Debt collectors: Why are they so abusive?
When a story emerges about egregious behavior in a profession, it鈥檚 always important to ask: 鈥淚s this an isolated case or widespread practice? In the case of the debt-collection industry, the verdict is in: A tsunami of abusive practices is hitting thousands and sometimes millions of Americans and there鈥檚 no sign of a let-up.
I should know.
Hounded by predatory debt-collection agencies after the failure of our oil-related business, my wife, Kathy, and I created a debt-collection company to do things differently. For starters, we treat people with respect even if they are going through hard times. That鈥檚 why it pains me to see my industry continue to abuse people when there鈥檚 a much better way. Here鈥檚 a look at five dimensions of that abuse and why the problem is so massive:
1.听鈥淪corched earth鈥� threats
These cases go way beyond what鈥檚 needed to prod someone to pay their debts, like the one involving who was behind on a debt around the time that her daughter died. A debt collector called to say that she better pay up, or he would dig up her dead daughter and hang her from a tree. In , a 10-year-old girl from Osceola County, Fla., answered the phone and a debt collector identified himself as an 鈥渙fficer.鈥� He said: 鈥淵ou better kiss your daddy good-bye. He鈥檚 going to be arrested tomorrow or the next day.鈥�
Not only are these threats obscene, they鈥檙e common: The Federal Trade Commission received more than 164,000 in 2011 about debt collectors. That doesn鈥檛 count complaints to other agencies at the federal and state levels, or the much larger group that is too afraid or embarrassed to complain.
2.听Convicted felons in a position of power and access
As consumers, we鈥檙e warned to be careful with our financial information because of identity theft. But what if criminals have access to confidential financial data all day long? One debt-collection company in Minnesota reportedly had at least with felony or gross misdemeanor convictions between 2005 to 2010. In another case, a convicted felon was hired as a debt collector and鈥攕urprise!鈥攕he stole credit-card data and went on a .
Sometimes criminals hit the jackpot and get to wear badges. In Massachusetts, many debts are collected by state-appointed , who carry badges and batons and can literally knock on a citizen鈥檚 door at midnight, demanding payment. A 2006聽review of records by the Boston Globe indicated that 87 constables had criminal arrest records.
3.听Record-keeping that鈥檚 somewhere between negligent and criminal
When you pay off a debt, you鈥檇 think that fact might be recorded somewhere. In the debt-collection business, such details apparently are optional. paid off her $260 debt but the collection company couldn鈥檛 be bothered to record that fact after they cashed her check. Over the next decade she battled other collection agencies to which her account had been sold and her original $260 grew with interest to $5,818 before she finally prevailed. In 2008, a bankruptcy trustee in Massachusetts one debt collector of trying 5,600 times to collect on debts that had already been wiped out through bankruptcy proceedings. 聽
The record-keeping problem is widespread enough that it prompted Minnesota Attorney General Lori Swanson to file suit against Midland Funding, a debt collector. She : 鈥淭his company has a history of targeting people and assuming they owe them money until the citizen can show they don鈥檛 owe the money鈥�. It really flips the process on its head because a debt collector or debt buyer shouldn鈥檛 be targeting anybody for payment of a bill unless they substantiate that a person actually owes the money.鈥�
4. Extracting money from grieving relatives
What are the right words to say to a person who鈥檚 just suffered the loss of a spouse? If you鈥檙e a debt collector, it鈥檚 simple: 鈥淵ou can pay by check or money order.鈥� A was struggling with the loss of her husband when the debt collector called. Even though she was not legally obligated to pay her husband鈥檚 bill, that did not prevent the collector from hounding her up to 10 times a day. One consumer-rights attorney, William Howard, : 鈥淐ollectors are starting to realize just how much money you can get from someone when they are at their most vulnerable.鈥�
5.听The profitable, perverted lawsuit mills
Remember the 鈥渞obo-signing鈥� scandal, where some mortgage lenders were signing as many as 10,000 documents a month, claiming to know the circumstances of the borrowers? That鈥檚 child鈥檚 play compared to debt collectors, some of whom sign 4,000 lawsuit documents . It鈥檚 only the first step in a brilliant, ruthless system to get courts to do the dirty work for debt collectors. For as little as , collectors can take those robo-signed documents and file suit electronically. Then they often send a plain letter by first-class mail, notifying people that they鈥檙e being sued. In some areas, as many as 94 percent of defendants don鈥檛 show up in court, either because they didn鈥檛 realize they were being sued, or they鈥檙e too scared. Of the ones who do appear, sometimes only brings a lawyer.
The result? The gavel drops and a 鈥渄efault judgment鈥� is issued. Now the debt collector can sit back and grin, because the court now sees to it that the collector is paid, using threats of wage garnishment, arrest, strip searches, and jail. In New York City, a study found that debt collectors more than 500,000 debt-related suits between January 2006 and July 2008.
Debt collectors use these extreme methods because they鈥檙e expedient. Instead of generating six- to seven-figure revenues by working with debtors over several years, they salivate at the prospect of eight-figure revenues they can bank immediately by intimidating and harassing debtors. Until these five areas of abuse are eliminated by regulators and our elected officials, debt collectors will continue to hold their premier position in the hall of shame.
鈥� Bill Bartmann is CEO of , a debt-collection company in Tulsa, Okla., and has helped to聽settle the debts of more than 4.5 million people without ever filing suit against a customer.
