NY Times

Consumer Tools for Holding Bill Collectors at Bay

When Stacey Edwards, an employee of the Florida juvenile justice system, moved out of her apartment complex in Tallahassee last July, she didn't think there would be any problems. After all, she said, she had given what she believed to be proper notice and left the apartment in good condition. But last month, without hearing a word from the apartment managers, she said she began receiving telephone calls from a debt collection agency demanding $815 for unpaid rent and cleaning fees.

A collector from Professional Debt Mediation in Jacksonville had called her four times at work, she said, asking for payment â?? and to be transferred to the personnel office so he could start garnishing her wages. "I was in tears on the telephone," said Ms. Edwards, 34.

She found online advice for handling the situation at www.fair-debt-collection.com, run by Rich Rafferty of Wrightstown, N.J. From reading the information at the site, she said, she concluded that some tactics used by the collector may have been in violation of the Fair Debt Collection Practices Act. She filed a complaint with the Federal Trade Commission, she said, and though her case is not yet resolved, the dunning calls have stopped.

George Alexander, the operations manager at Professional Debt Mediation, said he was forbidden by law to comment on Ms. Edwards's case.

While statistics are hard to come by, anecdotal evidence suggests that collection efforts by both third-party bill collectors and creditors themselves have been rising in number and sophistication. Some consumers complain of being barraged with calls from multiple collections agencies, while others say they are urged to take on new loans to repay existing debt. Some, like Ms. Edwards, say they are asked for money that is not owed. The F.T.C. says that consumer complaints about bill collection have risen but that it can not provide numbers.

The trend toward more aggressive collections is easily explained: consumer credit in November, the latest month for which data is available, jumped by a record $19.8 billion, to $1.65 trillion. The recession and rising unemployment, meanwhile, have made it harder for many people to pay their debts, leading to high levels of loan delinquencies and personal bankruptcy filings. In Congress, efforts are under way to make it harder for consumers to put off debt collectors by declaring bankruptcy. The House and Senate have approved separate bills, which are in conference committee.

Through the Fair Debt Collection Practices Act, enacted in 1996, consumers are protected from third-party debt collectors who engage in unfair, deceptive or abusive practices. Collectors, for example, are not permitted to use obscene or profane language or call before 8 a.m. or after 9 p.m. They are also prohibited from making false statements while trying to collect a debt.

Consumers can dispute a debt in writing within 30 days of being contacted by a collector, and collectors may not try to collect the debt during that time until they provide documentation of what is owed.

In Ms. Edwards's case, she discovered that the collector could not threaten to garnish her wages without first obtaining a court judgment. She also learned that she could stop the calls at work.

"If you say, `I am not allowed to receive calls or my boss won't let me take personal calls,' then they must stop communications at work," said Thomas Kane, director of the F.T.C.'s Debt Collection Education and Enforcement Program.

Mr. Kane also noted that the law provides a "shut up" provision, which Ms. Edwards ultimately used.

"It permits consumers to write a letter to third-party collectors saying, `Do not communicate with me about this debt,' " Mr. Kane said. "The collector may communicate one more time to say what they're going to do, but may not try to collect that debt anymore," although it could take other legal action. A summary of the law can be found at www.ftc.gov/bcp/conline/pubs /credit/fdc.htm.

Though the debt-collection law offers a wide range of protection from third-party collectors, it does not cover in-house collectors of lenders like banks and credit card companies. A section of the Federal Trade Commission Act, however, prohibits unfair or deceptive practices by lenders, which could extend to collections.

Jody and Bernard Walters of Minneapolis said they had some problems recently with the MBNA Corporation (news/quote) after running up a $12,000 bill on their MasterCard, which carried a 17.99 percent interest rate, and falling behind on payments.

They said MBNA started turning up the heat in the fall of last year by insisting that they make a minimum payment of $1,000 by December, which they contended they could not afford. "They kept calling and calling," said Mrs. Walters, 51, a homemaker.

Mr. Walters, 49, a barber, said he had missed weeks of work because of hip replacement operations and prostate surgery.

MBNA organized a conference call, the couple said, involving them and representatives of the bank and Household International, a consumer credit company. The couple said the goal was to persuade them to take on another home mortgage to repay the credit card bill. They said they already had two mortgages on their home, including a low-interest home improvement loan from the Minnesota Housing Financing Agency.


After analyzing Household's offer, which would have included closing costs of $600 to $800, the couple rejected it. "It would have been a wonderful deal for them, but not a good deal for us," Mrs. Walters said.

She then turned to the Association of Community Organizations for Reform Now. The organization (www.acorn.org) has helped low- and middle-income people deal with questionable lending and collection practices. Acorn advisers helped the couple negotiate a settlement with MBNA in which the interest rate was reduced to 10 percent and payments were set at $136 for 12 months; terms would then be renegotiated.

Brian Dalphon, a spokesman for MBNA, says his company occasionally tries to arrange second mortgages for certain borrowers, and he confirmed that that was the case with the Walters. "We do it when it puts the customer in a better position," he said. "It helps them get back on their feet," Household International declined to comment.

Mr. Kane of the F.T.C. said it was unclear whether the tactic used in this case violated any law.

Lisa Donner, director of Acorn's Financial Justice Center in Brooklyn, said it was difficult to prove fraud or deception by direct lenders because each case was so complex. But she said it was not uncommon for creditors to push for additional loans. "Pressurized lending is rampant, and current law hasn't proven adequate to protect people," she said.

The climb in consumer credit has been accompanied by increased business for bill collectors. Debt collection has grown into a $13 billion industry, according to a report last fall by the Kaulkin Ginsberg Company in Bethesda, Md., and its online affiliate CollectionIndustry.com. From 1998 to 2000, collections rose 9 percent, the report said.

For their part, many debt collectors say that they strive to be fair and professional but that the rising levels of debt have made their work more difficult.

"We're seeing more defaults both in the early and late stages," said Jerry Kaufman, vice chairman of Nationwide Credit Inc., a collection agency based in Kennesaw, Ga.

Collectors have also had a harder time collecting. The average recovery rate was 11 percent in 2000, compared with 14 percent in 1998 and 17 percent in 1996, according to ACA International, a trade group for collection agencies.

Mr. Kaufman, who is also a spokesman for the group, said a goal among collection agencies is to collect before a debtor declares bankruptcy.

ACA says it has a strict code of ethics and tries to educate its members about the law through regular classes and seminars. "We are not the enemy," Mr. Kaufman said.