By now, it is a truism that too many Americans are financially overextended and maxed out on credit.   Total U.S. consumer debt, not including mortgage debt (which itself has made headlines lately, as the bubble of improvident and fraudulent lending that swept America finally bursts), reached a staggering 2.46 Trillion dollars earlier this year.  Recent studies report that credit card debt in particular has expanded rapidly, growing from $238 billion to $692 billion between 1989 and 2001.  The average American consumer’s credit card debt is now variously estimated at $5,066 per capita and $12,000 per household.   Although credit card debt has grown amongst consumers of all income groups, it has grown, especially quickly amongst the poorest consumers, climbing a staggering 184% between 1989 and 2001 amongst households making less than $10,000 per year.  Indeed, the Federal Reserve Board has identified the extension of credit to riskier households as a primary factory in the increase in the number of credit cards circulating in the U.S.

Enter Your Friendly, Local Debt Collector

Given these figures, it is not surprising that so many Americans now find themselves behind on their bills and targeted by the aggressive and sometimes downright unethical tactics of the debt collection industry.

Despite the industry’s claim that they “just want people to pay what they owe”, those of us who regularly deal with debt collection agencies know better:  debts belonging to someone else, debts that are too old to be legally collected, debts that have mysteriously mushroomed from a few hundred dollars to thousands of dollars during the debt collection process, debts that were already settled or properly discharged in bankruptcy – these are just a few of the “regular suspects” that make up the typical collection agency’s “debt portfolio”.  All of these are part and parcel of the debt collection industry’s modus operandi:  buy a portfolio of old debts from lenders or resellers for pennies on the dollar and start collection efforts with little or no attempt to discriminate between legitimate debts and debts that cannot be lawfully collected.

The low quality of these debt portfolios is matched only by the shabby way many debt collection agencies treat debtors:  Failure to serve consumers with crucial court documents, constant phone calls at inconvenient hours; unlawful garnishments and bank attachments; phone calls and letters threatening all types of actions that the agency has no intention of taking or, worse yet, that cannot be legally taken, even bogus threats of imprisonment and loss of custody– These shameful tactics are all regular weapons in the debt collection industry’s arsenal

Two factors drive this miserable business model:  First, collectors are counting on the fact that a significant percentage of debtors won’t understand their rights or will be too intimidated by threatening and harassing to assert those rights.  Second, debt collectors are counting on “default judgments,” meaning that a significant percentage of debtors will not respond in a timely manner to the lawsuits brought by collection agencies, allowing the agencies to cruise through the process unopposed and move straight to the phase in which a creditor –court judgment in hand — can garnish a debtor’s wages and/or attach the debtor’s bank accounts. In a default proceeding, like a baseball game in which only one team shows up, the debt collectors go unchallenged.  As a result, flagrantly uncollectible debts are routinely converted into court judgments.

What Are Your Rights?

So if you find yourself having to deal with debt collectors, what is and isn’t allowed?  A debt collector may not do any of the following:

• Threaten you with violence;
• Use abusive or obscene language;
• Threaten to send you to jail or have your children taken away from you;
• Falsely imply that they are attorneys or work for the government;
• Call you an excessive number of times, or at inconvenient hours (generally, after 9 PM and before 8 AM is off limits);
• Take your wages or property without a court judgment;
• Misrepresent the amount of money you owe;
• Tell you they intend to sue you when they have no legal right to do so or don’t have any intention of doing so;
• Tell your neighbors or other third parties about your debt;
• Engage in other deceptive or unfair practices.

So, what can you do?

First, save everything.  For example, save every letter you sent by the collector and every voice mail message the collector leaves.  Similarly, keep a phone log of all calls from collectors.  The log should include the date and time of every call, what collection agency called, the name (or more likely, pseudonym) of the collection agent, and the contents of the call, including whether any threats or profanity were used.  This documentation can prove crucial down the road, if you need to take legal action.

Second, request that the collection agency verify the debt.  You should do this in writing, not over the phone.  Your letter should be certified, with return receipt requested.   If the debt collector has been contacting you by phone, the letter should also state that you do not wish to be contacted by phone.  A debt collector is not allowed to contact you by phone after you have requested in writing that the collector not do so, nor is a debt collector allowed to contact you after you have requested verification but before it has provided verification.

Third, write to the three major credit reporting agencies  — Equifax, Transunion, and Experian, and request copies of your credit report.  If the report is inaccurate (for example, if a debt you don’t think you owe is on the report, or if the amount owed is incorrect) you can write to the credit reporting agencies explaining that the report is inaccurate and requesting that it be fixed.  You should also send a copy of this letter to the debt collector.  Again, send these letters certified return receipt requested so that you have proof that you sent them and that they were received.  These letters can help you protect your credit while you deal with the collector, and impose obligations on the agencies and the collectors that may help your case later.

Finally, if you have been sued, don’t miss any court dates!  Even if you can’t find a lawyer in time, you can attend the court date yourself.  If you tell the judge that you are in the process of finding a lawyer and would like more time, the vast majority of judges will accommodate you by resetting the date of the hearing.

Just because you owe money doesn’t mean you don’t have rights.  Even if there is a default judgment against you it may not be too late to challenge the debt or the debt collector’s activities.  Educating yourself about your rights and about steps you can take to protect yourself is a crucial step to ensure that you aren’t tricked or coerced by a debt collection agency.

The author, Daniel Schlanger, Esq. is a partner at Schlanger & Schlanger, LLP in White Plains, New York, and practices primarily in the area of consumer law.  He is a graduate of Harvard Law School and a former clerk of the Honorable R. Lanier Anderson, III of the U.S. Court of Appeals, Eleventh Circuit.  He may be reached by at daniel@schlangerlegal.com.