Debt collectors on the rampage: What you need to know

By Jessica Dickler, CNNMoney.com staff writer

Six months after Rob Hruskoci closed his business, a debt collector called and demanded payment that day for the $5,000 balance on his business credit card.

"They want me to wire them $1,900 in 5 hours," Hruskoci said. "It was all about intimidation and harassment."

With the economy in a tailspin, more consumers like Hruskoci are falling behind in their loan repayments, and finding themselves the target of aggressive debt collectors.

Complaints against debt collectors have risen substantially in the last few years, according to the Better Business Bureau – up 20% in 2006 and 26% in 2007, according to preliminary figures.

As cash-strapped consumers struggle to make ends meet, third-party collection agencies are buying up debt from companies and actively trying to recoup losses and collect commissions.

Collection services go after past-due accounts referred to them by various credit grantors such as credit card issuers, banks, car dealerships, stores and hospitals – any business that extends credit or offers payment installment plans.

There are about 6,500 collection agencies in the United States. And they serve a useful purpose – debt collectors returned $39.3 billion to the U.S. economy in 2005, according to the Association of Credit and Collection Professionals.

Third-party collectors are regulated by the Fair Debt Collection Practices Act (FDCPA), which is administered by the Federal Trade Commission (FTC). There are strict guidelines aimed at protecting consumers from abusive or unfair debt collection practices.

But there are also agencies that blatantly disregard those rules.

After a bad bicycling accident, Mike Gambino, 28, had a $20,000 bill from the hospital and no savings with which to pay it. He tried to work out a payment plan, but despite what agreement he thought he had made, his debt ended up in the hands of a collection agency.

Then began the months of harassment, he said, with agents often calling five or six times a day – from 6 in the morning to 12:30 at night.

"They were harassing me, one of them threatened to throw me in jail," he said. So Gambino learned what his rights were and got himself a lawyer.

In fact, collectors may contact you in person, by mail, telephone, or fax. However, they may not contact you at inconvenient times or places, such as before 8 a.m. or after 9 p.m., unless you agree. A debt collector also may not tell you that you will be arrested if you do not pay. (For more on your basic rights, see "What’s prohibited")

Proceed with caution

If a debt collector contacts you, your first move should be to ask for proof of the debt, said Linda Sherry, of Consumer Action, a consumer advocacy group. "What you should get is a real document with your signature that shows you applied for the debt."

Collection agencies use a practice of tracking people down called "skip tracing."

"Sometimes they make huge leaps between what’s real and what’s not," Sherry said. You might have been contacted erroneously, just because you have the same name as the debtor they are looking for, or their old cell phone number.

Even if the debt is yours, it could be old enough to no longer be collectable. Some debt has a statute of limitations, which can range from three to 15 years, depending on your state. Make sure you find out your debt’s expiration date because once you pay a portion or initiate a payment plan, the clock starts ticking all over again, Sherry said.

If you do negotiate a repayment plan, make sure you get it in writing – and that goes for every other correspondence as well.

It’s very important to open up a file and write down the names and numbers of the people who contact you, Sherry said. Keep copies of every letter sent and received, and track all correspondence with certified mail and return receipt.

To further protect yourself from harassment, use a pay phone if you don’t want the collection agents to have your phone number, and tell them not to call you at work.

You can stop a debt collector from contacting you altogether by writing a letter telling it to stop. Once the collector receives your letter, it may not contact you again except to say there will be no further contact. That does not make your debt go away, but it will offer a reprieve from the phone calls.

"I really recommend that people contact an attorney that’s a member of the National Association of Consumer Advocates," Sherry said. If you feel like you have been treated unfairly, find an attorney with expertise in the Fair Debt Collection Practices Act who will take the case on a contingency basis.

Plus, if you have an attorney, the debt collector must contact the attorney, rather than you.

You can also report any problems you have with a debt collector to your state attorney general’s office and the Federal Trade Commission. Many states have their own debt collection laws, and your attorney general’s office can help you determine your rights.

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