As Elizabeth Warren says, "Nothing will ever replace the role of personal responsibility." Just as the FDA doesn't prevent overdoses, the point of consumer protection regulations isn't to come to the rescue of people who simply don't want to pay back the money they owe. But debt collection agencies have started using outrageous tactics to get payments on debt. These companies buy up bad debt from lenders -- credit card companies, phone companies, health care providers, you name it -- for cheap and then hunt down the money owed in order to turn a profit. And in doing so, some act more like organized crime than private businesses.
They harass consumers with threats and obscenities. Complaints about debt collectors filed with the Federal Trade Commission, the agency tasked with regulating these operations, rose by about 17% in 2010, which is nearly three times the number of complaints filed in 2002. They account for 27% of all those lodged with the FTC. And of the 54,147 consumers complaining to state level authorities in South Carolina, 4,182 said debt collectors had threatened violence. In 2005, 8,000 consumers told the FTC that debt collectors had used obscene or profane language, according to "Up To Our Eyeballs." But it's not always just about outright harassment. It's also a mind game. A former debt collector has anonymously blogged about some of the tactics he used, describing how he would "sound educated enough to perform some sort of legal action" by dropping four important phrases: office, file, client, and flat refusal to pay. This careful use of language was often enough to scare consumers into coughing up some money.
Debt collectors put people in jail. The Minneapolis StarTribune reported that "the use of arrest warrants against debtors has jumped 60 percent over the past four years, with 845 cases in 2009." The Wall Street Journal found similar numbers:
More than a third of all U.S. states allow borrowers who can't or won't pay to be jailed. Judges have signed off on more than 5,000 such warrants since the start of 2010 in nine counties with a total population of 13.6 million people, according to a tally by The Wall Street Journal of filings in those counties.
This has resulted in people being jailed for owing as little as $85, while the rising number of cases has clogged law enforcement computer systems, making it harder for police to work on hard crimes.
And in a sign of the times, debt collection agencies have started using social media as a weapon. One man reported that he checked in at a restaurant on foursquare, tipping the debt collectors off to his location, and they repossessed his car while he ate. They also sign up for accounts on Facebook and friend debtors -- and while Brad Klein, president of the Arizona Collector's Association, points out that they can't misrepresent themselves or send messages or comments without violating laws, they use it to find phone numbers and home addresses. Meanwhile, they can send emails without violating the Fair Debt Collection Practices Act.
Why is the industry deploying such aggressive, quasi-legal tactics to hunt down debt? Because it's a very lucrative business. The industry as a whole made $11.7 billion in revenue last year. Portfolio Recovery Associates, a debt buyer, alone made $44 million on $281 million in revenue, a 16% net margin. This is because that company pays about 2.5 cents for every dollar of bad debt it purchases, but it makes back about 7.5 cents. That profit has jumped from $402,000 in 1998, mostly because so many more lenders are selling bad debt in order to write it off. Even the business community sees this as a golden opportunity: in the third quarter of 2005, private equity firms and venture capitalists invested $1.6 billion in it.
Those who take out loans and lines of credit are responsible for paying back what they owe. But the debt collection industry has run amok in the practices it deploys to get repaid. We need some cops on the beat to rein them in.
Cross-posted from New Deal 2.0.
Follow Bryce Covert on Twitter: www.twitter.com/brycecovert
While I advocate for the business or business owner whose cash flow has been affected by slow-paying or non-paying debtors (yet they have bills to pay of their own), I don't get the type of complaints noted. On the contrary, I get letters and feedback thanking me for being professional, compassionate and caring.
There are rotten apples in every industry, but that doesn't mean the whole barrel, or even much of the barrel, is rotten.
http://www.huffingtonpost.com/2011/06/08/swat-team-breaks-down-ken_n_873171.html
Don't be a victim. Be the hunter.
This is why FDCPA claims are on the rise. Some people set themselves up as cottage industries on hyper-technical violations. Meanwhile, the debt buyers and the big offshore collectors - no to mention the banks and credit card companies (all of whom are not subject to the FDCPA) are the real ones running wild. This is the new ambulance chasing gig for attorneys. Those are the ones getting rich. They get big attorney fees and the "poor" debtors get 1000. Now that is a scam!!
During one call, the rep told me to shut up. I had two words for him and it wasn't happy birthday.
It's interesting to note that people sometimes do not receive bills from the original party. The agencies just start calling.
Note the following if this happens to you:
- According to the Federal Trade Commission, a written statement must follow within five business days of the first call. Not doing so is a violation of Federal law. They did not.
- There is a statute of limitations applied in these cases (informed of a debt for the first time three years after the fact).
- File complaints with the Better Business Bureau, the State Attorney General’s office and as I stated The Federal Trade Commission, and state these actions in a letter to the agency.
And then at the end of the letter, refer them to your attorney. The harassing calls stopped. Of course, following the bad penny theory, they or someone else will be back.
To those who think we regulate business in excess, I hope you get these calls. Maybe you'll change your tune.
Add to that the hospital seeming to forget to tell the insurer that they made us pay $500 up front, and the insurer out of the blue refusing to cover anything more until I told them for the umpteenth time that we pay the exorbitant cost of the insurance because we depend upon it and we still do not have any other insurance.
Much to my embarrassment, one of these bills went to collection. I paid it but that company flatly refused to give me any receipt that would make any reference to the originator or the fact that it was a medical bill. Neither could they offer any proof that their demand was legitimate, not just a case of stolen or made up information. It happened with one other bill, and I refused to pay it, instead calling the hospital and telling them I would only pay them directly. They were fine with that, and I would advise anybody in a similar situation to do the same.
I'm sure a lot of folks have the same problem.
FYI my new phone number used to belong to a deadbeat so I have had to deal with this too.