With consumers relying more and more on financing, debt collection has become a major problem for Americans. In January 2017 alone, the Consumer Financial Protection Bureau (CFPB) received 7,730 complaints about debt collection, far more than the complaints received for any other financial product or service by a margin of over 2000. In a Consumer Sentinel report published by the Federal Trade Commission (FTC), debt collection was the top 2016 consumer complaint category, with 859,090 claims. Over 80 percent of Americans owe some form of debt, so it’s crucial that consumers have the knowledge and access to resources needed to ensure the financial security of themselves and their families.
THREE TYPES OF DEBT COLLECTION PROBLEM AREAS
When we talk about unlawful debt collection, there is an important distinction to draw between three categories:
- Beware of legitimate debt collectors attempting to collect on a real debt, but acting in violation of the Fair Debt Collection Practices Act (FDCPA), which forbids certain abusive practices by third-party debt collectors.
- Beware of phony debt collectors trying to scam victims into paying fake debts.
- Beware of a hybridized tactic called “juicing,” where legitimate debt collectors scam their customers by coercing them to overpay their real debts.
REAL PEOPLE: THE IMPACT OF DEBT COLLECTION ABUSES
Here are recent examples of how debt collection problems are hitting everyday Americans:
- A man who for years was harassed by a debt collector was recently awarded $10 million in court. Aside from the significant dollar figure, his story isn’t rare. A legitimate but aggressive debt collection agency called Financial Credit Services Inc., also known as Asset Recovery Associates or ARA, hit the victim with persistent, harassing calls. At the time, the victim was just scraping by on Social Security and a small pension. Then the debt collectors obliterated his savings. To make the harassment even more egregious, the victim’s lawyer said that the debt was likely decades beyond the statute of limitations or possibly even “completely bogus.” The FDCPA lays out rules about what constitutes “harassment,” as well as when, how and how often a collector can contact a consumer, and other collection tactics deemed unlawful.
- The FTC recently announced a large settlement with a legitimate debt collection company that used unlawful tactics to collect debts. Here’s how it worked: The company left phone messages that illegally disclosed purported debts to individuals other than the consumer without permission, and bombarded consumers with excessive phone calls after being told that the person who answered did not owe the debt or could not be reached. The company also got in trouble for falsely claiming that it would prevent its employees from illegally calling third parties about a debtor and other offenses.
- The Federal Trade Commission (FTC) recently posted a video about “Brian,” an Army forward observer in Iraq. Brian was targeted by scammers after returning home and enrolling in college. He started receiving debt collection calls from a third-party debt collector he didn’t recognize. By sending a validation letter to the company, Brian and his attorney were able to determine that Brian was being targeted by scammers. But not all consumers are so lucky.
- Some unscrupulous third-party debt collectors have devised a new tactic to scam consumers. In a practice known as “juicing” (also prohibited under FDCPA), collectors falsely overstate the amount of money debt consumers owe on a legitimate debt. Just last year, the owner of a company call 4 Star Resolution was found guilty of coercing thousands of victims into overpaying their debts. “[He] ran a massive, fraudulent debt-collection scheme through which he and his cohorts stole over $31 million from his vulnerable victims,” said Preet Bharara, U.S. attorney for the Southern District of New York. “Thomas instructed his debt collectors to threaten, intimidate, and lie to their victims by overstating their debts and making false claims about what would happen to them if they didn’t pay up.”
CONSUMER TIPS: HOW TO PROTECT YOURSELF
Here are tips for dealing with aggressive third-party debt collectors and possible scammers:
- If you receive a call from an unfamiliar company, ask the debt collector for his or her name, company, street address, and telephone number. Tell the caller you won’t discuss any debt until you get a written “validation notice.”
- The FDCPA requires any debt collector to stop calling if you ask in writing. If the debt is real, sending such a letter does not get rid of the debt, but it should stop the contact.
- When in doubt, ask your creditor. When dealing with third-party debt collectors, it should be apparent what the debt was for and where it originated. In some cases, the debt may be legitimate while the third-party debt collector is not.
- Still in doubt? Ask a professional. Seek the guidance of an Accredited Financial Counselor® (AFC®), licensed financial advisor, or lawyer. Here’s a good place to start: https://www.afcpe.org/find-an-afc.
- Report possible scammers. File a complaint with the FTC and your state Attorney General.
- To learn more about debt collection and debt collection scams, the Consumer Protection Commission (FTC)and Consumer Financial Protection Bureau offer excellent resources.
If you have reason to believe you are being targeted by tactics considered unlawful under the FDCPA or feel you may be the victim of a scam, consult a lawyer or a trusted financial professional. If you do not have or cannot afford a financial advisor, consider getting help from an AFC® (Accredited Financial Counselor®), who can offer professional insight on your matter. Unlike advisors, an AFC® professional focuses less on providing investment advice and more on helping individuals and families address fundamental financial issues. This often includes educating clients in sound financial principles, helping clients overcome debt, and modifying ineffective money management behavior.