THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Thursday, January 25, 1996 TAG: 9601250400
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY VIVIAN MARINO, ASSOCIATED PRESS
DATELINE: NEW YORK LENGTH: Long : 158 lines
Rising consumer debt is creating some concern among lenders, economists and lawmakers, but at least one group quietly cheers the borrowing binge: the nation's 6,300 bill collectors.
Collection agencies say business is booming as more creditors report an increase in late payments and loan write-offs, and they're preparing for a busy spring and summer when overdue accounts from the holidays are passed on.
``We expect to have plenty of work to do,'' said Tom Haag, who runs State Collection Service, a Madison, Wis., collection agency. ``If debt is on the increase . . . bad debt will increase as well.''
Now over the $1 trillion mark, consumer indebtedness has been climbing steadily in recent years.
While most individuals pay their bills in a timely manner, at some point they can become financially overburdened. A job loss, medical problem, divorce, or poor money management caused by overspending can easily push anyone over the edge and onto a collection agency hit list.
It's best to work with a creditor before an account reaches this stage - at the least to avoid a damaged credit rating. And understanding your rights and responsibilities can make encounters with collectors less intimidating.
``Many people don't even know they have rights,'' said Benjamin F. Dover, author of ``Back Off! the Definitive Guide to Stopping Collection Agency Harassment.''
``This is an industry that preys on the embarrassment and the ignorance of the American consumer.''
The Fair Debt Collection Practices Act is aimed at protecting the consumer by outlawing unfair collection practices by third parties, including harassment and any misrepresentation by collection agencies.
Collectors, for instance, cannot call you before 8 a.m. or after 9 p.m., cannot use abusive language; cannot tell others about your debt, even family members; and cannot collect more than you owe.
Targeted individuals can get debt collectors to stop dunning them with letters and phone calls by simply writing them to cease all communication.
``That can give people a breather,'' said Robin Leonard, a Berkeley, Calif., attorney and author of ``Money Troubles.''
The debts won't go away and the creditors that hired the collection agency still can take legal action, ``but at least you've given yourself some time to think and plan,'' she said.
Haag, who also is president of the American Collectors Association, says most collectors abide by the federal collections act. He said the trade association has a strict code of ethics and tries to educate its 3,700 members about the law through regular classes and seminars.
``The problem is that even an occasional bad apple does damage the reputation of the industry,'' Haag said.
But critics say this industry has more than most.
``There are many debt collectors who are very conscientious and follow the strict letter of the law, but there are many, many, many debt collectors who try to get away with a lot more than the law allows and some who just simply blatantly violate it without caring,'' Leonard said.
``They don't have a lot of incentive necessarily not to break the law. There are so many little collection agencies that come and go. Their employees work on quotas. They're not highly paid and not overly educated and the turnover is high.''
The Better Business Bureau says debt collection agencies rank among the top 20 in terms of consumer complaints by industry.
The Federal Trade Commission, the main government agency that polices violations of the law, reported to Congress several months ago that it continues to investigate many consumer complaints of abuses by collectors, including: obscene language, racial and ethnic slurs; harassing phone calls at work; and false threats for nonpayment.
Dover, down on his luck and the target of a collection agency during the 1980s, said he has experienced some of these abuses firsthand.
``I was told by a collector for a major credit card company that I was going to be indicted for fraud and do time in jail,'' he said. ``At one point the debt collector told me I was worth more dead than alive.''
In researching his book, he says, he has encountered other horror stories: The young woman who was told to become a prostitute to pay off her debts; the immigrant who was threatened with deportation; the elderly man who was urged to sell his glass eye.
Leonard recommends debtors first try to work out a repayment plan with the creditors before dealing with collectors.
``They're much more amenable to negotiation than a collector . . . who keeps a share of what is collected,'' she said. ``Creditors have greater incentive to work with you - first, because they want to get paid, but also because they see you as a potential customer again.''
Leonard warns, though, that not all creditors would be willing to put aside their business arrangements with a collection agency.
``Some will negotiate a repayment plan with you and then have the agency take the money; others may have you make two or three payments (to the agency) then take the debt back,'' she said.
A few creditors, particularly larger ones, try to bypass collection agencies altogether.
Some bank executives say they'll wait until an account is six to nine months delinquent before turning it over to an agency. In-house collectors might first try to negotiate a lower interest rate, lower the minimum payment or even waive interest for a time.
Craig J. Costanzo, chairman of Management Adjustment Bureau Inc., a Buffalo, N.Y., collection agency, says reputable agencies will try to do the same on behalf of the creditors.
``I know this sounds corny, but I almost approach this business as being a social worker,'' he said. ``We're here to help the debtor resolve the problem; if we don't, someone else will be on the job.''
In 1994, the most recent year for which data are available, 290 million accounts totaling $84 billion were handed over to collection agencies, up from 1993 when there were 226 million accounts worth $79 billion, according to the collectors association.
In 1992 there were 227 million accounts totaling $75 billion.
Among the biggest areas for debt collection: bounced checks, credit cards and late payments for medical care, according to the association.
The average recovery rate for collectors is about 18.5 cents on the dollar. Of that, debt collectors keep between 25 percent and 35 percent. ILLUSTRATION: Color illustration by Tonia Cowan/Associated Press
[side bar]
KNOW YOUR RIGHTS
It's best to work with a creditor to avoid having your debt
handed over to a collection agency. But if it happens, you're
protected by the federal Fair Debt Collection Practices Act. It
applies to third parties, such as debt collectors, but not to the
original creditors:
A debt collector may not contact you before
8 a.m. or after 9 p.m.
Family members, friends or acquaintances can be contacted to help
locate you, but the collector cannot discuss details with them.
If the debt collector knows you have a lawyer, the collector must
contact the lawyer, not you.
A debt collector may not use harassing or abusive tactics, such
as obscene language; false statements about who he is; threats to
make your indebtedness public or to use force against you; and
sending documents that look like official court or government
documents.
A debt collector may not collect more than what is owed and may
not deposit postdated checks without notifying you in advance.
Within five days of contacting you, a debt collector must send a
written notice that includes information about your debt, the
creditors involved and the fact that you have 30 days to dispute the
debts in question.
A debt collection agency must stop contacting you if you ask it
to do so in writing. However, the agency can subsequently tell you
it is advising the creditor to sue and may report your nonpayment to
a credit-reporting agency.
-
If a bill collector violates federal law, you can contact the
Federal Trade Commission in Washington or any of its 10 regional
offices. The Virginia Consumer Affairs Office also fields complaints
and offers advice. Its local offices: Norfolk: 664-4888; Virginia
Beach: 426-5836
The Better Business Bureau also handles complaints. Its Norfolk
number: 627-5651.
KEYWORDS: CONSUMER DEBT COLLECTION AGENCY by CNB