(Source: By Blake Jones, The Post-Star, Glens Falls, N.Y.) –You’re going to jail. You’re a loser. You’ll lose your job.
Debt collectors often use threats and insults to intimidate consumers. But in recent years, collection has become more aggressive, more litigious and more prone to fraud.
While debt has risen as people fall behind on bills, the recession has been a boon for the massive industry that buys and sells consumer debt.
Just like bad mortgages were packaged together and sold to investors, delinquent credit card accounts and other consumer debt is bundled and sold on large portfolios for pennies on the dollar. The buyer tries to make a profit by collecting a small percentage of those accounts, and often will resell the portfolio to another buyer who attempts to do the same.
According to the Consumers Union, the nonprofit publisher of Consumer Reports magazine, collectors are increasingly taking disputes to court without proof that they own the debt in question, or even that the debt is valid.
Consumers Union points to automated software used to file lawsuits by the thousands and the proliferation of “robo-signers” who falsely claim to review and verify debtors’ records before taking legal action.
“The debt collection system is in dire need of reform,” said Gail Hillebrand, director of Consumers Union’s Defend Your Dollars campaign. “Current law fails to address rampant debt collection abuses and leaves consumers vulnerable to being harassed for debt that has been paid off or that they don’t even owe.”
Saratoga Springs bankruptcy attorney Ron Kim said he regularly encounters clients who are being pursued by collectors with unsubstantiated claims. He’s taken on 10 such cases in the last two years, two of which involved multiple entities trying to collect on the same debt.
“I never had people call me about things like that five years ago,” Kim said. “My impression of this industry is that it’s grown in the last five or six years to the point where you even have these problems.”
Edward Adeson, a bankruptcy attorney in Glens Falls, agreed. He said just about all of his clients are being harassed or sued by a debt recovery firm when they arrive at his office. And some of them lack proof of ownership.
“They buy up these debts, but they don’t always transfer all the paperwork,” Adeson said of collectors. “They don’t do everything they are supposed to do.”
Adeson said collection firms are much quicker to sue than credit card companies, and they do it because it gets results.
“If they initiate the lawsuit, it scares the heck out of everybody,” he said. “You serve a lawsuit and get somebody into a payment plan.”
Although litigation and arbitration are two legitimate ways for creditors to collect money owed to them, the Federal Trade Commission has acknowledged that neither provides adequate protections for consumers, and the system for resolving debts is broken.
A report released in July found that lawsuits are being filed without sufficient evidence or proper notification; wages are being garnished improperly; there is a high prevalence of default judgments in favor of collectors when consumers don’t respond to the lawsuits; and collectors are suing on debts that have passed the seven-year statute of limitation.
In addition, the FTC said arbitration can often be biased toward the collector and be expensive for consumers.
According to its most recent data, the FTC received 120,000 complaints about debt collectors in 2009, almost a quarter of all complaints for the year and an increase from 2008.
About 30 percent of the complaints said collectors were pursuing payment for debts that were not owed, amounts over what was owed, or debts that had been discharged in bankruptcy
Experts say collectors often target people who do not know their rights or have legal representation.
Creditors will call neighbors and family members in search of the consumer, and reveal information about their debt. They will contact the consumer’s place of employment and threaten to get them fired with repetitive calls. They will say harsh and insulting things to force the person to pay.
“Around 9/11, a debt collector said to my client, ‘After all those people died in the towers, you won’t pay your bills,'” said Kim. “It was an absurd statement, as if the two were connected, but she was so upset and ultimately ended up filing for bankruptcy.”
Despite laws such as the Fair Debt Collection Practices Act that protect consumers from unscrupulous collection practices, abuses and fraud persist.
The New York Attorney General’s Office has prosecuted a number of firms for using illegal scare tactics. And just last year, a process server company was found guilty of failing to serve court papers to people targeted by debt lawsuits, resulting in default judgments against them.
In one instance, an employee claimed to have served papers to four different addresses at the exact same moment.
The company, American Legal Process, mostly worked for the debt collection firms’ lawyers.
The FTC has recommended a number of federal and state-level reforms, as has the Consumers Union.
Last week, the group called on lawmakers to end robo-signing; make it illegal to collect once a debt is past the seven-year statute of limitation; require debt collectors to provide more information to consumers and in their lawsuits, such as the name of the original creditor and a list of the interest and fees that have been tacked on; and require courts to notify consumers when they are sued by a collection agency.
In the meantime, experts agree that consumers can empower themselves by becoming familiar with the existing laws, and asserting their rights.
“It’s a very aggressive business because that’s how they get paid,” Kim said.
“I suspect that these individuals who do calls are trained to identify people who are susceptible to suggestion.”
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A service of YellowBrix, Inc. Publication date: 2011-02-06
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