Debt Collectors Do Dirty Work for Creditors
Things have changed in the debt collection business. “It was a yelling, screaming atmosphere, and the old image was of a place with bars on the windows where they were going to beat your brains out,” says Michael Sigal, who heads the California Business Bureau, a collection agency in Alhambra. “This place is clean and computerized, and we try to teach our people to be good listeners and good salespeople.”
Indeed, collection is essentially a “sales-oriented business,” says David Peterson, administrative vice president of the American Collectors Assn. in Minneapolis. “You’re selling the client that you can do something they can’t and selling the debtor on the idea of paying the bill--that particular bill out of all the bills a debtor owes.”
Debt collectors are nevertheless dealing with the same problem they always did--people who can’t or won’t pay bills. Some are the proverbial deadbeats; more often, they’re people who’ve suffered “a break in their income stream because of layoff or illness,” says Robert Sable, attorney at the National Consumer Law Center in Boston.
Either the number of debtors or their debts are considerable: American Collectors Assn. members go after $14 billion in debts annually, and they represent only two-thirds of the industry. Certainly, the amount and variety of credit offered these days--from plastic cards to consumer loans--have increased, and “what generally gets people in trouble,” says Winston Bowman, general credit manager for the Los Angeles-based Broadway Stores chain, “is over-obligation.”
Collection agency behavior was modified in part by recent laws. There had always been “a fair amount of complaints each year, because people in debt don’t like to be hounded about it,” says John LeFevre in the Federal Trade Commission’s consumer protection bureau.
In 1977, Congress enacted the Fair Debt Collection Practices Act. It covered independent collection agencies, and--by later amendment--attorneys who regularly engage in debt collection, and was followed by a number of similar state and municipal laws, some of which, like California’s, cover the in-house collection departments of credit-grantors.
Confrontational Activity
The laws prohibited such obvious harassment as midnight calls or threats of violence and “restrained a lot of behavior that was a little shady, a little unethical, like getting in touch with employers for any purpose other than locating the debtor,” says Richard Elbrecht, head of legal services for California’s Consumer Affairs department. They also give the debtor certain rights, such as the right to demand in writing, at any time, that the letters and calls cease, except for notification of further, specific action.
Laws and image aside, debt collectors are still the tough guys of the credit world. Whatever their specialty--collecting for retailers, health-care providers or brokerage houses, among others--their activity is inherently “confrontational,” to use Peterson’s word.
They do, after all, get the accounts that others have given up on collecting. These range widely in size, from the average retail account with an overdue balance of $180 to $200 to a brokerage account in arrears more than six figures after Black Monday. Most, however, have already been billed three to five times and are 90 to 150 days “late” when they’re given to an outside collector.
The people the collectors have to call are therefore people who have purposely ignored several previous requests for payment, whatever their reasons. Half involve health-care bills, which tend to be put, says Sigal, “at the bottom of the barrel. What happens if you don’t pay a hospital? Nothing. You can’t do that with a car payment; they come and take it away. But even if you go back to a hospital, still owing them money, it’s more than likely they’ll see you again.”
Outside agencies are thought to have some “third-party advantage.” They’re a fresh--and supposedly objective--voice in a relationship gone sour. Moreover, the very fact that they call may be an added persuasion because “the debtor then knows the company has taken the next step,” says Jack Burton at Harvey, Scott & St. Charles Ltd., a Lyndhurst, N.J., firm specializing in collecting for brokerages. Presumably, then, it’s prepared to go further.
By and large, a collection agency gets a sheaf of accounts considered delinquent and just plunges in without investigating or verifying the claim; under current law, they’re not required to unless the debtor disputes it in writing.
Lenient Terms
Once the collectors have found the people involved--10% to 20% they never can find--they may call and then write, or write and then call. (Some never call at all: They’ve been hired just to send a series of tough letters under their name--four or five for a flat fee, usually under $10.)
Debt collectors say they’re willing to consider almost any terms; so do many creditors, meaning that a debtor could probably have avoided the whole collection process. Neither, however, would consider an unreasonable offer--$10 a month, for example, on a balance due of more than $500.
If there is still no payment forthcoming, the collection agency may pass the account to a lawyer to take to court, although the law doesn’t permit collectors to threaten suit frivolously. What’s more, most aren’t inclined to file suit unless the amount of money owed is worth it and unless “we believe, through our credit investigation, that they can raise the money,” says Sigal. There’s no sense getting a court judgment if there is no money.
For all their toughness, and all their salesmanship, collection agencies ultimately collect only an estimated 25% to 30% of the billings referred to them. That means they live with a 75% failure rate.
What’s worse, “you’re dealing with the negative side of things all day,” sighs Sigal. Apparently, being tough is tough on everybody.
