So they don’t have to have the right person, the right amount and even the right debt — and they can do whatever they want without consequences:
Last month, Amrit Singh, an adjunct professor at Hostos Community College in the South Bronx, received a letter from the New York City Marshal, advising him that he owed $10,000, due within 20 days. If Singh did not pay, the letter said, money would be garnished from his paycheck. “It got me worried, because I knew I didn’t owe this amount of money,” Singh said.
Singh called the Marshal’s office, and they told him Atlantic Credit, a debt collection agency, secured a judgment against him for the $10,000. Singh had never heard of Atlantic Credit and had no contact with them in the preceding months. He was also told that the original debt came from HSBC Bank, for accumulated fees and interest on an account dating back to 2008. “This was more suspicious, because I had never opened an account with HSBC, neither me nor my wife,” Singh said. His credit report showed no record of him owing money to the bank, or any other credit incident matching this level of debt.
A colleague of Singh’s, hearing the story, had a theory. “He said, they probably told an intern, ‘Amrit Singh owes this money, go look up a name.’ And the intern found me.”
That’s not far from the truth. According to statistics from the Federal Reserve, one in seven Americans is being pursued by a debt collector, up from one in 12 just ten years ago. And substantial numbers of these Americans report being hounded for debts they do not owe. A new report from the Consumer Financial Protection Bureau logged tens of thousands of complaints claiming just this—that the debt in question is simply not theirs.
Can the debt collection industry be so careless as to continually harass the wrong individuals? The more you learn about how debt collection works, the more you’re surprised that they ever find the right target in the first place.When a consumer sustains a debt, the creditor can either attempt to personally collect it, or sell the debt to one of America’s 4,500 collection agencies. That auction process is completely broken, producing the ultimate in caveat emptor.
“Creditors provide debt buyers with almost no data, no original contract, no backup information,” said Ira Rheingold, executive director of the National Association of Consumer Attorneys. “The records are so poor that sometimes the amount of the debt is wrong too.” In a world of big data, the debt buyer market operates like it’s still the 1970s, where the commodity is merely a spreadsheet full of hints and leads, instead of reliable information about debts. The creditors, frequently big banks, try to indemnify themselves through the purchase agreement, in which they make no warranties about the legitimacy of the account information.
Debt collectors pay miniscule amounts—between four and seven cents on the dollar—for the vague information they get, so they have little incentive to ask for a more legitimate product that might cost more. They simply turn around and try to collect, making guesses based on the names and account numbers given. “We see everything. They go after people with similar names, the same name, fathers and sons getting called on each other’s debts,” said Carolyn Coffey, a Supervising Attorney at MFY Legal Services, a non-profit law firm in New York City. “They figure they bought this for so cheap, as long as they get a few positive hits, they’re going to make money.”
Because debt collectors don’t get full information, they sometimes try to collect on debt that has already been paid or discharged in bankruptcy, or cases where the consumer fell victim to identity theft and already reported the activity to their creditor. Sometimes the same debt gets sold to two different collection agencies. Nobody has an incentive to get anything right, so inaccuracies abound. “There’s a built-in sloppiness to this industry,” Carolyn Coffey said.
Debt collectors often use aggressive and in some cases illegal communication tactics to target consumers, making repeated phone calls, using profane and abusive language, even threatening arrests or asset seizures. In one celebrated case, the debt collector Unicredit decorated an office to look like a courtroom and held fake court proceedings designed to intimidate consumers into paying non-existent debts.
