Fight back against ruthless debt collectors

Nearly one-quarter of the complaints the FTC fielded in 2012 involved harassment by debt collectors. Beyond the usual grievance of receiving phone calls constantly, and at all hours of the day and night, 23 percent of complaints alleged that collectors falsely threatened arrest or seizure of property. More than 13,000 people complained that collectors used obscene or abusive language.

Federal and state regulators are taking fresh aim at these abusive practices of the multi-billion dollar debt collection industry with fines and new regulations governing collectors and major banks. Banks typically pawn off their uncollected credit card, mortgage, or student loan debts to some 4,500 debt buyers nationwide, who purchase it for as little as pennies on the dollar, then make a profit by collecting on that debt. According to the Federal Reserve Bank of New York, as of the first quarter of 2013, almost 15 percent of all credit reports - an estimated 30 million consumers - show collection items from debt collection. These consumers' debt in collection averages about $1,400.

Often, innocent people are ensnared in collections because agencies haven't correctly identified the debtor or the amount owed. On July 9, Expert Global Solutions, the world's largest debt collector - and a subsidiary of JP Morgan Chase - agreed to a $3.2 million settlement with the FTC, the largest fine ever against a debt collector, for using hardball tactics, such as calling consumers' workplaces, to collect debts whose amounts hadn't been verified.

In further crackdowns, the state of California - which launched a suit in May against JP Morgan Chase alleging that the bank engaged in unlawful debt-collections against some 100,000 Californians - on Thursday passed a law requiring debt buyers to provide documentation proving that a debt is actually owed.

At the federal level, the FTC has historically taken the lead on enforcement. But of new interest to consumers seeking to fight off collectors, the Consumer Financial Protection Bureau (CFPB) announced last week that it will now hold banks responsible for the actions taken by the debt collectors who buy their debts. It's also accepting debt collection complaints and has published action letters for consumers to use in negotiations with collectors.

Accuracy in debt collection is important because collections are noted on credit reports and can significantly lower credit scores. According to a March CFPB report, about one in ten Americans are currently being contacted by collectors. Industry-wide error rates are tough to come by, but the Wall Street Journal reported last week that in an internal review of 1,000 lawsuits filed by JP Morgan Chase to collect credit card debts from consumers from 2009 to 20011, mistakes were found in 9 percent of the cases. Errors ranged from inaccurate interest and fee charges, to inflated balance totals.

Credit reports are not only used by lenders to determine how much you'll pay to borrow money. They're also used in non-lending situations such as employment decisions, by landlords when evaluating potential renters, and even by insurance companies in setting rates.

Here's how to use the CFPB's new tools to fight back against debt collectors:

- Lodge a complaint with the CFPB online or call toll-free at 855-411-CFPB(2372)

- Submit "action letters" - sample letters developed by the CFPB - whencorresponding with collection agents.

For more on harmful debt collection practices, see debt collection industry."