Oct. 25, 2002 12:00 AM
The Arizona Republic
When multiple sclerosis left Annette McGinnis unable to work, the Tucson woman relied on credit cards to make ends meet until her disability kicked in.
"I had five or six cards, and I maxed them all out," she said.
Before long, McGinnis was falling behind on minimum payments for debts topping $10,000. Collection agents took on her accounts.
"I was getting three or four calls a day, sometimes from the same company, and these people were often nasty and rude," the former nurse said. "I'd just sob after some of those phone conversations. I'd let them get to me."
McGinnis isn't alone. With millions of consumers burdened by mounting credit card debt, bank loans, unpaid medical bills and more, collectors are busier than ever.
Nationally, more than 6,500 firms pursued $135 billion worth of delinquent consumer IOUs placed for collection in 2000, up from $73 billion a decade earlier.
More than 450 collection firms are licensed to do business in Arizona, with roughly half having offices here.
The typical collector attempts 33 phone calls an hour in hopes of recovering money from past-due accounts, says ACA International, a Minneapolis-based trade group. Only about 11 percent of the debt is recovered.
Fueled by Americans' love affair with borrowing, the collection business has become a growth industry, with employment projected to swell by 35 percent over the next six years, according to the Bureau of Labor Statistics.
Even the Internal Revenue Service is mulling a plan to hire outside collectors to recover unpaid income taxes, despite the privacy and other concerns that would raise.
Past-due accounts tend to increase during periods of rising unemployment and slow economic growth. Consumer debt problems can reverberate, causing businesses to fall behind in their payments, perpetuating a vicious cycle.
"If businesses can't collect, they lay off people, and it becomes a domino effect," said Char Cody, owner of Select Recovery, a Scottsdale collection firm that focuses on commercial accounts.
Collectors point out that their efforts recover about $13 billion a year, keeping cash flowing to businesses already hurting from a sluggish economy.
One wild card is the rising incidence of identity theft. People with solid credit and an excellent record for paying bills on time sometimes receive collection notices on purchases made by crooks in their names. That can hurt credit ratings.
"With identity theft, you're guilty until proven innocent when dealing with a collection agency," said Richard LeFebvre, an ID-theft expert at AAA American Credit Bureau in Flagstaff.
Federal and state laws provide important consumer safeguards. In particular, the federal Fair Debt Collection Practices Act bars collectors from using threats of violence, obscene language and other egregious behavior. These rules don't stop harassment, as McGinnis' case showed, and they certainly won't wipe clean the slate on legitimate debts.
But they can help avoid some of the worst intimidation.
If you're contacted by a collection agency, consumer advocates say the first step is not to ignore the notification. If you fail to acknowledge a notice or phone call, a collector can place a demerit in your credit files after 30 days.
"The law is on your side, as long as you communicate with collectors," LeFebvre said.
You can stop further contact by requesting this in a letter to the collection agency, although it's possible another agency will step up.
McGinnis said multiple collectors for the same delinquent bill sometimes contacted her.
Many collectors work on commission, a situation that can encourage aggressive tactics. Also, some agencies buy bad debts from merchants, banks and others businesses for pennies on the dollar, creating huge motivations to collect as much as possible.
"It's a highly incentivized business," said Rudy Cavazos, a spokesman for Consumer Credit Counseling Services Southwest, a unit of Money Management International that helps people handle creditor relations.
On the other hand, collectors also deal with a lot of deadbeats with no intention of honoring their IOUs.
"Most people and companies do pay their bills," Cody said. "But if someone won't work with us, we'll turn over every rock to get money for our clients."
In cases of repeated phone calls, it's wise to document the contact, Cavazos said. The log should include the name of the caller and firm, the date, time and other pertinent facts. If push comes to shove, an attorney can use this information to force a collector to back off. It can also help when complaining to the Federal Trade Commission or state regulators.
McGinnis sought help from CCCSS, which worked out a debt-repayment plan with creditors and got the collection calls to stop.
"That was a big relief for me," she said.
The Arizona State Banking Department, which regulates collection agencies here, receives about 300 consumer complaints about them each year, about one-fourth of its complaint total.
"They're mostly for heavy-handed tactics like calling at inappropriate times or calling at a person's place of work," said Bob Charlton, an assistant superintendent at the department.
However, a big part of the state's oversight effort goes to ensure that collectors send the money they recover to the merchants, banks and other clients for whom it's intended.
Arizona examines the books of collection agencies about once every three years and has other licensing requirements, such as fingerprinting. The Banking Department shuts down about one agency a year on average.
Such supervision of collectors is important to maintain standards, Cody said.
"We handle a lot of money that doesn't belong to us," Cody said.
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