People dread getting calls from bill collectors. And it's not always because they can't pay. It can be a degrading experience, especially with third-party collectors who are overly aggressive, even threatening.
A new report from the Government Accountability Office calls for major reform to the legislation that covers how companies collect old debt from consumers.
The reform can't come soon enough. Debt defaults are at the highest rate in 18 years. About 6.6% of credit cardholders were 30 days or more past due in the first quarter of 2009. In 2008, credit issuers had more than $23 billion in unsecured debt that was from 30 to 180 days delinquent.
There are many scrupulous debt collectors who compassionately work with borrowers to get them to repay what they owe. But there are also bottom-feeders in the industry who, by any means necessary, harass and intimidate consumers to pay up on accounts for which the collectors have paid pennies on the dollar.
There's a law, the Fair Debt Collection Practices Act enacted in 1977, that dictates how third-party debt-collection companies can communicate with debtors. It prohibits the companies from using unfair, abusive or deceptive debt collection practices.
Although some sections of the FDCPA have been amended, it hasn't been substantially revised since its enactment 32 years ago.
On Dec. 4 in Washington, the Federal Trade Commission (which enforces the FDCPA) is scheduled to hold the third in a series of round-table discussions examining the treatment of consumers by debt collectors. The meeting can be viewed live via a Web cast. For information about the roundtable go to www.ftc.gov and search for "Debt Collection: Protecting Consumers."
In February, the FTC recommended that the regulations covering debt collection be improved. Chief among the concerns is the way debts are verified as old accounts and passed around.
When consumers become seriously delinquent, their original creditors may give up trying to collect. The creditors may then sell the debt as a way to make something on the accounts.
The accounts can then be resold so many times that it becomes hard to verify that the debt actually belongs to the person the collectors say it does, or that it was discharged in a bankruptcy case.
Third-party debt collectors may not have access or copies of billing statements, credit-card agreements or applications, and other documents to verify a debt is owed.
The FTC says Congress should modify the law to require collectors and debt buyers to disclose the original creditor; break down the debt by principal, total interest and fees; and inform consumers of certain rights they already have under the FDCPA.
What's in the law now?
If a consumer disputes a collection action in writing, the collector must prove what is owed. But here is where the law is seriously flawed. The statute isn't clear on what constitutes proof.
It's time to rectify this gaping loophole that should have been fixed long ago.
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