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The Debt Collection Industry's Rotten Spots

By Tracey E. Schelmetic
TMCnet Contributor

While most debt collectors are legitimate businesses following legal tactics, every bunch of apples has a few bad ones. Unfortunately, the bad apples in the debt collection basket seem to make a lot of calls. Complaints over illegal, abusive and threatening behavior from debt collectors tops the list of consumer complaints to the U.S. Federal Trade Commission (FTC (News - Alert)). (Over 140,000 in 2010 alone!)

Smart Money recently compiled a list relating to bad debt collection behavior. Called "10 Things Debt Collectors Won't Say," it outlines the worst of the behaviors. I've summarized some of the most egregious.

Saying anything to get debtors to pay. Tactics here include threatening to send the law after debtors who owe money, threatening to deport debtors, using abusive language and even threats of violence. Debt collectors have also been known to misrepresent themselves on the phone to try and put some weight behind the threats. The trade association for debt collectors, ACA International, says it despises these tactics as much as the victims of the threats do.

Hiding the fact that debtors can ask that collectors stop calling. According to federal law, says Smart Money, if a debtor asks a collection agency to stop calling, they must do so. The agency can make further calls only if there is a change to a debtor’s status (a lawsuit is being filed, for example).

On occasion, debt is inflated by collection agencies. Among some unscrupulous debt collectors hoping to make more of a profit, there are often "errors" in arithmetic and unsavory extra fees (finance and "convenience" charges and "credit insurance,” for example) added on.

Tricking consumers into repaying old debts. Collection agencies are still allowed to collect on old debts, writes Smart Money, though they are unable to threaten legal action if the debt is beyond the statute of limitations. The problem is, some bad apples induce consumers to pay down a little on an old debt, which essentially "restarts" the clock on the debt.

Threatening to garnish benefits without a hearing. Before a collection agency can go after a debtors federal benefits like Social Security or unemployment, the collection agency must first file (and win) a lawsuit and receive a court order. Some players in the debt collection industry imply to debtors that they can skip straight to the garnishing part.

A lawyer for the debt collection industry association, ACA International, told Smart Money that the industry supports much of the legislation that has been proposed to crack down on these nefarious practices.

Not sure where you stand on a debt? ACA International maintains a Web site that explains consumers' rights and provides advice on how to better deal with collections agencies. The site can be found at AskDoctorDebt.com.