The system of debt collection in this country is riddled with problems. The Federal Trade Commission recently called U.S. debt collection a “broken” system. In addition to the unethical and sometimes illegal tactics that seem to be widely used by debt collectors, there are serious issues with the system itself that raise questions of credibility. It’s important for consumers to know about these possible problems when trying to resolve a dispute with a collection company.
Problem #1: Improper documentation by the collection company
Debt collectors often purchase huge bundles of debt with incomplete data. In many cases they aren’t even able to discern who the original lender was, when the debt was accumulated, or other important information about the debt. As information ages and is passed from one collection agency to the next, key pieces of data are often lost.
You might have heard that banks recently got in trouble for “robsigning” foreclosure notices; which essentially means they were going through stacks of files and signing off on them without reviewing to ensure the information was correct, as is required by law. Debt collection agencies have engaged in similar tactics for years. The industry often files lawsuits in bulk, usually with scant information documenting the debt, leaving consumers in a difficult position to defend themselves. Few try. Yet this is a mistake, since law-enforcement officials in several states have accused at least some debt buyers of submitting sloppy, incomplete, or even fraudulent documents in court as proof of what a borrower owes. (SilverGreenberg, 2011)
Problem #2: Collection for the wrong amount
There are several ways that the amount being collected could be wrong. The original claim may have been inaccurate. Companies can lose or classify payments incorrectly (especially those with lousy paperwork), so some of the payments you’ve made might not have been properly credited. Balances, fees, penalties, or other increases to the debt may have been improperly added or calculated, so that the debt has been inflated to an incorrect amount.
Problem #3: False identification
In a significant number of cases, the person debt collector agencies go after isn’t even the real debtor. There are numerous stories of people with the same or similar names being flagged for someone else’s debt. When trying to track down delinquent accounts after some time has amassed, collectors often rely on crude tools such as the phone book, Internet, or amateur tracking methods to try and find someone who has moved. When this happens, they may latch onto the wrong person by mistake.
Problem #4: Crediting payments and settlements
Debt collectors are notoriously bad at reporting payments or settlements they receive back to credit bureau agencies. So it’s important that consumers ask for and keep documentation of all payments and/or settlements, because you may have to handle this aspect yourself.
Problem #5: Inadequate regulation
Debt collection trade groups hate the word regulation, since it might clean up their industry. Right now, debt collectors are regulated under a patchwork of state and local laws, with U.S. oversight of the industry shared by the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau. This leaves spotty enforcement of the rules and almost no real oversight of these agencies.
Problem #6: Unethical behavior
Debt collectors have been caught engaging in a variety of unethical and/or illegal behaviors, as will be discussed in the next section.