Teresa McUsic

Understanding the do’s and don’ts of debt collectors

Teresa McUsic

Credit cards are the No. 1 source of debt sought by debt collectors, according to a report from the Consumer Financial Protection Bureau.
Credit cards are the No. 1 source of debt sought by debt collectors, according to a report from the Consumer Financial Protection Bureau. AP

One of the first national studies on the 70 million American consumers involved with debt collectors sheds a sobering light on how debtors feel they are treated.

Last week, the Consumer Financial Protection Bureau released a survey of 2,100 consumers with a credit report, randomly chosen to answer 67 questions on their dealings with credit collections.

The good news: Two-thirds of those surveyed did not have any dealings, good or bad, with collectors.

The bad news: Half of those who were contacted by a collector in the past year either did not owe the debt, were given the wrong amount or were contacted about a debt owed by a family member.

Even worse, 27 percent felt threatened by their collector’s behavior.

“The bureau today casts light on troubling problems in the debt collection industry,” said Richard Cordray, CFPB director, in a statement. “More than one-in-four consumers report feeling threatened by a debt collector, and a majority of those contacted about debt say the calls persist even after requests to stop. The bureau is working to clean up abuses in this industry, and to see that all consumers are treated with fairness, decency, and respect.”

The report shows a picture of what past-due debt looks like.

The largest amount of debt in collections is from credit cards (44 percent) followed by student loans (28 percent), auto loans (18 percent), mortgages (12 percent) and payday loans (11 percent.)

Past due accounts were dominated by medical bills (59 percent), telecom bills (37 percent), utility bills (28 percent), taxes (21 percent), legal judgements or expenses (14 percent) and rent (11 percent).

Those in collection status were likely to have two or more debts (83 percent). Half with collection issues had annual income under $20,000.

ACA International, the largest trade group of collection agencies, attacked the CFPB survey for representing a small fraction of the 77 million Americans in debt collection today and for asking leading questions in its survey.

Tom Morgan, executive director of the American Collectors Association of Texas, also suggested that unregulated players in the industry are at fault for not adhering to a number of federal laws that monitor practices of collectors.

ACA Texas takes complaints through a consumer hotline (800-957-3328) or at www.TexasCollectors.com.

“What we see coming into the office in complaints is generally not from our members,” said Morgan. “We represent the better part of the industry.”

Also at issue is a lack of financial literacy on the part of debtors, Morgan said.

“We have financial education in the high schools now in Texas,” he said. “But while they teach you to balance a checkbook, they don’t teach you about what happens if you don’t pay your bills.”

Morgan said he sees consumers walk away from their cell phone company while under contract and pick up a new cell phone, not always understanding that if the contract isn’t paid off, it will go to a collection agency.

He said those in collections often use caller ID to avoid picking up the phone, causing the collection agency to call multiple times a day to find a time when they may pick up.

At the same time, consumers often aren’t aware of the multiple laws that can protect them, Morgan said.

“They do not know their rights,” he said. “Any third-party collector is required to send to the alleged debtor a letter either before or within five days of communication with required language. You can tell them to stop calling and you have the right to dispute a debt.”

Scam artists also plague the collection industry, either making up debt or working with inaccurate or incomplete records.

“If a consumer sees nothing in writing, or someone who demands payment immediately, that’s a red flag,” he said.

The ACA Texas website has information on how to work with a debt collector and your rights on its website. Other places to learn more or to make a complaint are the CFPB at www.consumerfinance.gov or 855-411-2372 or the Better Business Bureau at www.bbb.org/central-texas or 800-621-8566.

Teresa McUsic’s column appears Saturdays. TMcUsic@SavvyConsumer.net

What collectors can’t do

Take your home or garnish your wages. Generally not, but wages can be garnished for back taxes, student loans, court-ordered child support or spousal maintenance, and with a court judgment bank, savings and investment accounts can be garnished for debt. Your home can be foreclosed on through a mortgage default or owing property taxes or federal taxes.

Put you in jail or threaten to put you in jail. A criminal judgment for writing a bad check for goods that is not repaid, however, could include jail time.

Charge above the debt amount. Collectors cannot charge more than the debt unless interest charges, fines and attorney fees are included in the original agreement with the debtor.

Talk to others about your debt. Collectors can, however, call your neighbors or relatives to find you and can talk to your employer to verify employment and health insurance.

Make repeated calls over a short period of time. If the debtor wants to eliminate calls, he or she may request in writing and send the letter by certified mail for the calls to stop. The collector can then make one final call after receiving the letter.

Sources: American Collectors Association of Texas, Texas Attorney General