Monday 1 August 2011

Bad collection agencies

There are many reasons why people don't pay their debts — financial setback, poor repayment habits, overspending or sometimes they're just not happy with a product they bought. Whatever the reason, it's important that they communicate with the persons who are owed money. When creditors understand the problem, chances are they will work out a reasonable, manageable way for the consumers to repay their debts.

Unfortunately for many creditors, there are people who are deadbeats who have no intention of repaying their debts. There are also situations when it is too time-consuming or costly for a creditor to try and collect the money themselves. It is easier for them to write off the debts as a tax break but to do that, they must show that an effort has been made to collect the debts and one way to do that is to turn the uncollected debts over to a collection agency.

Collection agencies is something I am familiar with because I worked in a number of them when I was younger and the last one I worked in, I was the collection manager of the firm for two years before I decided to work full time in the field of law.

I discovered the secret to collecting money from people who owed it. The secret is salesmanship. A smart collector will be able to sell the idea of paying off the debt to a debtor by presenting to him a repayment plan that will fit the debtor’s financial needs and offer him hope that some day, his favorable credit rating will eventually return to him again. (it will if he pays off his debts)

I remember working for a firm whose policy was that new bill collectors employed by the firm had to remain standing during their eight-hour working day so that they would become angry at everybody, especially the debtors. It worked. I was so angry at my employer, I quit in the first week I was with that stupid firm.

Don’t get me wrong. I was also angry at deadbeats who were rude to me but generally, most of the debtors I contacted were not rude to me because I wasn’t rude to them when I first contacted them and I maintained my civility with them during our conversations.

Some creditors will actually use a separate company name, address, and phone number for their internal collection departments, in order to give the impression of an "outside" agency, on the theory that debtors will take it more seriously. This strategy is generally only used when the debt is recent (under six months delinquent.)

However, most collections activity is performed by third-party collection agencies, which are separate from the original creditors, and "work" debts on behalf of various lenders. They may also buy bad debts which have been designated as charge-offs by the original creditor.

Collection agencies work on the premise that if the debtor doesn’t pay the collection agency or the creditor while the debt is in the hands of the collection agency, the creditor doesn’t have to pay any money to the agency. The agencies charge a commission which is generally 30% of the monies collected if not collected via court action and 50% if collected after the debtor has been sued. The collectors are generally paid a commission over and above their salaries. The firm in which I was the collection manager paid 5% of monies received by the agency or the creditor if the debtors in the files of the collector. The 5% was only paid when the collector had already collected a certain amount first each month.

Alas, there are bad bill collectors who work in bad collection agencies. This article is about such agencies and how to deal with them.

The Collection Agencies Act in Ontario prohibits collection agencies from doing certain things.

The Ontario Ministry of Government Services consulted the collection industry to develop a standard to be followed by all collectors. Having a standard also allows the public to have a better understanding of what collection agencies can and can't do.

The regulations forbid collection agencies from:

1. contacting you until six days have passed from sending you written notice of the following: the name of the creditor, the balance owing, the name of the agency and its authority to demand payment

2. continuing to contact you if you did not receive the notice unless a second copy of the written notice is sent to an address provided by you, and then contact may only be made six days after sending the second notice;

3. contacting you if you send a registered letter to the agency saying that you dispute the debt and suggest the matter be taken to court;

4. contacting you if you or your lawyer notify the agency by registered mail to communicate only with your lawyer, and you provide the lawyer's name, address and telephone number;

5. contacting you on Sunday, except between the hours of 1 p.m. and 5 p.m., and on a holiday;

6. contacting you other than by ordinary mail more than three times in a seven-day period without your consent, once the agency has actually spoken with you;

7. using threatening, profane, intimidating or coercive language, or using undue, excessive or unreasonable pressure; (threatening to sue is OK if the creditor will sue)

8. continuing to contact you if you have told them that you are not the person they are looking for unless they take reasonable precautions to ensure you are that person;

9. giving false or misleading information to any person;

10. recommending to a creditor that a legal action be commenced against you without first sending you notice that you may be sued;

11. contacting your employer except on one occasion to obtain your employment information, unless your employer has guaranteed the debt, the call is in respect of a court order or wage assignment or if you have provided written authorization to contact your employer;

12. contacting your spouse, a member of your family or household, or a relative, neighbour or acquaintance except to obtain your address and telephone number unless the person contacted has guaranteed the debt or you have given permission for the person to be contacted.

Not all collection agencies follow these edicts.

• It is a criminal offence for a collection agency to harass or intimidate you, to send you threatening mail or to threaten you over the telephone or in person.

• It may be a criminal offence if a collection agency is calling you many times a day at home or at work or is using scare tactics to get you to pay them.

If a collection agency is harrassing you:

• Tell them to stop contacting you as it is criminal harassment.

• If they make one more call contact the police and your phone company

• Report them to your provincial Corporate and Consumers Affairs office. This will place their licence at risk.

• If you get a letter purporting to be from a Collection Agency's law firm or lawyer, complain to their law society about harassment by that lawyer.

• You do not have to speak to anyone from a collection agency or deal with them if you choose not to.

• When they phone do not speak to them. Get the person's name, phone number and company name then hang up without saying another word.

• When they call back (and they will call and call) log the calls, but just continue to hang up without speaking to them.

• Do not tell them where or if you work.

• Do not tell them where your bank is.

• Do not discuss your finances with them.

• If you do make any payments to them, get a postal money order so they do not learn where your bank account is.

• Do not tell them anything at all.

• They have no right to extract any information from you whatsoever. Your chat will only give them more information they can use to harass you further. They are looking for information they can use to sue you and when, and if, they get a judgment, they will use that information to seize your bank accounts or garnishee your pay.

• If you have a debt in collection, the damage to your credit rating is already done. You may as well let them sue you. It will take many, many months, possibly years, for them to sue you and they may or may not proceed.

• Even it they do sue you, there is no guarantee they will get a judgment.

• They cannot touch your assets or garnishee your pay without first suing you and winning a judgment against you. That could take as much as year nowadays.

• Collection agencies generally do not like to sue. When they sue, they need their client's permission and usually if the amount owing is small, it is not worth their while. They will huff and puff and bluster and do anything to trick you into believing that you will be sued but unless they have permission from their client (your creditor) their huffing, puffing and blustering is illegal.

When I was practicing law, a client came to me complaining that the bill collector from one of the collection agencies in Ontario was swearing and cursing her. We recorded the conversation between the bill collector and my client and sent to the offensive tape recording to the Corporate and Consumers Affairs office. The bill collector was subsequently fired.

The best way to make sure that a bill collector isn’t abusive to you is to tell him that you are recording the conversation between you and him. I always told my staff to make the presumption that the debtor is recording the conversation and that they should govern themselves accordingly.

You should deal with collection agencies in a forthright and professional manner.

Try to treat them the way that you like to be treated yourself. Don't allow them to bully you into making commitments that you know you cannot keep. If you do make a commitment - keep it. If you cannot, be certain to explain to the agent why you can't keep it.

Ignoring collection agencies' attempts to contact you will not help you solve your problems: it might stop the collection calls - true, but beware that if they cannot reach you, they may simply proceed with the legal action.

Once a creditor sends your debt to a collection agency, your credit rating will automatically be flushed down the toilet. If you pay off the debt, you can ask the agency to send you a letter claiming that the debt is paid off. Then you should send that letter to the credit bureau so that future creditors will know that you no longer owe the money.

As long as the debt is outstanding, your credit rating will remain with what is called a 9 rating which is the lowest rating you can get in Ontario and other provinces. The U.S. credit rating system is different.

The Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 is a United States statute added in 1978 as Title VIII of the Consumer Credit Protection Act. Its purposes are to eliminate abusive practices in the collection of consumer debts, to promote fair debt collection, and to provide consumers with an avenue for disputing and obtaining validation of debt information in order to ensure the information's accuracy. The Act creates guidelines under which debt collectors may conduct business, defines rights of consumers involved with debt collectors, and prescribes penalties and remedies for violations of the Act. It is sometimes used in conjunction with the Fair Credit Reporting Act.

The FDCPA broadly defines a debt collector as "any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.

The Act prohibits certain types of "abusive and deceptive" conduct when attempting to collect debts, including the following:

Hours for phone contact: contacting consumers by telephone outside of the hours of 8:00 a.m. to 9:00 p.m. local time.

Failure to cease communication upon request: communicating with consumers in any way (other than litigation) after receiving written notice that said consumer wishes no further communication or refuses to pay the alleged debt, with certain exceptions, including advising that collection efforts are being terminated or that the collector intends to file a lawsuit or pursue other remedies where permitted.

Causing a telephone to ring or engaging any person in telephone conversation repeatedly or continuously: with intent to annoy, abuse, or harass any person at the called number.

Communicating with consumers at their place of employment after having been advised that this is unacceptable or prohibited by the employer.

Contacting consumer known to be represented by an attorney.

Communicating with consumer after request for validation has been made:

communicating with the consumer or the pursuing collection efforts by the debt collector after receipt of a consumer's written request for verification of a debt made within the 30 day validation period (or for the name and address of the original creditor on a debt) and before the debt collector mails the consumer the requested verification or original creditor's name and address.

Misrepresentation or deceit: misrepresenting the debt or using deception to collect the debt, including a debt collector's misrepresentation that he or she is an attorney or law enforcement officer.

Publishing the consumer's name or address on a "bad debt" list.

Seeking unjustified amounts, which would include demanding any amounts not permitted under an applicable contract or as provided under applicable law.

Threatening arrest or legal action that is either not permitted or not actually contemplated.

Abusive or profane language used in the course of communication related to the debt.
Communication with third parties: revealing or discussing the nature of debts with third parties (other than the consumer's spouse or attorney (Collection agencies are allowed to contact neighbors or co-workers but only to obtain location information; disreputable agencies often harass debtors with a "block party" or "office party" where they contact multiple neighbors or co-workers telling them they need to reach the debtor on an urgent matter.

Contact by embarrassing media, such as communicating with a consumer regarding a debt by post card, or using any language or symbol, other than the debt collector’s address, on any envelope when communicating with a consumer by use of the mails or by telegram, except that a debt collector may use his business name if such name does not indicate that he is in the debt collection business

Reporting false information on a consumer's credit report or threatening to do so in the process of collection

Further, the FDCPA requires debt collectors to:

Identify themselves and notify the consumer, in every communication, that the communication is from a debt collector, and in the initial communication that any information obtained will be used to effect collection of the debt

Give the name and address of the original creditor (company to which the debt was originally payable) upon the consumer's written request made within 30 days of receipt of the §1692g notice;.

Notify the consumer of their right to dispute the debt, in part or in full, with the debt collector. The 30-day "§1692g" notice is required to be sent by debt collectors within five days of the initial communication with the consumer, though in 2006 the definition of "initial communication" was amended to exclude "a formal pleading in a civil action" for purposes of triggering the §1692g notice, complicating the matter where the debt collector is an attorney or law firm. The consumer's receipt of this notice starts the clock running on the 30-day right to demand verification of the debt from the debt collector.

Provide verification of the debt If a consumer sends a written dispute or request for verification within 30 days of receiving the §1692g notice, then the debt collector must either mail the consumer the requested verification information or cease collection efforts altogether. Such asserted disputes must also be reported by the creditor to any credit bureau that reports the debt. Consumers may still dispute a debt verbally or after the thirty-day period has elapsed, but doing so waives the right to compel the debt collector to produce verification of the debt. Verification should include at a minimum the amount owed and the name and address of the original creditor.

File a lawsuit in a proper venue - a debt collector may file a lawsuit, if at all, only in a place where the consumer lives or signed the contract. Note, however, that this does not prevent the debt collector from being sued in other venues for violating the Act, such as when the consumer moves outside the venue and a letter demanding payment is forwarded to the new address, even if the debt collector is unaware of such a change in residence.

And now, I will tell you about a bad bill collection agency that I read about in the National Post recently and why I believe that it is a bad collection agency.

Aktive Kapital

One day in March of this year, the phone of Philip Mathias rang and a recorded message said in an authoritative voice: “Arthur M., (full last name not given) you are required to call Aktiv Kapital at 1-866-226-8881” Philip ignored it because he was not “Arthur M.” The recording came 12 more times but no live person from Aktiv Kapital ever contacted him.

Finally, he phoned Aktiv Kapital and said Arthur M. (also not his real name) has not lived at his address for 15 years. When Philip tried to discuss Aktive Kapital’s reasons for calling him, the person on the other end of the line hung up. The number of calls later reached about 40 additional times. Philip presumed that Aktiv Kapital had been trying to coerce him into telling them what he knew about Arthur M’s whereabouts.

Aktiv Kapital is a Norwegian company active in Canada and Europe. It claims to be one of the largest purchasers of “non-performing consumer receivables,” which it buys for cents on the dollar. It then uses its own methods to persuade the debtor to pay. In this case, though, Philip was not the debtor.

All provinces have legislation governing debt collection. But in Ontario at least, the legislation is widely flouted, according to Mark Silverthorn, a Kitchener, Ontario lawyer who specializes in this field. In November 2010, Silverthorn wrote to the Premier of Ontario calling for the resignation of the Minister of Consumer Services over the lack of enforcement of these laws. He says he did not get a meaningful response. That should not be a surprise to anyone in Ontario.

In the spectrum of abuses, Aktiv Kapital’s methods were mild.

A few years ago, Philip’s phone rang and a recording told any person who picked up the phone to call a certain company to “urgently resolve a serious issue.” The company was not identified as a debt collector. Worried, Philip phoned the number and a recording said no agent would be available for an indefinite period. Philip hung up. This happened a few more times, until he finally reached a live person, who transferred his call back to permanent hold.

Eventually, he located a supervisor who demanded to know where Arthur M. was. Philip refused to tell him and the man on the other side of the line said, “We’ll see about that.” After that, the company tried to bully Philip into helping them by ringing his phone much more frequently.

This is where Philip made his first mistake. Instead of saying he wouldn’t tell the caller where Arthur M. was, he should have simply told him that he had no idea who this man was. He left the caller with the belief that Philip knew where the elusive Mr. M was. That is like placing candy within the reach of a child.

An Ontario government official called this technique “tenderizing.” By the time the debt collector actually asks for payment, the distraught debtor is much more willing to comply. In Philip’s case, they were actually tenderizing an innocent party. When tenderizing failed, the collection agency engaged a lawyer to intimidate him, but that ploy failed also.

Philips worst experience was at the hands of an American bank. Its debt collectors rapidly resorted to deceit, insults and threats. For example, a woman called very early on a Saturday morning claiming to be Arthur M.’s friend and asked for his address. When that approach failed, an agent called from “Downtown Johnny Brown Collection Agency” (which as far as Philip could tell, it doesn’t exist.) The caller phoned Philip many times a day, often in quick succession, demanding that he give up Arthur M.’s location. When Philip refused, the caller tried to insult Philip by saying it was about time the caller told Philip’s wife that her husband is gay. The caller also threatened to slander Philip’s family with their neighbours.

Philip reported this conduct to an officer of the bank, who no doubt realized it constituted criminal harassment and the calls were stopped. But these methods are not rare. Other bill collection agencies do the same thing.

Aktiv Kapital debt was 10 years old, which means its legal force has expired. Doug Hoyes, a trustee in bankruptcy, says that an Ontario court will not usually grant a judgment against the debtor after two years has passed, and after six years, inactive debts usually no longer appear on credit bureau reports. So, if he is right, the Aktiv Kapital debt had effectively evaporated. Nevertheless, the company had tried to collect this ancient obligation by annoying Philip repeatedly.
Philip tried to block the calls using Bell Canada’s Call Privacy Service, without success. Bell told him the service does not work against companies with a “trunk telephone line.”

Next thing he did was to call a Toronto police officer. The officer told him that, even though he was not the debtor, he had no legitimate complaint against Aktiv Kapital, because the law allows debt collectors to call the debtor’s last known address up to three times a day between seven a.m. and nine p.m. for an indefinite period of time. This gives the debt collector the power to force an innocent person — say a frail landlady — to find a former lodger (the alleged debtor) at her own expense just to end the harassment.

The police officer was wrong. (Are you surprised? Of course you’re not.) It is a criminal offence for a collection agency to harass or intimidate anyone, to send any person threatening mail or to threaten anyone over the telephone or in person.
The offence of making harassing phone calls is contrary to s. 372(3) of the Canadian Criminal Code and it is by its very nature a continuing one that involves a course of conduct. That section states;

Every one who without lawful excuse and with intent to harass any person makes or causes to make repeated phone calls to that person is guilty of an offence punishable on summary conviction. (in U.S. terms, it’s a misdemeanor)

The large number of calls and messages, which based upon their content, the tone, the timing and history, could only be viewed by any court, or anyone else for that matter, as being for the sole purpose of harassing or indeed threatening Philip. For this reason, Aktiv Kapital’s repeated phone calls to Philip did constitute a form of harassment, considering the fact that he told one of the callers that he wasn’t the person they were looking for but despite that, 40 additional calls were made.

Were the calls made for legitimate purposes? There is clear evidence to support a finding that the debt collection agency used excessive and/or unreasonable pressure by making repeated calls to a person who was not the person they were seeking. If the matter were to go to a criminal court, Aktiv Kapital would be unable to provide evidence which could provide any support for a ‘lawful excuse defence’ in respect of calls made exclusively for the purpose of harassing Philip. Indeed, it is difficult to imagine a situation in which such repeated telephone calls made exclusively for the purpose of harassment could be sheltered under a ‘lawful excuse defence’.

The element of the offence of harassment requires the Crown (prosecutor) to prove that, as a consequence of Aktiv Kapital’s conduct, Philip was in a state of being harassed or felt harassed in the sense of feeling tormented, troubled, worried continually or chronically, plagued, bedeviled and badgered. I don’t think the Crown would have any difficulty in proving its case.

In my view, there is no doubt that there were repeated telephone calls by Aktiv Kapital’s collectors or collector directed to Philip after it was obvious that Philip was not going to be a source of information that the collectors or collector were or was seeking. This must mean that the calls were made for the sole purpose of punishing him. The numerous telephone calls are not just evidence of the purpose of communication alone but speak both the harassment component and knowledge that Philip would be harassed every time he answered their calls.

Finally, Philip spoke to an agent at The Ontario Ministry of Consumer Services who advised me to register a complaint and then they would “ask Aktiv Kapital why it is calling me.” I filed the complaint and received a form letter saying it could not be dealt with for up to six weeks. “There is not a lot government agencies can do,” Doug Hoyes says. “They have neither the resources nor the will to take concrete action.”

As a last resort, Philip called Aktiv Kapital again and in his words, he was drawn into a dance of the dialectic. He said that an employee of Aktiv Kapital claimed that Arthur M. had given Philip’s name as an “alternate contact” on a document. (If that is true, how does that justify 40 automated calls addressed to him on Philip’s phone, when they know that Arthur M. does not live here?)

The agent said he could take the recording off Philip’s phone if he had a number at which he could contact Arthur M. Philip said he would not help him because he had no involvement in any transaction. When he asked the agent to take the recording off anyway, he replied “The problem is I can’t. ”After a moment’s thought, the collector asked, “Can you have him call me?”

This is where Philip made his second mistake. He agreed to relay the information. This was the wedge in the door that the collector was waiting for it and Philip foolishly let the collector slip the wedge under hiss door. Now the collector would have reason to keep calling to see if Philip heard from the debtor.

“What if he does not call you?” Philip asked. The agent replied, “Then I don’t know what to tell you,” Then he said: “Because you are not yelling and hollering at me like other people, I will remove it.” Presumably, if Philip had dared to raise his
voice, the calls would have kept coming.

Finally, this week, an Ontario Consumer Services officer forwarded to Philip a reply she had received from the Aktiv Kapital compliance officer in answer to his complaint. But that reply itself shows the obstacles that victims face.

The Aktiv Kapital officer told Consumer Services she had put Philip’s phone number on their “do not call” list on May 15th and no more personal calls had gone out to it.” But in fact, the robo-calls continued for more than a month longer, making a grand total of about 40.

The Consumer Services officer told Philip that he had made a mistake by promising to pass on Aktiv Kapital’s information to Arthur M. “Now they know you are able to reach him,” she said ominously. Presumably, Aktiv Kapital has no other way of reaching Arthur M. and collecting its debt. So what will the company do if he doesn’t call them? Kiss off the debt, or start up with Philip again?

Final advice

There are lessons to be learned from Philip’s experience. First, if you don’t know who the person the agency is looking for, tell the caller that. Second, don’t offer to relay information to the debtor they are looking for. Third, tell the caller that if he keeps calling him, you will see a justice of the peace and a lay a personal charge against the agency and the collector who is harrassing you. Fourth, also tell the caller that you will also sue him and the agency in the Small Claims Court for harrassing you. Fifth, send a registered letter to the agency telling them that you don’t know who the debtor is or where the debtor is and finally, keep a record of all the calls your receive with respect to the days and times of the days.

You noticed that I didn’t suggest that you contact the government agency that governs collection agencies. In Ontario, it’s a waste of your time. They are so short handed, by the time they send you a response, you will have been dead and buried which by then, the response would be meaningless.

The best way to avoid being dunned by collection agencies is to pay your debts. If you are having difficulty in keeping up with your payments, them reduce your payments with your creditor. You will pay more interest but at least your debt won’t be transferred to a collection agency.

It is important to remember that collection agencies can only dunn you. If the matter has to go to court, it has to be the creditor’s decision which it will make on the advice of the collection agency. Since your credit rating is already at a low point at that stage of your debt, being sued can be a good thing because you can then make arrangements to reduce your payments with the judge. If you keep up the payments, neither the collection agency nor the creditor can garnishee you bank account or your wages. If they do garnishee your bank, they can seize 100% of what is in your account. Once that happens, the bank will close your account. If you are a senior and the money in your bank account came from your pensions, the money cannot be seized. If it is, it will have to be returned to you. If your wages are seized, the creditor or collection agency can only seize 20% of it.

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