Protecting You From Collectors
States adding limits, forcing agencies to prove debt exists
With many Americans in dire financial straits, states are cracking down to make sure aggressive debt collectors target only people who legitimately owe them money.
National consumer credit laws already prohibit collection agencies from harassing, deceptive or unfair practices such as telling neighbors or relatives about what is owed, or calling before 8 a.m. or late at night.
Since the recession started, at least a half-dozen states have adopted additional limits, like imposing statutes of limitations on collections and adding opportunities to punish abusive practices in court. Other states may follow suit.
Lawmakers are increasingly focusing on outfits that buy bad dept from credit card companies and other lenders for pennies on the dollar and profit when the collect more than they paid.
Some debtors agree they owe money. Some say they've already paid or are disputing their bills. They all report being bombarded with calls and subjected to foul language and threats of arrest or deportation.
In an effort to provide consumers with some protection, a North Carolina law that took effect this month requires debt buyers filing collection lawsuits to produce documents proving they're the ones owed the money. Trying to collect on a debt that a company should reasonably know is invalid could lead to lawsuits and civil penalties of up to $4,000 per violation.
Indiana has no similar law but does rely on a federal law, the Fair Debt Collections Practices Act, that requires bill collectors suing consumers to show documents in court proving they own the dept, said Molly Butters, spokeswoman in the Indiana attorney general's office.
She said a state law, the Indiana Deceptive Consumer Sales Act, prohibits debt collectors from intentionally overstating the amount of the debt they are trying to recover.
Indianapolis bankruptcy lawyer Mark Zuckerberg suggests the Indiana General Assembly create a law that would require creditors to prove they own the debt.
The lawyer said a paralegal in his office mainly works on cases in which bill collectors continue to go after clients whose debts were already cleared in bankruptcy.
"If there were tougher laws, they would think twice before they call and harass our citizens," said Zuckerberg. "I get calls to my office (from clients) two and three times a day saying 'I paid you this money (to discharge debts in bankruptcy) and I'm still getting threats from bill collectors threatening to sue me'."
A problem is that a consumer's bad debts may be sold from one bill collector to another and the second collector is not aware a bill was paid off, of figures the consumer is uncertain and will pay it again, Zuckerberg said.
Another issue appears especially among divorced couples and widowers, such as a wife whose late husband had a credit card issued in his name listing the spouse merely as an authorized user.
If the credit card contract was only in the husband's name, the wife is not responsible for his debt, Zuckerberg said, but that is a distinction some bill collectors fail to heed. Or, collectors ignore Indiana's statue of limitations which sets a deadline for collecting debts.
A remedy would be a sterner requirement, he said, for bill collectors going to court. They should have to provide original documents showing they own the debt.
In the case of foreclosed property, he said, this could ease problems for consumers. In many cases houses have been flipped so many times that the debt collectors actually cannot document who really owns the property.
Idaho, Colorado, New York, Arkansas and Maryland, along with New York City, have recently passed more explicit rules for debt collectors. Legislators in several more states, including Massachusetts and New Jersey, have pushed bills that could come up again in next year's legislative sessions.
Debt collectors' reputation for flooding courts with lawsuits led the Federal Trade Commission to hold two days of meetings in Chicago in August with state judges, government officials, industry representatives and consumer advocates. Expanded federal regulations are being considered.
Certainly Americans owe plenty of money to keep the industry busy - more than $900 billion in revolving debt, such as credit-card debt, according the Federal Reserve.
Credit card issuers gave up on collecting 10.6 percent of their accounts in July, just off a record 10.8 percent in June but almost two-thirds higher than in July 2008 said Fitch Ratings.
But times are getting tougher. A record one-third of all debt collection companies and four out of 10 debt buyers reported layoffs in the first quarter of this year, according to a survey by Kaulkin Ginsberg Co., a consulting form for the collections industry.
"Just like everything else, they're hurting right now," said Robert Murphy, a Fort Lauderdale, Fla., attorney who specializes in consumer litigation. "If a consumer is losing her home in foreclosure, do you thinks he is going to be very concerned about being sued for a $4,000 credit card debt?"Source: Indianapolis Star October 26,2009