So, it's 10:15 PM and your eight-year-old just woke up with a nightmare. While you're tending to him, the phone rings and of course your 13-year-old daughter gets to it first. A minute or two later she bursts into her brother's room crying, and blurts out to the two of you that the nasty man on the phone just told her that mommy and daddy would go to jail if they didn't pay their old credit card bill.
She has just met your boogeyman—the debt collector.
What do you do?
People who have been targeted by debt collectors often feel isolated, embarrassed and without any support or understanding of what's happening to them. For those who do try to reach out for help, the problem is that there are so many people you can call, the average consumer can get very confused very easily, and waste a great deal of time before finding someone who may be able to actually help. Right now, depending on which state you live in, you might call: the Federal Trade Commission; your state Attorney General; your state, county or local Department, Division, Bureau or Office of Consumer Protection (which may or may not be part of the Office of the Attorney General); the Better Business Bureau; the innumerable attorney ads you discover if you Google "debt collection abuse;" or a host of other federal, state, for-profit, and not for profit private agencies. The further you peel the onion, the worse it gets. "Water, water everywhere, nor any drop to drink." You live in Sandusky, but the debt collector called from San Diego. If you try calling the bank that issued the credit card, eventually you will find someone with a brain who will inform you that "it's out of my hands," you need to call the same debt collector who called you—if you have the tenacity to get that far.
Unfortunately, guidelines for the debt collection process are misunderstood, not necessarily followed and/or in many cases largely ineffective—the result of mind-numbing regulatory redundancy. The result is unspeakable practices by many debt collectors who have more of a free hand than they should. Sadly, purposeful misinformation, threatening phone calls and other forms of harassment have become the norm.
Because the mantra of the debt collection business is "show me the money," the ends justify the means and the customer is never right. For the most part, individual collection agents are paid a serious percentage of what they collect. Most collection agencies are principals, not agents. They don't work for the credit card companies, banks or stores with which the debtor did business. They buy that debt from those companies, usually at four to seven percent of face value. Again speaking very generally, the cost of collection plus the purchase price of the debt typically doesn't exceed 20 percent of face. Therefore, if an agency can collect 50 percent of the debt they are making a whole lot of money, and the individual agent who facilitates that collection can be paid as much as a third of the profit.
Personally, I am convinced that some of the vultures who were hawking fraudulent penny stocks 10 years ago and pushing rip-off mortgages and refis five years ago are now trying to collect "charged-off" debts.
But for the first time in a long time—maybe for the first time ever—I have hope that things could soon change for the better. In a few short weeks, on July 21 to be exact, the Consumer Financial Protection Bureau will open for business. Among its many important responsibilities will be the regulation of the "Wild West Show" that currently is the debt collection industry.