Jeff Gelles: When a debt collector calls

Tempers flare when you even mention debt collectors. Some consumers who have steered clear of this unloved business blithely dismiss its targets as "deadbeats" or "shirkers." Some in the sights of debt collectors - especially unscrupulous ones - readily use words we won't print in a family paper.

But let's leave the denunciations aside for a moment and focus on the practical problems facing many thanks to stagnant wages, high joblessness, and the overhang of the housing bubble.

More than 140,000 people complained about debt collectors last year to the Federal Trade Commission, nearly double the number who complained in 2007. The Consumer Financial Protection Bureau, which is weighing whether to oversee the collection industry more closely, says about 30 million Americans have debt subject to collection, ostensibly owing an average of $1,400.

I say ostensibly because consumers sometimes don't even agree they owe the debt in question - just one of the things that makes the collections process so thorny. Another is the practice of selling and reselling debt, often for less than five cents on the dollar, that is now central to many companies' business models.

For perspective on the collection industry, I spoke with Harry Strausser 3d, president of Remit Corp., a family-owned Bloomsburg, Pa., collection firm. I also spoke with Michael Donovan, a Philadelphia consumer lawyer who has challenged collectors - though never Remit Corp. - in lawsuits.

Strausser, president of the Mid-Atlantic Collectors Association and past president of its parent group, ACA International, blames the industry's biggest problems on "a handful of rogue operators" - such as the Erie, Pa., company, Unicredit America Inc., that created a mock courtroom to take consumers' depositions until it was shut down last year by the Pennsylvania Attorney General's Office.

"By chance, the notary happened to wear a black robe and was at a desk that was a little raised at the front of the room," Strausser says.

Such stories make legitimate collectors cringe, he says. "We can't do anything to put them out of business. We can only say that if you're a member of our organization, you have to go along with our code of ethics."

Strausser and Donovan both emphasize the importance of knowing your rights under the federal Fair Debt Collection Practices Act, enacted in the late 1970s to address an earlier era's abuses.

Thanks to the FDCPA, for example, a collector may only call between 8 a.m. and 9 p.m.; must cease collection efforts - except for a lawsuit - if you ask the collector to stop; and cannot tell other people, such as your employer, about the alleged debt. (For more information on your rights, go to http://go.philly.com/fdcpa.)

Here are some other useful tips:

Demand validation of the debt. This is a key right under the law, and crucial if you have any doubts. Although "rogue operators" may somehow skip this step, you're supposed to get a validation letter within five days of the initial collection effort, including the name of the creditor, the amount owed, and directions for disputing the collection attempt.

Strausser says "the overwhelming majority" of debts handled by collectors are legitimate. He estimates that when firms such as Remit act on behalf of creditors, fewer than 5 percent of the debts are not actually owed. With older debt that has been sold and resold, he says, the error rate may be twice that high.

Donovan doesn't challenge those numbers, but says they're enough to put millions of consumers in harm's way. He says documentation often is lacking, especially on sold and resold debt. Simply demanding it may be enough to end a collection effort.

Don't unintentionally 'reaffirm' debt. State laws vary, but in Pennsylvania, you can't be sued for debts after four years; in New Jersey, the statute of limitations is six years. But in almost every state - Strausser says Wisconsin is an exception - collectors can still try to collect, so long as they don't deceptively threaten to sue.

Because it dates to your last payment, the time clock is a potential trap - it resets if you make even a small payment, perhaps just thinking it will get a pesky collector off your back. If you don't believe you owe the debt, or truly can't repay it, don't pay anything.

You can negotiate. If the debt has been validated and you've simply been unable to pay, you can try to make a deal. Strausser says creditors often authorize third-party collectors to cut 20 percent or 30 percent from the total. Donovan says deeper discounts are common, especially for credit card debt likely inflated by penalty interest rates and late fees.

Donovan has gleaned other advice from clients' horror stories. For instance, he says a debtor should never agree to pay a collector by credit card or by direct bank debit, because some collectors have faked later authorizations. And he warns generally against communicating by phone or e-mail - old-fashioned mail offers better documentation.

Strausser's main advice: Don't hide, even if you really can't pay. "I've been doing this my whole life," he says. "You don't collect more money by browbeating and harassing people."

And he says you can complain to the industry itself via its Web portal www.AskDoctorDebt.com. Strausser says the good collectors really want to weed out the rogues.