1."We'll say anything to get you to pay."
"You just need to pay me $1,200 by 2 p.m. or I'm going to send the sheriff out to arrest you." That's what one debt collector told a client of credit counselor Jan Jones, who works with the Consumer Credit Counseling Service of Alaska. One woman in her 70s who fell behind on credit card payments was told she'd be deported if she didn't pay right away, says Dafne Torres, director of operations for InCharge Debt Solutions, an Orlando, Fla., nonprofit credit-counseling service. While some collections agencies are courteous and professional, "a lot of them will say anything and everything they feel they can get away with it," says Torres.
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In fact, the Federal Trade Commission receives more complaints about debt collectors than any other industry. In 2010, the Federal Trade Commission received 140,036 complaints about in-house or third-party debt collectors, 27% of all complaints the agency received, according to its most recent annual report on the Fair Debt Collection Practices Act, which regulates the business. That's up from 119,609 complaints, or 22.8% of all complaints, in 2009. Of those complaints, 49% alleged harassment, 16% complained about abusive language and 4% claimed the collectors threatened violence.
Mark Schiffman, a spokesman for ACA International, a trade association for the debt collection industry, says, "We despise those tactics just as much as consumers do." Most debt collectors don't behave this way, he says, and the association believes that "if you break the law you ought to be held accountable."
2."You can stop our calls."
Phone calls are one of collectors' most powerful weapons. But under federal law, repeated calls, obscene language, threats of arrest and threats of violence are all illegal. Consumers need only to send a collector a written letter asking the collector to stop contacting them, and the collector must comply.
After receiving such a letter, collectors are allowed to contact the consumer only to state that there will be no further contact, or to let the consumer know they plan to take a specific action, like filing a lawsuit. Of course, putting an end to the phone calls doesn't erase the debt, "but it at least gives you some breathing room," says Suzanne Martindale, a staff attorney at Consumers Union.
If the firm ignores the letter and keeps calling, consumers can file a complaint with the FTC and their state attorney general. They may also be able to sue: Generally, if a collector is found to have violated the federal law, the consumer could be awarded $1,000 in statutory damages, plus legal fees, says Robert Hobbs, deputy director of the National Consumer Law Center. Check the National Association of Consumer Advocates' website for a list of lawyers who handle these kinds of cases.
3. "You may not really owe the debt."
Some unscrupulous vendors lard up purchases with extra fees or add items consumers didn't buy. Some debt collectors buy up old debts for pennies on the dollar, planning to collect enough to make a profit, says Anamaria Segura, a staff attorney with the consumer rights project at MFY Legal Services. Often, however, those lists have sketchy information that may be full of errors or include debts that already have been paid or dismissed. In addition, there are statutes of limitations on debt, which can range from between three and 10 years.
Neil Dansker, who is blind, bought a software program over the phone that would read his computer screen to him, agreeing to interest-free financing. He says the seller then added fees and charges to his bill, including unexpected finance charges of nearly $50 a month, "credit insurance" in case he couldn't pay in the future, and, eventually, late fees of about $40 a month on the extra items. He disputed the charges and paid only for the software he bought, marking his last check "PAID IN FULL."
"When it comes to paying my bills, I pay on time," Dansker says. "I'd skip a meal or two if I ever had to." Nevertheless, a few months later, he started getting repeated calls from a debt collector, who also ignored his written request to contact him only in writing. Dansker carefully documented every step and, with the help of MFY Legal Services, ultimately won in court when the collector sued him for $2,007.
4."We can trick you into paying on old debts."
Debts aren't ever totally erased and collections agencies can still attempt to collect an old debt, even if it's beyond the statute of limitations — as long as they don't threaten legal action, says Schiffman of the trade association.
If consumers make even a small payment on an old debt, they can re-start the clock and end up back on the hook for the full amount. Those who are unsure about a debt have the right to ask for verification, which should include at least the name of the original creditor, the original account number and the amount of the debt. The debt collector should send details within 30 days and shouldn't continue trying to collect the debt in the meantime, says Martindale of Consumers Union.
With that information in hand, consumers can check their state bar association's or state attorney general's website to see if the statue of limitations has passed, or consult an attorney. If the time limit has passed, they should have a successful defense if they're sued.
One exception: There's no statute of limitations for student loans.
"The reality is that debt doesn't automatically go away" when the statute of limitations is past, Schiffman says. "Obviously there's a point where legal action shouldn't be taken and we respect that," he says. But the statute of limitations shouldn't be seen as turning legitimate debt into free money, he says. If people are allowed to simply walk away from debts, "what would we do to the availability of credit and the cost of credit?"
5. "We can't touch some of your money — unless you let us."
Consumers can't be forced to repay most kinds of debts with federal benefits like Social Security, veterans' benefits, Social Security disability benefits, and in some states, unemployment benefits. Individual retirement accounts are also protected in many states, Hobbs says. Even with a debt that's owed to the federal government, like unpaid taxes, some types of benefits can be garnished, but the consumer has a right to a hearing first, Segura says.
Still, some collectors say or imply that they'll immediately start garnishing a consumer's wages or taking money out of a consumer's account, when that's possible only after a successful lawsuit and court order, says Jan Jones, of the Alaska credit-counseling service. She says one client recently authorized a collector to withdraw money directly from her bank account because she was told that if she didn't, the collector would sweep the account and withdraw all of her money. "When you don't know that that's not possible, you're going to do whatever you have to do to prevent that from happening," Jones says.
ACA International's corporate counsel, David Cherner, says that the industry has supported legislation that would require financial institutions to distinguish between federal benefits deposited electronically and funds from other sources, making it easier for collectors to distinguish garnishable money from money they can't touch without permission. Currently, in many states, the consumer is responsible for telling a collector what funds are out of bonds, Cherner says.