Protecting Yourself From Aggressive Collectors

Just ask Sandy Lubin, owner of the Credit Bureau of San Luis Obispo and Santa Barbara Counties. Based in Grover Beach, Calif., Lubin's 28-employee firm serves as both a credit bureau, selling consumer credit reports to businesses, and as a collection agency, recovering medical and property management debts, such as unpaid rent.

While the credit reporting side of Lubin's business has dropped "fairly substantially," the collection side has seen a 10% increase in new business this year — a trend he predicts will accelerate as the weakening economy and rising debt levels take their toll on consumers' finances. "We're fortunate because we have both sides of the business," he notes.

Estimated at between $90 billion to $100 billion, the debt-collection market is huge, says Dennis Moroney, a senior research analyst with TowerGroup. "Plenty of organizations are clamoring to get that debt," he says. And with consumers increasingly falling behind on their debts — delinquencies on consumer loans and credit cards jumped to 3.61% in the fourth quarter of 2007, the highest level since the end of 2002, according to the Federal Reserve — that market is expected to only get bigger.

Consumers are already fending off more collection calls, according to Bud Hibbs, a Fort Worth, Texas-based consumer advocate who focuses on debt collectors. He says the number of people calling his office to ask for help has gone up 20% since the start of the year. "Between now and summertime, the amount of collection calls are going to set new records and the amount of lawsuits filed [against consumers] will fill the courthouses like never before," he predicts.

Despite the surge in business, however, the collection industry faces a huge setback: As consumers struggle to stretch thinning budgets over swelling debts, no matter how many phone calls a collector logs in, actually getting a payment will be more challenging than ever. Collection agencies are either paid a percentage of the debt they collect (typically 25% to 35%, according to Moroney), or they purchase charged-off debt from creditors upfront, for pennies on the dollar, and keep the proceeds. As a result, collection tactics have become more aggressive.

"We're seeing a weird level of desperation out of the credit and collection industry," says Lance Raphael, an attorney with the Consumer Advocacy Group in Chicago. His firm has seen a spike in reports of abusive practices, including trying to collect on debts without documentation proving the amount of the debt owed, or going after so-called "phantom" debts, which are old enough that the statute of limitations in which they can be collected has expired.

If there's any good news for consumers it's that federal law is on their side. While exercising your rights won't make the debts go away — and collectors may sue you if it makes financial sense for them — the Fair Debt Collection Practices Act (FDCPA) can ensure, for example, that consumers aren't harassed, called at work or threatened. (Click here for the details.)

Collection agencies, in fact, typically feel just as threatened by potential lawsuits as consumers feel by abusive collector calls. Joel Lackey, president of National Credit Systems, an Atlanta-based agency specializing in apartment collections, says his employees — about 100 — get FDCPA training and are regularly tested on the rules. Their calls are monitored and graded, and the grades are part of what determines employees' financial incentives. (Needless to say, agents are also paid a commission on what they collect, which explains why some feel tempted to break the rules.) "I'll be the first to admit that there are some collectors out there who do not follow the FDCPA and need to be reigned in," he says.