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Collect debt, the right way

By Michelle Singletary

Washington Post Writers Group

Sunday, May 10, 2009

WASHINGTON — Whenever people ask me what they should do about their debts, I encourage them to call their creditors and do what they can to make good on their promise to pay. Morally, that’s the right thing to do.

I also believe debt collectors have a moral obligation to treat debtors honorably and with respect. Just because someone is a debtor doesn’t mean he or she is a deadbeat. However, there is enough evidence that far too many debtors are treated abusively by debt collectors.

To address this problem, the Federal Trade Commission is recommending essential changes to how companies collect past-due obligations. Since 2007, the FTC has been evaluating whether there is a need to change the debt collection system, including updating the Fair Debt Collection Practices Act, which was enacted to protect consumers from abusive, unfair and deceptive practices by debt collectors.

In its annual report to Congress about the fair debt collection law, the FTC said that it had received more than 78,000 complaints last year from consumers about debt collectors. The agency received, by far, more complaints about debt collectors than any other industry. After evaluating these complaints, the FTC put together a report released this year outlining proposed changes to address primarily two areas.

First, the agency wants to change the law to improve the information that debt collectors use to hunt down debtors. Second, the FTC wants the law updated to reflect the way creditors contact consumers.

To improve the information creditors use to collect debts, the agency is recommending the following:

1. Require that when debt collectors contact consumers, they disclose the name of the original creditor and a breakdown of the debt owed, including the original principal, total interest and total fees.

I can’t believe this isn’t part of the law already. Turns out debt collectors often have inadequate information because the right to collect a debt can be sold and then resold. “This increases the likelihood that collectors will reach the incorrect consumer, try to collect the wrong amount, or both,” the FTC said in its report, “Collecting Consumer Debts: The Challenges of Change.”

Under current law, if a consumer disputes a debt, the collector is required to verify what is owed before pursuing further collection efforts. However, “many collectors currently do little more to verify debts than confirm that their information accurately reflects what they received from the creditor,” the FTC says.

1. Require collectors to conduct “reasonable” investigations when consumers dispute debt information.

I certainly hope if this change is adopted, the FTC specifies what “reasonable” actually entails. Does it mean one call to the original creditor? Or does it mean digging for documents to prove what a debtor owes? Without clarity, this rule change would have little meaning.

1. Require debt collectors to inform consumers that if they send a timely written dispute or request for verification of their debt, the collector must suspend collection efforts until it has provided the verification in writing. Collectors would also be required to tell consumers that if they request in writing the debt collector cease contacting them, the collector must comply.

Tech changes

In the area of technology, the FTC has recommended the Fair Debt Collection Practices Act be changed in the following ways:

1. Debt collectors should be allowed to use all communication technologies, including mobile telephones and text messages, to contact consumers.

The agency said the law should be carefully crafted to avoid collectors using certain forms of communication in a way that causes consumers to incur charges, or otherwise subjects consumers to unfair, deceptive or abusive acts and practices. “Consumers should not have to pay to be contacted by a debt collector,” the FTC says. The solution: The law would generally prohibit debt collectors from contacting consumers via cell phones unless they have obtained express prior consent for such contacts.

I see all kinds of problems with this change on contact rules, especially at the time when consumers apply for credit. So to be sure the permission is granted with the consumer’s full knowledge, creditors should not be allowed to put this information into the fine print of debt agreements. It should be done in a separate agreement dealing with the contact information only.

Michelle Singletary is a financial columnist for The Washington Post. Write her at Michelle Singletary, Buyer’s Edge, The Atlanta Journal-Constitution, 72 Marietta St. N.W., Atlanta, GA 30303 or e-mail buyersedge@ajc.com and put “comment for Michelle” in the subject line.

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