With last year's subprime loan crisis, market pullback and ensuing credit crunch, great numbers of consumers found themselves on the short side of the credit ledger, with banks and credit card issuers demanding quicker repayment or stricter terms for their loans. And that's not to mention those who found themselves out of work altogether and for whom the crisis meant no choice but to default or renegotiate credit under far less favorable terms.
Credit providers lost billions of dollars throughout the subprime mortgage crisis and now employ debt collectors to minimize their total losses. While financial institutions desperately want to reclaim their money, borrowers are simply not in a position to satisfy their obligations. What most citizens in that position don't know is that there are established rules for the debt collection profession, and limits to what they're permitted to demand. Or so we thought. (For more on credit crises, check out Examining Credit Crunches Around The World.)
The Law Forbids Harassment and Persistent, Unwanted Contact
Debt collectors are beholden to the Fair Debt Collections Practices Act, which limits the times, types and nature of a debt collector's contact with a consumer. For example, debt collectors are supposed to stop contacting you once they've been notified in writing to do so. They're also forbidden to harass or abuse, use obscene or profane language, or in any way threaten or mislead you in order to collect on the debt. It's simply against the law. (Learn more in Outfox The Debt Collector's Hounds.)
But lately, the world of debt collection has had its seamier side exposed. "Debt buyers" - private individuals and companies, and the latest entrants to the debt collection game - have sullied the name of those more established firms that adhere to the federal law.
To start, debt buyers are generally purchasers of older debt, paying as little as five cents on every dollar they collect. They therefore have great incentive to make good on the bid to collect. Their risk, on the other hand, lies in the fact that every year a substantial percentage of the population moves and is therefore difficult to trace, making a five-year old, uncollected bill a high risk proposition.
The Debt Buyer's Bag of Tricks
The debt buyer, therefore, is by nature a more persistent fellow than most, and often has to resort to ruses of every variety to make good in his/her quest to secure a return on investment.
The collector's first task is often to domicile the collection business in a foreign country, in an effort to shield himself from U.S. collection laws. With English spoken as a mother tongue level in many nations around the globe, that's a problem that can be addressed rather easily.
The next step for the collector might be to provide a false mailing address to consumers in order to avoid any written notification that would cease contact. At that point the collector becomes free to badger and harass his or her victims at will, until they either become so frustrated or desperate that they negotiate a payment schedule that they might not have otherwise agreed to.
In short, once the debt buyer feels he or she is insulated from regulatory action, haranguing consumers becomes just another part of the process. (Learn more in Fighting Back Against Collection Lawsuits.)
Stealing From Bank Accounts
The Federal Trade Commission (FTC) has documented cases of debt buyers securing bank account numbers, arranging for authorized monthly debits from unwary consumers, and then taking more than the agreed upon amount. At present, third-party debt collection complaints make up 19.9% of all complaints received by the FTC, and the numbers are rising.
We imagine they will continue to do so under the current legislative regime, and in view of today's employment situation.
The Best Defense
The best advice for consumers facing an untoward debt collector is to immediately send a letter by registered mail requesting that all contact immediately cease. Beyond that, knowing your state's statute of limitations on unpaid debt can help you avoid paying off your obligation on an abusive collector's terms.