Wednesday, October 13, 2010

Debtors prison, 2010

I can just hear my old co-workers in collections trying out their new talk-off.
"You know, you can go to jail for this debt -- don't you read the newspapers?"
The Minneapolis Star Tribune exposed how collection law firms are using the courts to jail debtors in some jurisdictions, after a failure to appear. The series "Hounded" prompted Sen. Al Franken to introduce legislation to combat the pressure tactic.
Debt collectors, however, do not see this as a problem. The prospect of prison bars  is a powerful motivator. Newspaper stories about debtors landing in jail give credibility to a threat that many of them have been making right along.
But that doesn't make the threat any more legitimate. Debtors (and supposed debtors) should be aware that being jailed over a debt is -- remotely -- possible, in some jurisdictions, under very particular circumstances.
But for this to happen, the debt must be in the hands of an actual attorney who has filed court papers and served you with them. Further, a judge must have been irked enough at your failure to appear in court to sign a bench warrant.
Collection agencies have none of these powers, so you shouldn't let an agency collector get away with this threat. Demand to know:
-- What is the index number of the action against you, in what court.
-- Who is the attorney bringing the action, and where is he or she licensed to practice.
This information can be checked, so if you get vague answers it is likely that there is nothing behind the threat. At least not yet.

Tuesday, October 5, 2010

Regulators to the rescue?

BISMARCK, N.D. -- Only some of the buzz here at the annual meeting of the North American Collection Agency Regulatory Association is about Sen. Al Franken's proposed "End Debt Collector Abuse Act," S. 3888.
The optimistically titled bill would, if passed, make it illegal for collectors to seek arrest warrants for debtors, a practice that the Minneapolis Star Tribune exposed in a series in June. (However, material describing the bill says it will not increase the burden on the Federal Trade Commission or add to enforcement costs. Meaning, it won't increase resources for enforcement of the FDCPA's many existing protections, which are going widely ignored already.)
The state-level regulators also heard from an FTC official about other initiatives to address the continuing increase in complaints about collectors. As he was speaking, the agency released a policy statement about what collectors can and can't do when trying to collect debts of the deceased. The proposed rule would draw new boundaries for who collectors could speak to, and what they could and couldn't say, about the dead's finances.

This is just the initial step of a potential rule, and it looks like protections for the living will take a while longer still. The practice of debt buying, where people's overdue accounts are passed around  on an open market, is getting a look. The agency sought data from nine large debt buyers in 2008, and plans to issue a report on its findings soon, the agency representative to the NACARA conference said. One of the problems that have been cited with debt sales is a lack of supporting account information that would show, or not, whether the supposed debtor really owes the money. The FTC said that the new Consumer Financial Protection Bureau being set up in Washington will have the authority to require credit issuers to provide documentation when they sell accounts. However, the agency, created by the Dodd-Frank financial reform act, has a full plate of issues and could take years before it gets around to dealing with collection.

Sunday, September 5, 2010

Tighter regulation would benefit industry

One of the attendees at a book talk last week in Buffalo had an interesting question. With scammers operating so widely as collectors, the question was, wouldn't the collection industry actually benefit from tighter regulation and enforcement?
I had just finished making my argument for national licensing and bonding of 3rd party collection agencies and higher penalties under the FDCPA. Last I heard, the collection industry and ACA International were not calling for tighter regulation of the industry. But I agree with the premise of the question, that legitimate agencies would be better off if the noncompliant ones were more effectively dealt with. I think agencies are concerned about facing yet more regulations, and I agree that  there are enough rules to protect debtors and consumers already. The problem is a lack of effective enforcement. As the debt buying industry accounts for more and more collection work, it seems like the compliant collection offices will have a more and more difficult time matching the returns of competitors who will say anything to squeeze money out of people.

Sunday, August 22, 2010

Welcome and a glossary of collection terms

Welcome to Coping with Collectors, a companion web log to the book "Fight Back Against Unfair Debt Collection Practices." This blog is independent of collection attorneys, debt consolidators, debt counselors and other companies. Although these services can be helpful and necessary, I believe it is also necessary to have information sources that are not backed by commercial interests.
The reason for this blog, and for the book, is an explosion of complaints about collectors. Based on my reporting, I believe the complaints indicate a surge in unfair, threatening and misleading practices -- and my short but eye-opening experience as a collector reinforced that belief.
In this economy, consumers are defaulting on debt in record numbers. Bankruptcy reform has closed off the option of erasing debts for many people, leaving them to deal with collectors.
People should pay their legitimate debts, and they should avoid getting in over their heads. But when they can't pay bills on time, they don't deserve to be threatened or harassed by telephone bullies.

In the coming weeks this space will address topics such as identifying a collection agency, stopping collection calls, negotiating a debt settlement and deflecting harassment. Links to basic information can be found under the Resources section. We will build on that, discussing how collection rules and consumer rights play out in the real world. Down the road we'll explore how to read and understand a credit report -- a major tool used by debt collectors -- and how to recognize and document illegal acts.

We'll also watch how new financial regulations affect the collection arena. Will cell phones continue to be fair game for collectors? Will penalties for violations finally be raised from their 1977 levels? And what about the debt market -- will people's account information continue to be passed around freely?

To get the discussion going, here is a look some common collection terms. The jargon of the industry provides a window on the collection process:

-- Payment in full, or PIF: A collector's first order of business is to demand this amount, the full balance showing on your account.
-- Settlement in Full, SIF: A fraction of the full balance that has been agreed upon that will erase the debt, if paid immediately.
-- Monthly payment arrangement, MPA: An agreement whereby the balance is broken down into period payments that meet the debtor's budget.
-- Paper: Unpaid debts, and the account information associated with them. "Fresh paper" refers to debts that have recently come into collection.
-- Charged-off: A debt that the creditor has written off as uncollectible. However, that does not mean that collection attempts have stopped. Most collection agencies work charged-off debts.
-- Out of stat: Debts that have legally expired under state law. This means that the creditor can no longer sue for recovery, but collection attempts can continue.
-- Fee: In collections, fee refers to the commission revenue that the agency makes on a given account. For example, an account with a commission rate of 25 percent will generate 25 cents in fee for each dollar collected. Individual collectors are rated and rewarded based on the amount of fee they generate.