Sue the debt collector

This article was originally published by MSN Money, on Monday, March 29, 2010

Federal law sets clear limits on what debt collectors can do. If their tactics go beyond those limits, you can win money -- and it's a surprisingly easy process.

By Katherine Reynolds Lewis

If you're overdue on your bills, you may know all too well the headaches of phone calls, letters and threats from creditors.

Now some debtors are hitting back by suing when debt collectors violate their rights.

"People will take a lot of crap until it gets to the point where they're so desperate they feel they have nothing to lose by fighting back," said Steven Katz of Tucson, Ariz. Katz is the founder of Debtorboards, where consumers post their frustrations and successes with the collection industry.

Suing is a surprisingly easy process. Federal law lets individuals receive $1,000 for each abuse of their rights, plus any damages or attorney fees. Sometimes, a single phone call from a collector involves multiple violations.


"The violations they commit are spread all over the board," said Katz, who has reaped $38,000 by suing debt collectors in small-claims court. In a time when jobs are scarce and cash is tight, he believes collectors are becoming more aggressive with consumers and often crossing the line into illegal threats and deception.

Indeed, the Federal Trade Commission hears more complaints about debt collection than any other industry the agency regulates. In 2009, the FTC received 119,549 complaints about debt collection, regarding both original creditors and third-party collectors, up 14% from the previous year.

In a fall 2009 national poll of 1,001 adults, more than 30% of respondents answered yes when asked whether they'd received debt collection calls at inappropriate times of the day, in such frequency as to seem harassing or regarding a bill they didn't believe they owed. Forty-seven percent said letters and calls from debt collection agencies seem to be more common than in the past, according to the survey, conducted by Scripps Howard News Service in partnership with Ohio University.

When can you sue?
The first step in turning the tables on debt collectors is to know your rights. The Fair Debt Collection Practices Act prohibits such tactics as:

• Harassment. Using obscene or profane language or making multiple calls in a short period of time.
  
• Illegal threats. Saying you'll be arrested or sued, if the debt collector lacks the intention or ability to follow through. Threatening to garnish wages, if such a practice is illegal in your state.
  
• Inappropriate contact. Calling before 8 a.m. or after 9 p.m., or calling you at work after you've told them you can't receive calls there. Contacting your relatives or neighbors about your debt for any reason other than to locate you.
  
• Lying. Misrepresenting the amount you owe or the legal status of forms sent to you. Debt collectors falsely portraying themselves as attorneys or government officials, or claiming incorrectly that you committed a crime.
  
• Unfair practices. Giving false credit information about you or trying to collect any additional charges that aren't allowed under state law and the contract that initially created your debt. Making your debt appear more recent than it truly is.

Carrie Lengyel, a 45-year-old warehouse worker in Butler, Pa., knew the collection agent was lying when he left a voice mail saying he'd be stopping by her workplace and would need her manager to be available. At the time of the call, she'd been unemployed for a year and didn't have a place of employment for him to visit.

"It made me mad because I knew he wasn't allowed to say what he was saying," Lengyel said. "I never dreamed that you could actually sue them for coming back at you the way they do."

Two weeks after providing Pittsburgh attorney Clayton Morrow a copy of the recording the collector left her, Lengyel received a settlement for $1,000 -- twice her original debt -- and a promise to cease contact. She was happy that Morrow received $1,500 in the settlement, since he took her case on contingency.

Building your case

To lay the groundwork for a lawsuit, keep detailed records and document any possible violations of your rights. When you first receive a call or letter about a debt, start a file that includes the collector's name and address, a copy of all related documents and a record of every subsequent call, with the number it came from. If it's legal to record telephone calls in your state, do so.

The first time you're contacted, you have 30 days to dispute the debt. You should always do this, Debtorboards' Katz said, because it forces the collector to provide you with detailed documentation that the obligation is yours.

"Chances are they don't have it," he said, noting that many collectors purchase debts from the original creditors. "If you're going to accuse me of not paying a debt, you'd better prove a debt existed in the first place."

If you receive documents showing that you do owe money, look at the original date of the obligation and the last time you made a payment. Has the statute of limitations in your state expired? If so, the collector cannot legally sue you, and it's safe to tell him, in a certified letter, to stop contacting you. Any subsequent contact constitutes a violation -- and $1,000 in your pocket.

Think twice before you acknowledge owing the debt or offer a partial payment; you could inadvertently restart the statute of limitations or even hurt your credit rating. "Most first-time consumers get into trouble by opening their mouths and saying too much," Katz said.

He recommended reading your local court rules so you can file complaints yourself and avoid legal fees. If you're more comfortable hiring a lawyer, you can find one through the National Association of Consumer Advocates.

When not to sue

Before you run off to the courthouse, you should understand the possible pitfalls of suing or threatening to sue a debt collector.

First of all, make sure you're in a position to show up before a judge. If you fail to appear, the debt collector likely will win a default judgment against you.

Second, check the statue of limitations in your state for the type of debt in question; it can be anywhere from two to 15 years. If the statute hasn't yet expired, you run the risk of being sued in return and ordered to repay the full amount of the debt. If you're unsure, consult a lawyer.

"If there's a possibility of being sued on the debt, unless you've got a huge case in terms of damages, you're likely to open that Pandora's box where otherwise they might not have thought to sue you," said Dana Karni, a consumer debt attorney in Houston.

Traps to avoid

Remember, the debt collector is more experienced than you and knows all the tricks of the trade. To keep from being caught:

• Be wary. When you're in a conversation with a collector, keep your guard up, and don't volunteer any information. Stay general and vague, and never give out your bank's name or your account number.
  
• Get everything in writing. Insist on full paperwork for any settlement offer to ensure that you don't make a small payment you think has erased the debt but has instead restarted the statute of limitations, putting you back on the hook for a larger amount.
  
• Respond to legal papers. Many times, a collector's threat to sue you is empty. But if you do get a summons, file a response. Don't ignore it in hopes it will simply go away.
  
• Mistrust promises. Don't believe a debt collector's claims that he can improve your credit in exchange for a token payment. By the time your debt is in collections, your credit has already been affected. Moreover, unless you have proof that the debt is cleared, the collector could sell it to another company that might come after you again.
  
• Keep your cool. Don't let pressure tactics rush you into a decision. "Collection agencies are in business to scare and intimidate people," said Timothy G. McFarlin, an attorney in Irvine, Calif. "They buy debt at a few pennies on the dollar and then they look to collect the entire amount or more when they add fees."

Houston paralegal Monica Johnson felt a rush of fear when a debt collector threatened her with arrest, but when she checked with her local court, there was no outstanding warrant in her name. A few days later, the collector left her a voice mail saying he was at a nearby truck stop and was about to bring a summons to her house, where her four teenage daughters were home alone for summer vacation.

"I'm worried about this guy showing up at the house with the girls," said Johnson, who was at work at the time. "I'm trying to call my husband on the phone to see if he can make it there before me. I'm over an hour away."

Her husband ended up leaving his sick mother at a hospital and racing home to protect their daughters. Nobody ever showed up at the house.

When Johnson and her husband consulted attorney Karni, they were relieved to learn that the debt at issue, a payday loan, was too old for the collector to sue. Her complaint against the debt collector is pending.