MARCH 2009
MAKING YOU PAY?
Still No Reason for Abusive Debt Collectors to Fear Regulators… Yet.

Let's see if I get this right. If a big financial institution gets into trouble, the government is ready to step in and bail it out and make the little guy pay for it.

But if the little guy gets into trouble, and the big financial institution comes demanding its money back, not only does the little guy get no relief, but he gets little to no real government protection when the lender applies strong-arm tactics to collect its debt. And for all of the talk of meaningful change in Washington, abusive collection actions won't be stopped any time soon.

Last week, the Federal Trade Commission issued a report saying that the debt-collection legal system must be reformed and modernized "to reflect changes in consumer debt, the debt collection industry and technology." The idea is to put more bite into the Fair Debt Collection Practices Act, and the problem is that the moves being discussed are more like a wink and a smile than a growl at the bad guys.

The FTC took in roughly 105,000 complaints about third-party and creditor debt collection in 2008, according to numbers released last week. That makes it the subject generating the second most complaints -- identity theft is No. 1 -- about one in every 11 that the agency receives.

The Fair Debt Collection Practices Act was enacted in 1977 to protect the public from abusive, unfair and deceptive practices by debt collectors, with the FTC made the primary enforcer of its rules and regulations. The rules have been tweaked over the years, but the premise has always held steady: Debt collectors are entitled to do their job, but not by badgering, pestering, brow-beating and intimidating the debtor.

Judging from the complaints -- and FTC officials have long acknowledged that few people who have any problem go to the trouble of filing a complaint -- a multitude of consumers believe they're not being treated within the spirit of the law.

The trade commission recommended last week that collectors need to use available resources to both obtain better, more accurate information about their targets, while also giving those people more information. To that end, the agency suggested the following changes to the Fair Debt Collection Practices Act:

"Validation notices" that the collectors are required to send must disclose the name of the original creditor; break down the debt by principal, total interest, and total fees; and inform consumers of certain rights they already have under the FDCPA. Currently, consumers get a notice from a collector and may not know who that collector represents, which makes it hard to determine what they owe, what additional fees or charges have been thrown in there or how to properly proceed if they want to fight the collection effort.

Modernize the law to reflect changes in technology -- so that debt collectors can contact consumers on cell phones and by text message -- but only in cases where the consumer does not incur any charges for these contacts. In other words, they want to put an end to the abusive practice of a collector using up the consumer's minutes or texts, or even threatening to run up the communications bill -- so that service might get cut off -- in an effort to get the delinquent credit bills paid up.


 

Further, under the proposed changes, collectors should only be able to use cell phone or text message with prior consent. Expect this to be a fine-print addition to credit applications, where the firm consumers sign up with will ask for the information and for permission to contact the consumer in the event of any "problems" with the account; while the customer thinks "they'll call my cell phone if they see problem activity on my credit card," the card issuer is thinking "get that information in case this account goes bad."

Finally, when collectors are given access to a customer's other accounts to pay a bill, they will need to obtain "express verifiable authorization" from consumers before using electronic transfers to reach in and get their money.

Also in the FTC's suggested changes to debt-collection laws is a request for Congress to let the agency have the authority to change the act going forward, allowing it to keep pace with changes in the financial world.

It all amounts to a baby step's worth of progress, largely because there's still nothing in the Fair Debt Collection Practices Act to give it teeth.

Congress wrote this legislation in such a way that it expected civil lawsuits rather than law-enforcement actions to be the primary means of making sure the industry complies with the rules. The FTC can pursue cases, but it is extremely limited in the way it can punish an abuser.

While civil suits have resulted in some victories for consumers, the truth is that collectors aren't scared. They're not going to jail, they're not losing massive profits; the worst offenders are often down the line from management, and it's usually the company -- and not the bad actor hounding a consumer -- which takes the hit.

Few consequences

Dealing with debt collectors for a column last year I encountered a variety of behaviors that appeared outside the lines of the law, but where the collector suggested they were within their rights and basically dared the customer to sue.

Collectors understand that they are dealing with people for whom the collection issue is just one problem; arranging for an attorney to represent them in a consumer case is not necessarily realistic.

With that in mind, collectors know they can flout the laws or live on the edges, knowing that their behavior may result in better results, returns so good that they can afford to pay any fines or problems they encounter. What's more, collectors can -- and do -- buy a database of consumers who have filed suits, helping them to avoid hard cases.

We need some real teeth behind the regulation, and we didn't get that here," says Gerri Detweiler, co-author of "Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights." "People can file civil suits to protect themselves and they might even be able to put really abusive collectors out of business, but that doesn't stop the ongoing abusive collections practices. ... There are not enough enforcement actions against debt collectors; the changes are positive, but they won't really change that, and until collectors really fear the regulators, they'll keep doing whatever they can get away with that helps them collect the debt."