Beware, Bully Boy Bill Collectorsby
Until 1989, Carver H. Jones described himself as a typical Yuppie, complete with BMW, Rolex, and generous credit lines. Then, his Houston-based business folded. An auto accident left him unable to work. And the phone started ringing. In a constant barrage of phone calls, Jones says, "screaming and yelling" bill collectors threatened to tell the Internal Revenue Service he had committed fraud on his tax returns, have him "picked up" by the local authorities, garnishee his wife's wages, and damage his professional reputation. "If you had told me years ago that debt collectors treated people this way, I would have thought you were exaggerating," says Jones. "You have to experience it to believe it."
Jones's ordeal is hardly unique these days. Complaints to the Federal Trade Commission, which enforces the federal Fair Debt Collection Practices Act, have doubled since 1990. State attorneys general, who are also reporting increases, are pursuing complaints more vigorously. They have taken action against such high-profile targets as a unit of ITT Financial Corp. and a collection agency used by American Express Co. The House Banking, Finance, and Urban Affairs Committee's subcommittee on consumer affairs recently held hearings to "examine growing complaints of deceptive and abusive debt collection tactics." Now, it's drafting revisions in the federal law. Although the present law imposes restrictions on collection agencies, it has significant loopholes.
The current economic slump is behind the surge of collection activity. Millions of debt-ridden consumers have fallen behind on bill payments. Beset with waves of defaults and bankruptcies, creditors are turning accounts over to collection agencies earlier and encouraging them to collect more from customers who may still be able to pay. Says Robert A. Sherman, chief of the Massachusetts Attorney General's Consumer Protection Div.: "It boils down to trying to put as much pressure as possible on the consumer to squeeze out that last dollar."
`ROCKING ALONG.' Executives in the debt-collection business discount the severity of the problem. "The collection industry is not becoming vicious," says Charles D. Bertrand, president of the 3,600-member American Collectors Assn. and owner of a Houston agency. "It's just rocking along the way it has always done." Complaints are up, he says, not because there are necessarily more violations, but because white-collar workers having their first contact with collectors are more sensitive to the calls.
"The vast majority of companies are doing a good job at abiding by the law," says Sherman. But he adds that complaints in his state jumped 70% in two years. Part of the problem, says one agency executive, is that this is "very much a Mom-and-Pop industry. Most companies are run by individuals who . . . follow practices that were acceptable at some time and may not be today. It takes time to change that culture."
The alleged abuses range from annoying to unconscionable. Common complaints center on repeated, same-day calling and obscene language. Others involve calls to third parties, such as co-workers, family, or neighbors. That's what happened to Sandy Griffin, an out-of-work single mother living in Mill Valley, Calif. After 25 years of keeping up on payments on a charge card, she fell behind. Constant phone calls from a debt collector were irritating. But then, Griffin's neighbor ran up to her with an "emergency" message to call her debt collector. "I was embarrassed. I was humiliated. It was completely over my boundaries," says Griffin.
Other reported abuses are using ethnic and racial slurs and threatening deportation and jail. The most egregious involve children, says Sherman. "We've had complaints where children were told: `We're watching your house,' or where a child answers the phone and says his dad is not in and the collector says: 'Don't you know it's a sin to lie?' "
Rather than simply go after abusive debt collectors, state attorneys general are targeting creditors and their in-house collectors, which are not covered by the FDCPA but may be subject to state laws. State laws are often broader and more stringent than the federal statute. The Wisconsin Justice Dept. recently settled a case with ITT Consumer Financial Corp., a subsidiary of ITT Financial Corp., which is a consumer lender covered under Wisconsin's debt-collection law. Its collectors allegedly used abusive language and made calls to a consumer's family or employer, illegally identifying themselves as debt collectors. The company, which paid a $1.3 million penalty, denied violating the law.
The FTC recently wrapped up what it calls a precedent-setting action against American Family Publishers, a seller of magazine subscriptions. The FTC said AFP violated the Federal Trade Commission Act "when it hired collection firms and knowingly approved or assisted their use of deceptive debt collection practices." The FTC said AFP knew its collection agency was sending out letters falsely claiming that it intended to file suit, which violates the FDCPA. Under the consent agreement, AFP must monitor its debt collectors more closely.
`TOO VAGUE.' American Express, a big user of collection agencies, has also heard from enforcement agencies. After receiving complaints from AmEx cardholders, the Massachusetts Attorney General's office notified Capital Credit Corp., a collection agency used by AmEx, that it intended to file suit. The complaints included reports that Capital Credit employees had told third parties about consumers' debts and threatened debtors that they would be thrown in jail for not paying their debts. The Attorney General negotiated a $144,000 settlement with Capital Credit and asked AmEx to sign an agreement stating that it would monitor the agencies it uses more closely. Says an AmEx spokeswoman: "We have stepped up our monitoring of collection agencies and now contractually obligate collectors to tell us about complaints, so we won't end up in a situation like that again." AmEx has stopped using the agency. Capital Credit did not admit any wrongdoing.
Consumer advocates hope the attention being paid to collectors will lead to a revised federal law that is more specific and broader in scope. The act, says Sherman, is "too vague. It outlaws harassing conduct, but what's harassment?"
Until the federal law is strengthened and the industry learns how to do a better job policing itself, bill collectors themselves can expect more harassment--from angry consumers and increasingly determined regulators.