It was almost 11 a.m. on a Tuesday in October when Jennifer Posey received the first voice mail.
"This is Jimmy Lee calling from CheckCare. Just letting you know we're in full force," he said. The man had a thick Southern accent that stretched the word "you" into a two-syllable accusation. "We're going to have warrants out for your arrest in Columbus, Ga.," the man threatened. "We know you have an apartment on the canal in Clearwater."
It was when he mentioned her home in Florida that Posey began to feel anxious. "We're hurting you," he continued. "We're hurting your family, your son's family, your cousin's family. Whatever we can do to get you to pay."
Forty minutes later, her phone rang again. "What about that 12-, 13-year-old child you're trying to raise?" the voice sneered.
That's when Posey called the police.
"This is my 12-year-old child!" Posey says. Later that afternoon, she received a letter from the Warner Robbins, Ga., franchise of CheckCare, one of the nation’s largest networks of check guarantors.
The letter claimed that Posey owed $3,560.23, an allegation she refuses to discuss. The amount, she says, was beside the point. "I don't care if it's one dollar or 1 million. You don't threaten to harm my child," she says.
Posey's experience, while extreme, is far from uncommon. As the effects of the Great Recession continue to fester in neighborhoods across the country, more Americans than ever report being abused, harassed and deceived by the notoriously unregulated debt-buying and -collecting industry. In 2012, the Federal Trade Commission received an unprecedented 180,000 complaints about these companies, nearly 13 times more complaints than were reported in 2000.
The debt collection industry is like the Luca Brasi of lenders, and there are big bucks to be made in enforcement, whether you’re working for Don Corleone or MasterCard.
The debt collection industry is like the Luca Brasi of lenders, and there are big bucks to be made in enforcement, whether you're working for Don Corleone or MasterCard. Today, debt collection is a $12 billion business, with more than 4,500 companies and, according to the Better Business Bureau’s recent report, more ruthless tactics than ever. The abuse is part of the industry's strategy to get people to pay up — a job that's gotten even harder since Americans lost millions of jobs and trillions of dollars in wealth throughout the recession. According to John LaRosa, the research director of Marketdata Enterprises, which released a 2012 report on the industry, "Agencies have to work much harder to collect, making more calls, using more aggressive tactics."
The only problem? A hell of a lot of these tactics are illegal, and a new government agency has resolved to fight back.
Fake sheriffs, phantom firms
Approximately 10 percent of all Americans, or 30 million people, are currently being pursued by debt collectors. Of these, more than 100,000 people report being subject to predatory or illegal tactics every year. Some are called incessantly, often well after 9 p.m., which is prohibited under the Fair Debt Collection Practices Act. Others reported being threatened with arrest or felony charges by collectors, both of which are also prohibited.
Sometimes the behavior of debt collectors is egregious to the point of being ridiculous. In Erie, Pennsylvania, the Unicredit Debt Resolution Center hired employees to dress as fake sheriff's deputies so they could deliver fake subpoenas and even haul people into a fake courtroom where — you guessed it — a fake judge coerced them into disclosing their bank account information and even handing over the titles to their cars. Other actions are downright scary. One California-based company threatened to shoot and eat people's pets and even dig up the bodies of deceased family members, all in its efforts to intimidate them into paying.
In Erie, Pennsylvania, a fake judge coerced people into disclosing their bank account information and even handing over the titles to their cars.
Often debt collectors harass people over debts that aren't even owed. More than a third of the complaints released by the Consumer Financial Protection Bureau (CFPB) were from people being pursued for debts that weren't theirs or that they had already paid. The latter problem plagued Maryland resident Edgar Moreno after his daughter was in a car accident in Arizona last fall. One of the first things he did was send her a prepaid card to cover her hospital charges. She was only 22; the last thing he wanted was for her to have to deal with bills and forms while she was convalescing.
In November he received a letter from the hospital saying that all his daughter's medical bills were settled. But a slew of letters sent to her home by Professional Credit Services alleged the opposite. According to Moreno, the company — a third party hired by firms to collect debts — barraged her with so many threatening letters that Moreno finally had her mail forwarded to his home. He tried repeatedly to contact the company to inform it that his daughter's bills had been paid, but he couldn't get anyone on the phone.
"It's like a phantom company," he said. Finally, he took to the Web, writing indignant complaints on consumer sites like RipOffReport and the Better Business Bureau. "They're taking advantage of people when they are most vulnerable, at the worst times of their lives," he said. "She didn't even owe anything."
Neither Professional Credit Services nor any of the other agencies mentioned in this article responded to repeated requests for comment.
Reform and robo-signing
For decades, the business of debt collection operated with too little government scrutiny. The most comprehensive federal regulation, the Fair Debt Collection Practices Act, was written in 1977, back when the idea of the Internet was fiction and students taking out loans for $58,000 a year in tuition seemed as improbable as flying cars. Besides being outdated, the act is also restricted to regulating third-party debt collectors, meaning major banks like JPMorgan Chase or giant stores like Macy's are exempt from the rules when trying to collect money they lent. The Federal Trade Commission has sued dozens of collectors over the years under the act, including Expert Global Solutions, the world's largest collection company. But the agency lacks the authority to write new laws. As Chris Farrell, correspondent for the NPR show "Marketplace," recently wrote in the Minneapolis Star Tribune, the industry is essentially the "credit economy’s Wild West."
But there's a new sheriff in town, and it has vowed to clean up the business. Last year, the CFPB began overseeing large debt collectors under the Dodd-Frank Act, which gives the agency the right to regulate both large banks and nonbank financial service providers, such as payday lenders, mortgage services and debt collectors.
In July, the CFPB announced it was "put(ting) companies on notice." By December, the agency had released thousands of complaints about debt collectors, sued one of the largest payday lenders and announced it was developing new rules to regulate the industry.
Of the more than 7,000 complaints the CFPB has published so far, more than 2,000 were from people who reported being pursued for a debt they didn't owe.
Stopping debt collectors from pursuing the wrong people, as in the case of Moreno's daughter, is one of the CFPB's main areas of concern. Of the more than 7,000 complaints the agency has published so far, more than 2,000 were from people who reported being pursued for a debt they didn't owe.
The information breakdown often occurs when people's debt is shuffled around or purchased by debt buyers for about four cents on the dollar. When a buyer purchases debt from another company, what it's really buying is a spreadsheet filled with names and phone numbers of the alleged debtors, from which the company then tries to collect the full amount owed.
These spreadsheets are frequently filled with mistakes or missing information, said Claudia Wilner, a senior staff attorney with the New Economy Project, a resource and advocacy center in New York City. Through the organization's free legal hotline, she and the other attorneys have spoken to thousands of people who say they are being pursued by debt collectors based on faulty information.
"We have talked to many people who don’t owe these debts," she said. "Or even if there's some aspect of the debt they recognize, the amount has ballooned so much as to be completely unrecognizable."
The debt collectors also use these spreadsheets to sue people in civil court. According to a class action lawsuit in New York, suing collection agencies often fail to serve people with the required notices of complaint to inform them of their court dates. Instead they simply robo-sign affidavits that claim the notices have been served. Then, when people don't show up in court, the judge enters a default judgment against them, allowing the debt collection agencies to freeze bank accounts and garnish wages. Remember: All of this action is based on the error-ridden spreadsheets, leading to cases of people having bank accounts frozen over debts that weren't even theirs in the first place.
Wilner, who is working on the class action suit, said she was "heartened" to see the CFPB recently fine the massive payday lender Cash America $3.2 million for similar shenanigans, including robo-signing court documents.
"I would really like to see the CFPB take similar actions," she said.
Debt collection laws also vary from state to state, and there are issues that consumer advocates say the agency won't be able to remedy, no matter how aggressive its new laws are. In Minnesota, for example, third-party debt collectors can initiate lawsuits against people without even filing documents in court. This legal quirk ended up confusing St. Cloud resident Tammy Wold into missing the 20-day window she had to contest a claim, which she said is at least $1,500 more than what she owes.
On a Saturday morning in October, a man from the Law Office of Joe Pezzuto, LLC, arrived at Wold's door and handed her papers that he said were a legal summons and complaint. But when she examined the papers, she noticed there was no court number. Suspicious, she called the county clerk's office, only to be told there was no record of a lawsuit there either.
"They call it a summons, but it's not an actual summons," she said.
When someone sees court papers without a court file on them, she assumes that they are bogus.
Minneapolis consumer rights lawyer
That's exactly what collectors want people to believe — but it's not the truth, said Peter Barry, a consumer rights lawyer in Minneapolis: "The collection industry wants you to think it's a fake lawsuit because then they'll get a default."
Barry, who does not represent Wold but has sued numerous other Minnesota law firms for debt collection abuses, said that this legal loophole is an example of how the collection industry seeks ways to confuse consumers.
"The fact that she believes that it's a bogus lawsuit goes to the larger problem in Minnesota that the collection industry has intensely lobbied to get service rules that favor them," he said. He speaks to a half-dozen people each week who believe, as Wold did, that the summonses they've received are false.
"When someone sees court papers without a court file on them, she assumes that they are bogus. Just like if I gave you a dollar bill without a serial number on it, you wouldn't take it," he said.
An underlying problem
These types of state-by-state loopholes will be nearly impossible for the CFPB to regulate. But the bigger problem, others argue, is that it will be impossible to reform the collection industry without recognizing the underlying issue: the debt itself.
To the increasing number of Americans who are forced to assume debt to pay for basic needs, cleaning up the collection business can sound a little like slapping a fresh coat of paint on the Titanic. It might be a nice touch, but we're all still going under.
"I'm glad to see the CFPB exists, and that it seems to be taking a hard line with collectors," said Ann Larson, a professor at the City University of New York and a participant in the group Strike Debt. But in the long term, she said, people are going to have to challenge an economic system that pushes them into debts that — with flatlined wages and skyrocketing educational, medical and housing costs — fewer and fewer people can afford to pay back.
Recent headlines echo Larson's words. On Dec. 9, Shaun Donovan, the secretary of Housing and Urban Development, announced that the United States is in the midst of "the worst rental affordability crisis that this country has known," while The New York Times reported that medical costs have ballooned to the point that a single stitch costs $500. Student debt, meanwhile, has topped $1 trillion, dragging down both a generation and the overall economy.
"I just don’t see how you could address one without the other," Larson said.
*Have you or anyone you know been harrassed by a debt collector? Leave your comment below or share your story by emailing us at firstname.lastname@example.org