The Regulators

The collection industry is regulated by the Fair Debt Collection Practices Act (FDCPA) of 1977, a federal act that limits how and when collectors can contact a debtor about past-due amounts owed to their clients. The Federal Trade Commission is primarily responsible for enforcing the act.

Before passage of the bill, most states lacked consumer protection laws that adequately shielded borrowers from unreasonable debt collection behavior, says Robert Hobbs, deputy director of the National Consumer Law Center in Boston.

Debt collectors in the past "had a lot of leeway," Hobbs says, and it wasn't uncommon for collectors to embarrass, harass or humiliate debtors. "It was a little bit like the Wild West," he says.

Now, under the Fair Debt Collection Practices Act, it is illegal for third-party collectors to threaten violence or harm to a debtor, use obscene language, or repeatedly use the phone to harass a consumer. In addition, third-party collectors cannot threaten to arrest a consumer for an unpaid debt or threaten to seize or garnish a consumer's property or wages unless the collector intends to do so and it is a legal cause of action.

The passage of the FDCPA placed certain constraints on a third-party collection agency. For example, a collector now must stop all contact with a consumer about a debt if the collector receives a written notice requesting no further contact or a written notice of a refusal to pay a debt. This, however, does not prevent a collector from filing suit against a debtor. In addition, it is illegal for collectors to talk to a third party, such as consumer's employers, relatives, neighbors or friends about a consumer's debts.

Darlene Glenn says she was relieved when she discovered that many of the tactics used by the collector calling her were illegal. At one point, she says, a collector had told her boss about her outstanding debts. "He was just humiliating me to my employer," she says of the collector.

Still, the FDCPA only applies to third-party collectors. It does not cover creditors (the bank that extended the credit), and it is unclear how it applies to the increasing number of debt purchasers. Courts have ruled that debt purchasers are covered under the act, according to Hobbs.

Debt buyers who attempt to collect on debt are considered "debt collectors" and must comply with the FDCPA, says Darren Bowie, assistant director of the Division of Financial Practices at the Federal Trade Commission.

While creditors are not covered under the national FDCPA, the Federal Trade Commission can file suit against creditors under Section 5 of the Federal Trade Commission Act, which prohibits unfair and deceptive practices. Some states have laws that protect consumers from creditors. The Federal Trade Commission also can seek remedies against creditors through restitution, refunds to consumers or by forcing creditors to give up profits from illegal activities, says Bowie.

When a consumer files suit against a debt collector, the maximum fine that can be imposed under the FDCPA is $1000, says Bowie. However, consumers may win far more in damages, such as for emotional distress. If they retain private counsel, they may also be able to recover their attorney's fees. In addition, violators of the law are subject to class action lawsuits. And under the act, the Federal Trade Commission can issue injunctions against collectors to stop illegal behavior or obtain civil penalties.

The suit filed by Darlene and Thomas Glenn against their credit card collector took more than two years to resolve, Darlene says. The couple eventually won the dispute, with the collector's attorney issuing a formal apology to the couple.

"We pretty much made it clear," says Darlene, "that all we wanted was some time" to pay off the debts.