5 Ways to Spot a Dubious Debt Collection Agency
Thousands of Americans have fallen victim to aggressive and abusive tactics from debt collectors, according to a scrappy federal watchdog. Roughly 30,000 people have complained about debt collection agencies to the Consumer Financial Protection Bureau (CFPB), many reporting that collectors are hounding them about debt they don’t owe. And with a plan in the works to further reign in the 4,500 agencies operating in the US, CFPB’s Richard Cordray issued a blunt edict this month.
“We will not tolerate companies harassing consumers or threatening illegal actions in the debt collection market,” Cordray wrote in an introduction to the new findings. “Debt collection is now our largest source of complaints per month.”
Around 30 million Americans – 14 per cent of the adult population – have loans subject to collection, averaging $1,400 each. Since last year, complaints about debt collectors have ranged from repeated phone calls to threatening a borrower with jail time. A third of the 30,000 complaints related to attempts to collect debts that either weren’t owed or already paid. Others reported “aggressive communications tactics,” with some claiming that debt collectors using profane language and calling the borrower’s place of employment. Perhaps the most alarming statistic from the report claimed that 5,000 consumers reported receiving threats to sue, seize their property or put them in jail.
Armed with the new figures, the CFPB continues to push forward with an Advanced Notice of Proposed Rulemaking, seeking to “develop rules to enhance protection for consumers” in the debt collection market. Onlookers in the industry are looking forward to a new set of rules, hoping it will update current legislation that was drafted in the 1970s with guidance on engaging with consumers via text message and the Internet.
“Automated technology has transformed collection practices and the CFPB will likely focus on that,” said attorney Braden Perry, a partner in the Kansas City-based law firm Kennyhertz Perry, LLC.
The Risks of Hiring a Debt Collection Agency
“Any debt collection agency you use is a reflection of your business,” said Dunn, the author of Choosing the Right Collection Agency for your Business. And choosing the wrong one, she says, “really hurts your reputation.”
- How long have you been in business?
A lot of collectors that don’t follow the rules are “fly-by-night agencies,” Dunn said. “They stay in business for a while, collect a bunch of money and then close their doors and change their name,” she said, adding that frequent changes of address is often a red flag. But new collectors can still be legitimate, “it’s just worth even more due diligence.”
Collectors usually need to be licensed for each state they plan to operate in, so the consultant recommends making sure that a new business is licensed in the states you require – or else they could be collecting illegally.
- Can you provide references?
Consulting with both current and past clients will help provide a better idea of how the collector operates on a day-to-day basis. A particularly telling question is to ask past clients why the left the collector.
If a collector is associated with the Better Business Bureau, a chamber of commerce or a trade organization, that’s encouraging, Dunn said.
- Do you specialize in a specific type of debt?
Collectors that focus on a certain debt category can be at an advantage when trying to get a bill paid. If the agency focuses on student loans, for instance, they will “know the lingo and be able to relate to the people” – a skill that helps them “be a better mediator and come up with a solution to pay that debt.
- How do you structure your payment plan?
According to Dunn, the industry norm is usually to pay collection agencies commission, based on the amount of loans they collect. If the agency wants a flat monthly fee, it’s worth extra due diligence to ensure the company will still fulfill its commitments.
- Have you ever been sued for violating the Fair Debt Collection Practices Act?
“It’s not always a red flag, that’s why you want to ask about it,” Dunn says. ” I would say most agencies that have been in business for any length of time have been sued for a violation, but it doesn’t mean they committed the violation.” Lawsuits against the company are accessible to the public, so you can check if the agency is being forthright. It’s important to know the details of the past suits before moving forward, Dunn said.