact, they're neither good nor bad; the real measure is whether they are necessary and effective. The debt-collection industry has indicated by its actions that these new regulations have become necessary. It will now be up to us to watch whether they will be effective, because debt collectors have proven to be agile in dodging and weaving around laws. Debt collectors have gone too far and consumers should not hope for or merely request civil treatment -- they should demand it.
Bill Bartmann is CEO of CFS II, a debt-collection company. His companies have helped to settle debts of more than 4.5 million people without ever filing suit against a customer.
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