Rogue debt collectors are chasing Americans for debts they paid long ago or never owed, and they are threatening consumers with ruined credit reputations if they don’t pay.
They are pursuing innocent people who share a name or an old address with the real debtor. They are pursuing victims of identity theft and credit-card fraud.
They are illegally pressuring people to pay debts even without original documentation that proves they owe something.
Thousands of state and federal complaints reveal a cry for help from consumers who say that their credit reports have been wrongly tarnished by debt collectors.
Even one unpaid debt in collection — no matter the amount — on a credit report can prevent a consumer with an otherwise pristine payment history from refinancing a house, opening a credit-card account or buying a car.
The 34-year-old federal law that governs debt collection is so broken that the industry itself has joined a chorus of government regulators, watchdogs and consumer advocates calling for reform.
The problems are further exacerbated by the credit-reporting system that treats information from debt collectors no differently than that from a credit-card company, a mortgage servicer or a car-loan financer.
Debt collectors have virtually unfettered access to credit reports and can destroy an innocent consumer’s financial reputation with a few computer keystrokes.
“They don’t abide by any rules,” said Richard Rubin, a consumer-law attorney in New Mexico and an expert on the federal laws that govern credit reports and debt collectors. “Their job is to squeeze money out of people, and their business model is to go as close to the edge as they can. And they do it with the complicity of the credit bureaus.”
An ongoing Dispatch investigation into the nation’s credit-reporting system has found that credit reports have become a powerful weapon for some debt collectors who coerce Americans into paying debts that are invalid, erroneous or fraudulent.
Data from the Federal Trade Commission were analyzed, which included more than 22,500 complaints filed with the agency during a two-year period beginning in January 2009. They were filed by consumers who said they had a problem with at least one of the nation’s three largest credit-reporting agencies: Equifax, Experian and TransUnion.
More than 6 percent of those consumers specifically said that the issue involved a debt in collection.
And of the 11,400 complaints the Ohio Attorney General Mike DeWine’s office has received about debt collectors since January 2009, nearly 10 percent involve a collection account reported to a credit bureau.
Consumer advocates, government officials and industry observers say that people who file complaints represent a fraction of those facing the problems.
Since 2008, when the U.S. economy bottomed out, complaints to the FTC about debt collectors have increased 73 percent.
FTC officials told Congress in 2010 that based on their experience, the number of complaints logged against debt collectors may “understate the extent” of consumers concerns.
Debt collection, when done properly, is a necessary part of the U.S. financial system because it replenishes and recoups money that otherwise would be lost.
“If you didn’t have debt buyers and debt collectors, how much different would it be for a person to get a credit card,” said David Rubinger, spokesman for DBA International, a trade organization for debt buyers based in Sacramento, Calif.
Typically, when debt-collection companies take over or purchase portfolios of delinquent debts, they receive from the original creditor only a list that contains minimal information — consumers’ names, contact information and amount due.
Armed with that limited — and sometimes incorrect information — debt collectors report consumers to the credit bureaus.
A debt collector damaged Linda Reed’s credit history two years ago with a $65 collection account for Barbie and Sesame Street DVDs bought in 2005.
A mother from the Cleveland suburb of Garfield Heights, Reed repeatedly told the debt collector and credit-reporting agencies that she didn’t buy the movies. “I told them, ‘My children are 20, 28 and 24.’ But it is still showing up on my credit report,” she said.
Reed was among those who complained to DeWine’s office. One of every five consumers said that a debt collector had placed an account on a credit report without proof that the person owed the debt. The office received complaints against more than 3,000 debt-collection companies.
“Make them second-class citizens in terms of credit reporting, because they have second-class information,” said Robert J. Hobbs, deputy director of the National Consumer Law Center based in Boston.