A New Breed of Debt Collectors

The last decade or so has given rise to a new version of an old phenomenon:  the bottom feeding debt buyer.  It's often thought of as being linked to the bad economy, and perhaps it is, a little bit--businesses in trouble are probably more willing to look to their old collections as a source of revenue. But it's also a result of increasing improvements in computer technology.  It's easier to aggregate very small amounts--say, hundreds of unpaid co-pays from a doctor's office.  Those debts can be unloaded at pennies on the dollar to firms which then use the interwebs to find their victims debtors and dun them for cash.

Often these firms don't bother with the abusive high-pressure tactics that are used for large sums--the hourly wage on collecting $29.99 just isn't a good use of resources.  But that's small comfort, because instead, they file blizzards of lawsuits against people who they can't find, resulting in default judgements against someone who may not owe the money, or may not realize they owe.  And those hundreds of aggregated small debts hit the credit reports of people who probably didn't intend to skip out on a $15.87 termination fee when they canceled some utility, but now can't get a car loan because there's a black mark on their credit.

Moreover, there's a booming market in old debt, which may be purchased for a penny on the dollar.  These collectors aren't merely behaving badly; they're breaking the law.  There are good reasons for statutes of limitations, which is why we have a whole law, the Fair Debt Collection Practices Act, which says that you cannot report to a credit agency most debt older than seven years.  (Unless you're the IRS or a student loan lender, because why on earth would Uncle Sam have to follow the laws it makes for everyone else?)

By the time these people buy the debt, they almost never have any real idea if it's owed.  Stories are legion of firms that try to collect debts that were settled in bankruptcy; try to collect debts that have been paid; try to collect debts for which they have only a name and a Social Security number, but no real record of the debt having been legitimately incurred.  As I say, there's a reason that there's a statute of limitations on debt; by the time you hit the ten year mark, computer systems have been redone several times, original records have been lost, memories have faded, and it's hard to prove that the debt is legitimate.  It's better for everyone to set time limits rather than tie the court systems up in endless wrangling about days gone by.

Unfortunately, many people are unaware of their rights, and even if they know them, they don't have the emotional energy to pursue these bottom feeders.  Some people will pay because they think they have to; others, because they want the calls to stop.

I don't know what to do about these vermin; the law's already pretty stiff (at least $1,000 for each violation).  I'm not against collecting debts per se; people should pay what they owe, and if there weren't a secondary market in debt, it would be a lot harder to get credit, especially from places like hospitals.  But I have no patience with firms that break the bounds of decency and legality in order to squeeze a few extra pennies from people who they know very well may not owe the money.  So as a public service, here are some tips for anyone who gets contacted about a years-old debt they didn't even know existed.  I can't vouch for them personally, but they are the accumulated lore of many years of personal finance reporting:

  1. You have a right to validation of the debt.  Demand that they provide documentation that the debt is legitimate--and no, a name and an account number do not count as "documentation" of a debt; they are documentation that they have a name and an account number.  Demand this in writing, with a certified letter return receipt requested.  They have thirty days to provide validation; if they fail to, they may not legally continue to collect the debt and must remove it from your credit report.
  2. It is illegal to collect a debt after the statute of limitations has run out in your state.  This varies by state, but you can find out what it is online.
  3. Debt collectors are not allowed to contact your neighbors or your employer (unless they have an order for garnishment).  They can contact you at work, but once you have told them that they can't contact you there, they are bound by law to honor that.
  4. Debts must come off of your credit report seven years and six months after the date they were incurred--not the date that the latest bottom-feeder reported them.  It is illegal to report a debt after that date.
  5. It is illegal to threaten you with anything other than a judgment.  They can't tell you they'll take your car or whatever.
  6. Here's the fun part:  if you report them to the FTC, they get fined at least $1,000 for each violation (that would be one phone call to your office after you've told them not to call there).  Most debt collectors aren't very well trained, and will repeatedly violate the FDCPA without even knowing it.  (Or, frankly, caring.)
  7. You can also sue them in small claims court, secure a judgement, and maybe even sell that judgement to . . . another collections agency.
  8. You are perfectly free to record your calls as long as you inform them of this; if they won't consent to the recording, say, "I'm sorry, but I don't talk to anyone unless they consent to recording" and hang up.  In many states, it is illegal to record someone without their consent, so don't do this unless you know that one-party consent is legal in the state where you live, and the state where they are calling from.  In general, the hang-up is your best friend; use it liberally, along with certified cease-and-desist notices when they violate your rights.