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Debt collectors: Why are they so abusive?

Debt collectors have few restrictions and perverse incentives to use extreme measures on debtors. Here are five of the worst abuses by debt collectors.

In this 2009 file photo, Stephanie Maple of Atlanta kept notes about calls she got concerning debt collection on a debt her husband doesn't remember having. A debt collector illegally told her they would take her house and put her husband in jail if they didn't pay an old debt.

Melanie Stetson Freeman/Staff/AP

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When a story emerges about egregious behavior in a profession, it’s always important to ask: “Is this an isolated case or widespread practice? In the case of the debt-collection industry, the verdict is in: A tsunami of abusive practices is hitting thousands and sometimes millions of Americans and there’s no sign of a let-up.

I should know.

Hounded by predatory debt-collection agencies after the failure of our oil-related business, my wife, Kathy, and I created a debt-collection company to do things differently. For starters, we treat people with respect even if they are going through hard times. That’s why it pains me to see my industry continue to abuse people when there’s a much better way. Here’s a look at five dimensions of that abuse and why the problem is so massive:

1. “Scorched earth” threats

These cases go way beyond what’s needed to prod someone to pay their debts, like the one involving a Belleville, Ill., woman who was behind on a debt around the time that her daughter died. A debt collector called to say that she better pay up, or he would dig up her dead daughter and hang her from a tree. In another case, a 10-year-old girl from Osceola County, Fla., answered the phone and a debt collector identified himself as an “officer.” He said: “You better kiss your daddy good-bye. He’s going to be arrested tomorrow or the next day.”

Not only are these threats obscene, they’re common: The Federal Trade Commission received more than 164,000 complaints in 2011 about debt collectors. That doesn’t count complaints to other agencies at the federal and state levels, or the much larger group that is too afraid or embarrassed to complain.

2. Convicted felons in a position of power and access

As consumers, we’re warned to be careful with our financial information because of identity theft. But what if criminals have access to confidential financial data all day long? One debt-collection company in Minnesota reportedly had at least 81 employees with felony or gross misdemeanor convictions between 2005 to 2010. In another case, a convicted felon was hired as a debt collector and—surprise!—she stole credit-card data and went on a buying spree.

Sometimes criminals hit the jackpot and get to wear badges. In Massachusetts, many debts are collected by state-appointed constables, who carry badges and batons and can literally knock on a citizen’s door at midnight, demanding payment. A 2006 review of records by the Boston Globe indicated that 87 constables had criminal arrest records.

3. Record-keeping that’s somewhere between negligent and criminal

When you pay off a debt, you’d think that fact might be recorded somewhere. In the debt-collection business, such details apparently are optional. A Minnesota woman paid off her $260 debt but the collection company couldn’t be bothered to record that fact after they cashed her check. Over the next decade she battled other collection agencies to which her account had been sold and her original $260 grew with interest to $5,818 before she finally prevailed. In 2008, a bankruptcy trustee in Massachusetts accused one debt collector of trying 5,600 times to collect on debts that had already been wiped out through bankruptcy proceedings.  

The record-keeping problem is widespread enough that it prompted Minnesota Attorney General Lori Swanson to file suit against Midland Funding, a debt collector. She said: “This company has a history of targeting people and assuming they owe them money until the citizen can show they don’t owe the money…. It really flips the process on its head because a debt collector or debt buyer shouldn’t be targeting anybody for payment of a bill unless they substantiate that a person actually owes the money.”


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