(NEW YORK) MintPress – Breast cancer survivor Lisa Lindsay of Herrin, Ill. was put in debtors’ prison over a $28 medical bill that was sent to her by accident.
In Lane County, Ore., debt collectors told local police that 85-year-old Anne Sessions was threatening to commit suicide, a claim she denied.
And Kelly Wiedemer of Westminster, Colo. spent four nights in jail because she wasn’t able to pay fines she owed from a car accident that happened two years earlier.
These are just a few of the myriad horror stories to emerge from what has become a burgeoning debt collection industry. With millions of Americans struggling to repay past debts, unduly aggressive measures have helped to push the firms’ revenues to record highs.
Unlawful tactics
Today, 1 in 7 consumers have had their debts referred to a third-party collection agency, which is double the figure in 2000.
Under the Fair Debt Collection Act, a collector must send a written statement indicating how much money is owed within five days of first contacting a customer. By law, collection agencies cannot contact a person before 8 a.m. or after 9 p.m. They also cannot threaten arrest or harm, or
pretend to be some kind of legal enforcement officer or agency.
Yet millions of Americans continue to receive harassing phone calls from those trying to collect phony loans or those seeking to unlawfully collect extinguished ones.
Last year, the Federal Trade Commission (FTC) received a record 164,361 complaints about debt collectors, which is a whopping 17 percent higher than the number it received in 2010.
The alleged abuses ranged from illegally impersonating a police officer to impersonating a debtor’s friends online, posting public messages saying the debtor owes money and using social media as a means of contacting debtors.
Some collection agencies have even threatened to exhume dead loved ones if debtors don’t settle their accounts.
Consumer protection
Debt collectors are regulated under a patchwork of state and federal laws, with U.S. oversight shared by the FTC and the Consumer Financial Protection Bureau (CFPB).
In February, the CFPB proposed starting to supervise the biggest collectors, those that net more than $10 million a year in collections, which would add more transparency to the debt collection process.
And in March, the FTC shuttered an international operation that used a call center in India to make threatening calls to innocent victims.
Still, too often, where there’s a will there’s a way.
Foreclosure victims
Take Texas-based Heritage Pacific Financial. The firm was started by twin brothers Chris and Ben Ganter, who once starred in a reality TV show, “PayDirt”, about investing in the Dallas-Fort Worth real estate market.
Ahmed Abdelfattah of San Jose, Calif., had never heard of the company until after he lost his three-bedroom home to foreclosure in 2009. Heritage Pacific contacted him seeking payment on a second loan worth $135,000 that he took out to cover the down payment on the house years earlier.
By law, homeowners can’t be pursued for two debts on the same property after it’s been foreclosed on, but Heritage Pacific Financial claimed that when borrower fraud is involved, meaning borrowers overstate their incomes on applications, it can pursue debt on second mortgages.
There was, however, no proof of fraud in Abdelfattah’s case. He said it was a sharp drop in his income as a sales manager at a local Honda dealership that caused him to fall behind on his monthly house payments of $5,000.
“It’s been a nightmare,” he said. “It’s cost me money and time, and they ruined my credit until now.”
He is not alone. Heritage Pacific purchased hundreds of second mortgage debts in California and persuaded many previous homeowners who didn’t know any better to pay up.
And beginning in December 2009, it filed three lawsuits over a three-month period seeking $46 million in actual and punitive damages from 158 defendants who took out 143 loans.
“Some of the loans that Heritage has do have fraud in them, but I believe in many of the loans the fraud was not the borrower’s fraud but was instead the broker’s fraud,” said attorney Eric Schwinn. “And Heritage is in a sense re-victimizing the same victims of the mortgage crisis.”
A judge eventually dismissed Heritage Pacific’s lawsuit against Abdelfattah, and it is now facing legal challenges of its own, including a class-action suit in Santa Clara County Superior Court contending that the company is carrying out an “insidious and illegal debt collection scheme.”
Heritage Pacific is nothing more than “people in Texas acting as vultures,” said Will Kennedy, a lawyer in the class-action suit.
Nice people
At the other end of the spectrum, Access Receivables, a Baltimore-based debt collection agency, has tried a novel approach to its business: Being nice.
The company’s strategy, embodied in its slogan, “nice people collect more,” emphasizes customer service, said its president, Tom Gillespie.
It has required credit counseling certification for managers, provided employee perks for favorable debtor testimonials and changed its online platform to make communication easier.
Since putting the policy in place, according to a press release, payments have increased 40 percent overall.
Note to debt collectors: Nice guys don’t always finish last.