November 14, 2012
4 ways debt collectors should be regulated, and how you can protect yourself
The phone never stops ringing for about 30 million Americans who owe money and are hearing, perhaps a little too frequently, from debt collectors.
And what if you don't even really owe money?
Nearly 1 out of 10 Americans is dealing with debt collectors for an average of about $1,500 apiece, according to the Consumer Financial Protection Bureau.
Beginning in January, the watchdog group will offer more intense supervision of larger debt collectors -- including third-party collection firms with receipts of at least $10 million per year.
This extra layer of regulation could weed out some bad practices.
Debt-collection activity is often reported on a credit report. If it ends up on the wrong report, even consumers who should have good credit could easily be denied for a mortgage or car loan when they shouldn't face any hurdles.
We're talking about collection companies that might buy defaulted debt and collect the proceeds for themselves; companies that collect defaulted debt owned by another company in return for a fee, and debt collection attorneys who collect through litigation.
Many types of debt would be covered, including third-party student loan collections involving both federal and private loans.
Here's a look at what the federal watchdog would do:
* Watch and see whether debt collectors are upfront and identifying themselves clearly.
* Examine whether debt collectors are using accurate data. Did the consumer already pay that bill? Is this a case in which the collector doesn't have the correct debt or the right consumer?
* Make certain a consumer-complaint and dispute-resolution process is in place.
* Look into whether consumers are being harassed. Is the collector using inappropriate language? Threatening to imprison the consumer? Threatening to call the consumer's employer?
Under federal law, a debt collector may call other people but only to find out where you live, your phone number or where you work.
The CFPB notes that debt collectors generally cannot contact those people more than once. And they may not discuss your debt with anyone other than you, your spouse, your parents (if you are a minor), your guardian or your attorney.
What should consumers do if they're getting calls?
First, always, always ask the collector to send something in writing, said Gerri Detweiler, director of consumer education for Credit.com.
"When the debt collector calls, say, 'Please send me written notice of the debt,' " Detweiler said.
And then after you get something in writing, she said, make sure to request the collector to send verification or validation of the debt. Further information could be disclosed as to how far the bill goes back in time or how much interest has built on the original bill.
"It gives you a little bit of time to research your options," Detweiler said.
Detweiler notes that it's not unheard of for a collection agency to have the wrong number -- maybe an old cell phone number for someone else.
Consumer advocates said the CFPB's new oversight could help because it would apply to firms that handle about 63% of the annual debt-collection receipts.
About 175 debt collectors would be covered. Smaller firms would not fall under the bureau's jurisdiction, such as the well-known J.J. Marshall & Associates in Shelby Township, but are covered under other regulations.
Jan Kruse, director of communications for the National Consumer Law Center, noted that about a million consumers in the United States are sued each year by debt collectors in state courts for credit card, medical and other debt. Yet often, she said, the debt isn't documented by a collector.
Anyone without a law degree can find it impossible to navigate the state courts where debt collectors file their suits, she said.
The bureau has said that a system-wide problem appears to be the accuracy of the data that debt collectors are using to pursue consumers.
A creditor may first try to collect the money but then give up and outsource the collection. The debt could change hands, if you will, several times after being sold to various debt buyers. If it drags on long enough, the consumer may end up being contacted by multiple times by different collectors over the life of the debt.
At issue is whether a sufficient amount of information about the debt and the consumer changes hands when the debt is first sent to a collector.
The new role of the bureau adds another layer of oversight, said Mark Schiffman, vice president of public affairs for ACA International or Association of Credit and Collection Professionals.
"It will reinforce the issue of documentation," he said.
Consumers who rightfully owe a debt would still have the responsibility, if able, to pay it.
But the added oversight will help in cases where people feel they are being harassed aggressively or end up being asked to pay a bill that they don't owe. The bureau will look closely at how debt collectors process consumer disputes.
The political season may be coming to a close. But debt has a much longer shelf life, so some extra oversight is a welcome sound for many consumers.
* Consumers can get information about debt collection at www .askdoctordebt .org . The site was created by the ACA International Education Foundation.
* The Federal Trade Commission offers help with debt-collection questions; see www.ftc.gov.
* Typically, the FTC notes that you might want to talk to a collector at least once to see whether you can resolve the matter. But you do have the right to ask the collector — in writing — to stop contacting you. Make a copy of your letter. Send the original by certified mail, and pay for a “return receipt” so you’ll be able to document what the collector received it.
* Sending a letter or telling a debt collector to stop calling does not get rid of the debt. A creditor can file a lawsuit to collect the debt.
* You can report complaints with debt collectors to a state attorney general’s office via www .naag .org and the Federal Trade Commission at www .ftc .gov .
* In Michigan, consumers who believe they are being harassed by a debt collector can file a complaint with the Attorney General’s Consumer Protection Division at www .michigan .gov/ag .
* Watch out for fake debt collectors. The Michigan Attorney General’s Office has warned about a rash of calls from fake debt collectors who might call consumers repeatedly at their home, work, or on their cell phones and then refuse to provide their real name — or use some fake name. They might ask for your bank account and Social Security numbers. They also may tell you someone will come and arrest you if you don’t pay now.
Don’t give account information and request that any debt collection request be sent in writing.
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