If you only read one thing this past weekend, it should have been a book excerpt, “Paper Boys,” by Jake Halpern, in the New York Times Magazine. It describes the colorful, seamy, more-than-borderline-dishonest world of firms that collect old debts.
As the industry has been described to me, there’s a hierarchy of debt-collection professionals, from the people who work for your bank or utility (indifferent, sometimes incompetent, occasionally mean) to the folks who buy ancient debt — known as “paper” — for pennies on the dollar and attempt to collect it, relying on no more than the occasional goodwill of debtors and their own antisocial tendencies. Very old debts are very difficult to collect, because they disappear from credit reports after seven years, and after a state’s statute of limitation on debt collections expires, the collector can’t even sue. So these wily collectors either hope that the debtor feels bad about being a deadbeat and wants to clear his good name … or that he doesn’t know the law. And when hope fails, collectors frequently resort to less savory tactics such as threatening to sue (legal), threatening to have you arrested (it may be legal to make the threat, but they can’t actually make good on it) or impersonating a law enforcement officer who is going to come arrest you (very, very, very illegal).
The problem is that even if they engage in illegal tactics, it’s a pretty low priority for the government. Though the harm these guys do is real, it’s not like this is an industry where you clutch your hand to your heart in the fear that tougher regulations might put you of business. The problem is enforcement. The Federal Trade Commission, which is in charge of regulating this stuff, is not really equipped to rid the world of a bunch of fly-by-night collection shops operating out of temporary office spaces or the back of some guy’s warehouse; it’s good at wrangling with corporations that have big, marble-floored headquarters that can’t easily be moved to a nearby shed if the government comes knocking. It’s easy to see why enforcement would be a low priority when shutting one fishy operation down just means that someone else will pick up the paper and do the same thing — maybe even the owner, operating through a brand-new shell company.
Halpern suggests at the end of the excerpt that we could move to a registry of debts, something like the central registry we have for real estate sales. That would certainly cut down on overaggressive collection efforts, at least if people bothered to check that they were paying debts they legitimately owed. But it wouldn’t eliminate them, because as aforementioned, enforcement is tricky. And setting up a registry is harder than you think, because while real estate transactions are relatively rare, consumer debts can come in any size and from any source. If you require people to register debts so that they can legally collect on them, you effectively create a system in which small-denomination debts can’t effectively be collected upon at all — which sounds great until Verizon triples its nonpayment fee in order to bring it up to “collectible” level.
Given all these complexities, the FTC doesn’t seem super-interested in getting such a registry going. That leaves you, the person fielding calls from debt collectors. What can you do?
For starters, know your rights:
— Familiarize yourself with the statute of limitations in your state. After that limit expires, debt collectors can’t sue you to collect any more.
— After seven years, uncollected debts leave your credit report. Debt collectors can re-report the debt, which would be a huge pain, but eventually the credit bureau will have to take it off again if you’re sufficiently persistent.
— Ask if they can validate the debt. Often, they can’t, because he’s some weasel who bought a spreadsheet off some guy he barely knows and is now calling down the list. These sheets frequently have errors. If you don’t remember this debt, or even if you’re unsure, demand proof you owe the money.
— You cannot be arrested simply for failing to pay debts you owe to a private company. Government debts are different — if you have tax debts or a judge has issued a bench warrant for nonpayment, then you will end up spending time in the pokey if you don’t pay. But that $150 credit card bill from eight years ago? Forget it.
— They cannot call your friends, family or boss to get help paying the debt. They also cannot call in the wee small hours of the morning, make threats or otherwise make it impossible for you to live a normal life.
Megan McArdle is a Bloomberg View columnist who writes on economics, business and public policy.