[NOTE: It will be a great day when the federal and state tax
agencies turn their collections over to private collection companies. You, the consumer, have more power to control the private collection companies.]

Sleazy debt collector tactics.


The Basics
Sleazy new debt-collector tactics

It may not be your debt, but it could be your problem. Collection agencies are bullying blameless consumers into paying debts they never owed.

By Liz Pulliam Weston

Lisa Burk isn't Lisa Sterns, but Allied Interstate refused to believe her.

The Minneapolis collection agency repeatedly called Lisa and her husband, Michael, according to a lawsuit filed by the Minnesota attorney general, and demanded that the couple pay a debt owed by one Lisa Sterns. The couple, just as repeatedly, told the collector they didn't know any Lisa Sterns and asked the company to stop calling.

Allied ignored the couple's requests. At one point, the collector insisted that the Burks were lying or, if Lisa Burk were not Lisa Sterns, that she knew Sterns and could tell Allied where to find her.

It took intervention by the attorney general's office for the calls to
finally stop.

The Burks' experience with abusive collection agency tactics was annoying. Paul Alappat's encounter with a collector was expensive.

Alappat said he was called two or three times by Buffalo, N.Y.,collection agency Capital Management Services about a Chase Bank credit card debt. Alappat told the collector he had never possessed a Chase Bank card and asked them to stop calling him.

Banks and insurers check your credit. So should you.

When he applied for a home equity loan two years later, however, the collection showed up on his credit report. His lender told him that if the $394.74 debt were not resolved, the loan couldn't be made.

"Since I was in a hurry to get the loan approved," Alappat said, "I paid the full amount, including the interest."

Bullying the innocent Alappat's got company. Regulators say collection agencies increasingly are harassing innocent people and badgering consumers into paying money they don't owe.

Consider:

* One of the largest collection agencies, Capital Acquisitions and Management, and its subsidiary, RM Financial Services, agreed in March to pay a $300,000 civil penalty as part of a settlement with the Federal Trade Commission over abusive debt collection practices. Some of the debts the companies tried to collect had already been paid or wiped out in bankruptcy court, the FTC charged.

* Minnesota's attorney general in June sued Allied and another collection agency, JBC and Associates, saying the companies used illegal tactics to coerce consumers into paying invalid debts. Allied repeatedly called innocent consumers despite requests to stop, the regulator said, while JBC ignored written disputes filed by consumers.

* Applied Card Systems hassled relatives, neighbors and employers with repeated phone calls in its efforts to track down debtors, according to the FTC. The company ignored requests to stop calling and its representatives sometimes used obscene language when its hapless targets protested that they didn't know how to contact the debtors. In August, the company agreed to a consent decree that prohibits it
from harassing consumers in the future.


Collectors cross the line Abusive and illegal collection tactics are nothing new, unfortunately. But the new economics of debt collection are leading to increasingly belligerent campaigns, including dogged pursuit of innocent consumers.

"Debt collection companies in general are getting much more aggressive," said Prentiss Cox, Minnesota assistant attorney general. "They're increasingly crossing the line into abusing and harassing people."

As I discussed in "Zombie debt collectors dig up your old mistakes," there is now a booming market in the pursuit of debts so ancient that they used to be considered uncollectible. Last year, more than $75 billion of such debt was sold to collection agencies, up from virtually nothing 10 years ago.

Because the old liabilities cost collectors as little as 25 cents for each $100 in face value, companies can make a profit if they can get debtors to repay even a tiny fraction. Along the way, some collectors realized they also could squeeze money from people who didn't even owe it.

Some consumers pay because their finances are so disorganized they don't realize the debt isn't theirs. Others are coerced into paying by illegal threats of lawsuits or ruined credit. Some, like Alappat, pay rather than risk losing a desired loan.

'Why are they allowed to do this?' The collectors are nothing if not persistent. Mary Kitzmann of Alexandria, Minn., endured four months of calls from Allied over a
debt she didn't owe before the state attorney general's office succeeded in getting the company to admit it had made a mistake. Five months after that admission, Allied called Kitzmann again, trying to collect the bogus debt.

Some consumers endure collection attempts from a string of different companies as one collector sells its uncollectible debts to another.

Last year a collector tried to dun Phyllis Maurice of Whittier,Calif., for more than $23,000, saying she owed the money in advertising services for two businesses, a detective agency and a psychic consultancy.

"I have been a preschool teacher for over 30 years and have never owned (either business)," Maurice said.

Maurice enlisted the help of an attorney friend who wrote the collector a strongly worded letter, demanding proof that the debt was Maurice's. Maurice hasn't heard from that collector, but recently she got a call from another collection agency about the same debt.

"Why are they allowed to do this?" Maurice fumed. "What can we do to stop these scoundrels?"

Maurice was actually fortunate because she had access to an attorney who could advise her of the law. Many consumers have no idea of their rights in such situations, Cox said.

Your rights and how to use them
Under the Fair Debt Collection Practices Act, collectors are supposed to advise consumers that they have a right to dispute the debt, butthat if consumers don't do so promptly -- and in writing -- the collector can assume after 30 days that the debt is valid.

Once collectors are notified that they've contacted the wrong party orthat the consumer denies owing the debt, the companies are supposed to provide proof of the debts' validity. If they can't supply the proof,collections are required by law to cease.

Of course, some collectors simply ignore laws designed to protect consumers. But debt experts say your chances of getting a collector to back off improve when you know your rights and assert them forcefully. (For more, read "The 7 guaranteed rights you have as a debtor.")

If you're contacted about a debt you don't owe:

* Get the name of the collector, its address and a telephone number. You can tell the collector on the phone to stop calling, but that won't preserve your rights under federal law.

* Send a certified letter, return receipt requested. Make it clear the collector has contacted the wrong party, that you don't owe the debt and that you don't want to be called again.

* Contact regulators. If the collector continues to call, seek help. Typically, your state's attorney general office handles complaints against collectors. You can also complain to the Federal Trade Commission, which typically doesn't intervene in individual cases, but may act if it sees a pattern of abuses.

* Monitor your credit reports. If a collection agency posts a bogus debt on your credit report, dispute the item immediately with the credit bureaus. Include copies of the certified letter you sent the collector and any complaints you filed with regulators. Don't wait until you're about to apply for a loan to check your credit report; you'll want at least a few months' head start to dispute any errors.
(Read more here on credit reports.)

* Consider a lawsuit. Consumers can bring lawsuits against collectors that violate the Fair Debt Collection Practices Act, either on their own behalf or as part of a class action. Contact the National Association of Consumer Advocates for referrals to attorneys who handle such cases.

Liz Pulliam Weston's column appears every Monday and Thursday,exclusively on MSN Money. She also answers reader questions in the Your Money message board.