How to deal with those aggressive debt collectors

On the Money
From the  October 2, 2009 print edition

The United States doesn’t have a debtors’ prison. But in the midst of a recession, repeated calls and threats from debt collectors may make consumers feel psychologically trapped. The economic downturn caused many consumers last year to fall behind on bills and other obligations. As a result of the poor economy, debt collectors become more aggressive in their tactics.

For individuals, this usually means they can’t make their minimum payments on credit cards. In financial circles, monthly payments are called “debt service.” When debt isn’t serviced, creditors are less than thrilled.

Here are some tips, insights and suggestions for successfully handling creditors and collectors:

Don’t take it personally. Remember that a collection call, no matter how unpleasant, is a business transaction – not an assault on your personal character.

However, collectors may attempt to intimidate and scare you. Remember that many collectors are paid based upon what they collect.

Therefore, keep all conversations to the point, professional and focused on the debt.

Return every phone call. Federal law prohibits collection calls before 8 a.m. and after 9 p.m. Nevertheless, many hard-hitting collectors would like to catch the debtor late in the day or early in the morning, when they may be more susceptible to emotional pressure. Let the answering machine work for you at those times.

But, when you’re ready, emotionally detached and prepared to deal with it, return each call – even if it’s just to say, “I have nothing today.”

Not responding to phone calls will escalate your account through the collection process, and the situation will get out of control.

Remember your rights. In 1996, the Fair Debt Collection Practices Act (FDCPA) was enacted. It specifies that debt collectors can’t “harass” you. Specifically, collectors can’t call your office, call your home at certain hours, address you in an abusive manner, or call family or friends in an attempt to collect the debt. If you have an attorney, the collector may not contact anyone other than your attorney.

If you don’t have an attorney, a collector may contact other people, but only to find out where you live and work – but usually, not more than once.

In most cases, the collector isn’t permitted to tell anyone other than you and your attorney that you owe money. Furthermore, a debt collector isn’t permitted “to take any action that cannot legally be taken or that is not intended to be taken,” a prohibition that includes false threats of a lawsuit.

If there continues to be a problem with collectors contacting other people concerning your debt, or any other FDCPA violation, you can file a complaint with the Federal Trade Commission by calling 1-877-FTCHELP (1-877-382-4357), or online at www.ftc.gov. The FTC received 79,000 complaints about debt collectors in 2008.

You already have paid for some conciliation. Without going into an extensive dissertation on interest-rate theory, bear in mind that unless you’re paying about 1.5 percent on your loan, the creditor expects some delinquency. The risk structure of interest rates includes allowances for the creditor’s expected delinquency, liquidity, maturity and default risk.

If your loan has an interest rate greater than 9 percent and you have a history of prompt payment, you already have paid for your delinquency. This thought might be helpful in working out a plan for the creditor to receive its “real” rate of return.

Be ready to make a deal. Most creditors will be glad to negotiate a lower amount on the total you owe because it’s better for them to get some money than none. Even if the loan is secured, the creditor often prefers to renegotiate the loan than to seize and liquidate the collateral. This is particularly true with hospitals, credit-card issuers and car dealers.

Tell the truth. Collection situations never are cheerful. As tempting as it may be to make a promise based upon a hopeful event, that wouldn’t help the situation. It’s far better to say “I don’t know” than to say “Oh, the money will be coming next Tuesday.”

Based on truthful statements, creditors have suspended debt service for up to six months, thus allowing the company to work out of the difficulty. At the end of the day, the only people that will fail in business are those who are incapable of adopting an approach of rigorous honesty.

As our economic climate improves, so will our ability to service debt. By following the above suggestions, you’ll be able to manage out of tough times and be ready to exploit the opportunities of the next surge in fiscal activity.

© C. Stephen Guyer for American City Business Journals Inc. All rights reserved.