Pushing back against debt collectors

BORROWERS BEWARE Agencies can cross the line in trying to collect overdue bills, area lawyer says

Just out of the hospital after undergoing surgery for cancer, the 68-year-old Nanticoke woman pushed the button on her answering machine and heard a message that terrified her.

“You have until 8 p.m. to get in touch with me or we’re going to have a bench warrant out on you,” the man’s voice said.

The woman had not committed any crime, but the message convinced her she was about to be arrested. She got her clothes and other items ready and waited for someone to come to take her away.

What she did not know was there was no arrest warrant. And the man who called was not a police officer.

He was a debt collector. He had used a false threat in an attempt to coerce her into paying a bill she owed.

When she learned the truth, she didn’t just get mad. She got an attorney, who promptly filed a federal lawsuit against the collection agency for alleged violations of the federal Fair Debt Collection Practices Act.

The woman, who asked that her identity not be revealed to protect her privacy, is among a growing number of consumers who have turned to the court system to seek redress for alleged abuses of the debt collection act.

In 2007, there were 3,804 federal lawsuits filed nationally alleging violations of the act. That figure jumped to 5,424 in 2008, a 42 percent increase, according to statistics gathered by The Association of Credit and Collection Professionals, a Minnesota-based trade organization for collection agencies.

The Federal Trade Commission, which enforces compliance with the debt act, has also seen a significant increase in the number of consumer complaints. In 2007 there were 70,951 complaints filed, compared to 58,698 in 2004, according to annual reports released by the agency.

Law tries to serve both sides

The law, enacted in 1966, established regulations to protect consumers from unfair practices while providing collectors with reasonable means to collect money that is legitimately owed.

Among other things, it dictates when and where a collector can contact a debtor, limits the information they can reveal to third parties, such as family and neighbors, and prevents them from making deceptive claims.

Patrick Walsh, a Scranton attorney who has represented plaintiffs and defendants in debt collection cases, said he believes the increase in complaints and lawsuits is partly attributable to the poor economy, which has forced more people into default. That also has put more pressure on debt collectors, he said.

“As a result of the economy being the way it is, you are seeing more gross violations. There are more aggressive collectors who are really pushing the envelope in making threats,” Walsh said.

Cindy White, director of the National Association of Retail Collection Attorneys, said she believes the vast majority of collectors comply with the law. But she acknowledged there are abuses.

“When you’re talking about billions of phone calls during the year, somebody is going to make a mistake and go beyond what the law says,” she said.

In the Nanticoke woman’s case, she said she tried to pay her $2,000 debt, but multiple health problems, including two heart attacks, left her debilitated.

“I know I owed the bill, but it’s hard times now,” she said. “He said they were going to have a bench warrant issued. It scared me. I thought I was going to have another heart attack.”

Her lawsuit, filed last month in federal court in Scranton by attorney Brent Vullings of Philadelphia, alleges multiple violations of the debt collection act.

According to the suit, the collector used the threat of a lawsuit to coerce her into providing checking account information so that post-dated checks could be presented to her account.

In November, the firm attempted to withdraw funds, causing her account to incur several charges for insufficient funds. The woman did not immediately realize it because she was in the hospital at the time, the suit says.

Some sue collection agencies

Vullings said he files an average of 30 fair debt lawsuits a month. The Nanticoke woman’s case is one of the more egregious violations of the act that he’s encountered.

“She told me ‘I packed my stuff up and was waiting for a knock at the door,’ ” Vullings said. “This woman actually believed it. It absolutely stressed her out.”

The tactics the collector used in the Nanticoke case are among the most common violations Vullings and other attorneys who specialize in fair debt cases said they see.

Under the law, collectors cannot threaten to take any action – including having someone arrested – that they are not legally entitled to take. That also includes threatening to file a lawsuit against the debtor if, in reality, the collection agency has no intent or legal right to do so, said Carlo Sabatini, a bankruptcy attorney with offices in Scranton and Wilkes-Barre.

“They often threaten to file a lawsuit over a debt that is very small – less than $1,000. That’s almost always a false threat,” Sabatini said. “It doesn’t make sense for someone to file suit over a debt that small. You can’t threaten to take an action you never or rarely take.”

Sabatini began focusing part of his practice on debt collection suits several years ago. Since 2003 he has filed more than 50 lawsuits in federal court in Scranton against collection agencies.

“Most people want to pay their debts,” he said. “If they have a justified debt and they can pay it, they should. But debt collectors step over the line when they use abusive tactics.”

Sabatini said most people don’t know they have rights under the law. Almost no one he deals with knows they have a right to sue the collector for violating it, he said.

“Very few people come in and say ‘I want to sue a debt collector,’ ” Sabatini said. “They come in because they’re scared, most often because the collector has told them something that was false or threatening.”

The debt collection act allows debtors who have been aggrieved to recover $1,000 in damages, just by showing there was a violation, Sabatini said. The debtor can also seek to recover any financial loss suffered due to the violation – such as overdraft fees – and can seek further damages if they can prove emotional distress.

While again acknowledging there are abuses, officials who represent collection agencies say they think some attorneys seize on minor violations of the law that did not cause a debtor any actual harm.

For instance, the law requires very specific language be present in letters sent to a debtor, said Valerie Hayes, vice president of legal and government affairs for The Association of Credit and Collection Professionals. If the agency makes even the slightest error in that notice, that by itself can be the basis for a lawsuit.

“If you look at the basis of these suits you see technical violations, like the collection agency did not provide the license number on the collection form,” she said.

White, of the National Association of Retail Collection Attorneys, said collectors also run into problems because the debt act contains conflicting provisions that make it difficult to comply with the letter of the law.

For example, White said the law says a debt collector must identify who they are and state that they are attempting to collect a debt. But the law also precludes the collector from revealing information to a third party that a particular person owes a debt.

That creates a “gotcha” situation if the debt collector always gets an answering machine, she said.

“The laws says I have to identify myself, but I can’t identify myself through a message a third party might hear it,” White said. “If someone only has an answering machine, how do you ever get them to call you back to talk about the debt if you can’t say what the call is about or who you are?”

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