Home > Managing Debt > 4 Debt Collection Practices That Need to Change

Comments 0 Comments

Major changes may be coming to the debt collection industry. The Consumer Financial Protection Bureau (CFPB) published an announcement asking for comments on issues facing consumers and the industry, while it prepares to develop new rules around debt collection practices.

This is a big deal — perhaps the biggest news since the Fair Debt Collection Practices Act went into law in 1977.

And more importantly, it’s a chance for consumers like you who are dealing with debt collectors to weigh in.

The stories we’ve published about debt collection on the Credit.com blog have been among the most popular with our readers, generating hundreds of questions and comments ranging from readers who don’t owe a penny but can’t stop collection calls coming in for the wrong person, to those who don’t have a penny to spare but are being hauled into court for old debts.

Based on comments from our readers, I picked a few recurring complaints and created a wish list of changes I’d like to see the CFPB address. We plan to share these with regulators, so feel free to weigh in using the comments section below if you have something you’d like to add. And the CFPB also invites you to submit your comments to them as well.

Collection Calls for the Wrong Person

The CFPB says it is concerned that debt collectors may try to collect money for debts from the wrong consumers.

We agree, and believe consumers should be given tools to prevent multiple (and often ongoing) calls for the wrong person. I previously shared how when my daughter got her first cellphone at the age of 11, it rang constantly with calls from collectors trying to reach the person who previously held that number. It’s now some four years later, and the calls persist, albeit less frequently, despite our repeated request to collectors to have them remove her number from their databases.

She’s hardly alone. Our story on the Credit.com blog about collection calls for the wrong person currently lists 124 comments with a range of complaints from consumers, including one from Kay, who says:

I keep getting phone calls for someone looking for a man with the same name as my ex father-in-law. I have been divorced for about 25 years, and he has been dead for about 20 years. I have told them every time they call there is no one living here by that name, and that the only one I ever knew by that name I haven’t seen in over 20 years BECAUSE HE IS DEAD. They keep calling back again and again.

Robocalls are particularly frustrating, as they do not always provide adequate information for the recipient to identify who is calling, or provide an option to allow someone who does not owe the debt to “opt out” of future calls without having to talk to collectors, who are not always accommodating.

A couple of suggestions: The CFPB could consider requiring that all robocalls provide an option for consumers in this situation, “press 5 if you believe this call is in error,” for example, as well as a central database that could be used by collectors to scrub their phone lists before they start dialing.

Confusing Collection Accounts on Credit Reports

  • What is this collection account listed on my credit reports for?
  • Why didn’t I get a bill before it went to collections?
  • Isn’t this too old to be on my credit reports?
  • Why is the same account listed with multiple collection agencies?

These are a few of the most common complaints we hear about collection accounts on credit reports.  One of our readers reports that she fell behind on three credit cards and now has 14 collection accounts on her credit reports!

In some cases, the first time consumers hear about a collection account is when checking their credit reports. They may find out about one of these accounts when they apply for a loan, get their free credit reports, or when they use Credit.com’s Credit Report Card to get a free credit score.

This problem seems to be especially prevalent in the case of medical debt. In some cases, consumers have told us they never received a bill before the debt was turned over to collections. But this may be too late. Once a collection account is on their credit reports, consumers are usually stuck with the damage for up to seven and a half years, sometimes even when there is a legitimate underlying problem.

Neverending, Growing Debts

Consumers who can’t pay their debts and wind up in collection are often surprised to find they actually owe more — sometimes substantially more — to the collection agency — than when they defaulted. For example, one of our readers wrote that a collection agency had doubled their debt:

I have an old credit card collection that started as a $4,000 charge-off and the collector is telling me that I now owe double that amount.  Can collectors arbitrarily charge whatever they want and call it “interest and fees”? Is there a limit to what they can charge? I want to pay the debt, and I now have a great job with decent income to do so, but I don’t want to pay more than I actually owe.

Collectors often can charge fees and/or interest, but how much they can (or do) charge is a mystery. When pressed for explanation, many collectors can’t explain how exactly they came to the figure they say consumers owe.

Just as troubling, consumers who are making payments may not be told they will be charged interest and as a result, they think that their entire payments are going to pay off the debt, when in fact only a small portion is going to principal. Without any kind of period statement or accounting of charges, consumers may make payments for years only to discover they still owe a substantial amount even though they thought their debt was paid off.

The CFPB has discussed the possibility of requiring collectors to provide better explanations of what consumers owe, and how the collector arrived at those figures. That’s a crucial first step. In addition, for consumers who are making payments on their debt, some kind of statement showing payments, interest and the current balance should be required, even if it is provided once or twice a year upon request.

Statute of Limitations

Over the years, we’ve heard numerous complaints from consumers who say a debt collector is trying to collect a very old debt from them. And even consumers with more recent debts also wonder how long a debt collector can try to collect. For example, one of our readers recently wrote:

How long will I be harassed by collection agencies? I was sick in 2007 and ended up with a bill for nearly $4,000. I have not been able to pay said bill and it has gone from one collection agency to another.

Our advice for these consumers? Research the statute of limitations for that debt in your state or talk with a consumer law attorney. Quite honestly, though, that can be easier said than done. Researching the applicable statute of limitations for various types of debts is confusing for consumers. Whom do you ask? Your state attorney general’s office may be able to help — or may not. And most people dealing with unpaid debt hardly feel like they have funds to pay an attorney for advice.

What I’d like to see: It would be helpful for the CFPB to publish and maintain an online consumer guide to the statute of limitations in all 50 states with general information on how they work. We understand it can’t cover every situation, but it could make it easier for consumers to research their options when they receive collection calls or letters for older debts.

What’s Your Wish?

These aren’t the only problems consumers are dealing with; there are certainly many more. I’d like to hear what’s at the top of your list — and the CFPB would like to hear your comments and suggestions, as well. Share your comments below, then visit RegulationRoom.org to join the discussion.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its affiliates.

Image: iStock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team