Some Company Practices Not to Their Credit
Consider the image of the collection agency on stage and screen. At worst, it suggests a night visit from two big guys in Hawaiian shirts. At least, it promises ruination of a good credit record: “The common assumption is they’re going to contact the major credit bureaus,” says Pat Cohen at New York City’s Consumer Affairs Department, “and put a black mark on your name.”
Federal law only reinforces the image. The Fair Debt Collection Practices Act prohibits harassing or intimidating debtors, calling their homes after 9 p.m. or embarrassing them at work and requires that collection agencies cease all verbal or written communication at the consumer’s request. The clear implication is that a significant number of collection agencies need such restraints.
The image invoked by a collection notice is particularly frightening to the ordinary bill-payer, only occasionally late and a little paranoid about his credit rating. Some businesses therefore just throw out the threat of collection, not as a last resort, but as a routine part of the billing process--often early, sometimes without justification or real intent, occasionally even deceitfully.
Time magazine, for example, sends out renewal solicitations half a year before the current subscription expires. Consumers who agree to renew may get one “payment due” notice, one that says “Payment Overdue” and threatens to “surrender” the account “for collection action,” and one from a collection agency in Great Neck, N.Y., informing the recipient of his rights as a debtor and demanding a response before the “matter becomes any more delinquent.”
In-House Units Exempt
This seems pretty heavy stuff for a subscription that doesn’t even start for several months.
Many companies have in-house collection departments, which do either the initial work on overdue accounts or all of it, thus saving the customary outside agency fee of 30% to 50% of payment collected.
In-house departments don’t come under the Fair Debt Collection Practices Act (they may, however, be covered by state law--California’s, for one) nor must they be licensed. But they do bear the company’s name--which may by itself temper their behavior.
Sometimes they don’t bear the company name or any hint of it; the consumer, unknowingly, is dealing with a subsidiary. Indeed, says Cindy Thompson, deputy chief of consumer services for California’s Consumer Affairs Department, “many of the original collection agencies in California were arms of the banks, which didn’t want to be known as the bad guys.”
Even a real outside agency may be used mostly for threat value: Most creditors threaten for a while before actually turning consumers over to an agency. And even if the threats are ignored, referral is not automatic but subject to review.
Other companies are quicker to turn accounts over to an outside agency, but the agency may only function as a paper tiger.
Paine Webber, the New York brokerage house, gives small debt accounts to a Lyndhurst, N.J., collection agency, which sternly threatens “future collection proceedings” if the matter can’t be settled “amicably” (the only settlement defined as amicable is a check payable to Paine Webber).
Strong Pen Tactics
But the agency doesn’t actually do any collecting--using biceps or any other method. Paine Webber, says a spokesman, has engaged the agency “for letter-writing services only.”
Collection threats seem particularly misused by magazine subscription departments, trying to strong-arm people into taking the magazine. Some offer free samples, making them automatically the first issue of a continuing subscription if the consumer doesn’t send notice to stop. They may also just ignore a negative reply, sending more issues and monthly demands for payment, including, eventually, a debt collector’s. But these, too, may well be providing letter-writing service: “We just buy a package of three or four nasty letters and one soft one,” says a circulation clerk, off the record.
Time magazine used to send subscribers renewal notices that looked like bills; if they were ignored, they turned into “overdue” notices, and sometimes threatened collection agency action. New York’s attorney general made Time consent to change its practice two years ago, but the corporate practice apparently didn’t die. The next year, a consumer who chose not to renew Time’s sister publication, People, even sought the help of California Rep. Anthony Beilenson (D-Los Angeles) when her subscription ended but not the bills saying that if she didn’t pay for a renewal, she’d be turned over to an outside collection agency “authorized to effectuate payment”--language that might suggest the work of the Hawaiian shirt brigade.
Time’s current collection threats are still as much a marketing tool as a billing and collection procedure. Subscribers still get those renewal notices half a year ahead, and once they accept and check off the “bill me” box, the monthly dunning starts. Time claims that when subscribers get the collection agency letter, the account is truly in collection: This is a case where it’s no empty threat, but it should be.
(It’s also not the norm, says Time Vice President of Circulation Ruth Shields. Usually about eight bills are sent and the situation is reviewed before an account goes to a collection agency. Indeed, says Shields, “we typically get paid very early.”)
Given such casual use of collection agencies for threat alone, ordinary people are probably unnecessarily frightened. Even if it were a serious collection procedure, with the collectors told to get what they can and quickly, few would want to go to court if they can get payment, even in dribs and drabs, and they certainly don’t want to if they have a disputable case.
Many don’t even report the case to the credit bureaus: “Most small accounts are not reported,” says Shields. “The people who use credit reports want to know about bigger issues.”
But any business so quick to use a cannon on a fly is capable of anything, and if the action is thoughtless and the matter disputable, one should probably counter the threats equally early. Two should play at such games.
