Debt collectors. Next to the dreaded taxman, they're probably the most-feared financial folks around.
And chances are, if you owe money on a delinquent loan, a credit card bill or a medical payment, you've heard from one. Some work in-house for creditors; some are hired to collect on a company's behalf; others buy up bundles of old debts and try to pursue repayment.
To look at how they work and what you should know, we sat down for a Q andA with Robert Tavelli, former president of the California Association of Collectors Inc. and owner of a private debt collection firm in Santa Rosa, Calif.
Here's an excerpt of his comments:
Q: Debt collection consistently ranks high on U.S. consumer complaint lists. Last year, the Federal Trade Commission put it No. 2. Why do debt collectors have such a bad reputation?
A: There's always conflict when you call a consumer and they don't want to pay. Fortunately, there are very few bad actors. But they make big headlines. Unscrupulous debt collectors are those who break rules, who go after debt they shouldn't, who try to sue for debt that's 15 years old. Most debt collectors -- about 97 percent -- do it right ... That's where www.AskDoctorDebt.com came in. It's an effort to give consumers a better understanding of what we do -- a way to separate us from the bad actors.
(Note: AskDoctorDebt is the consumer website of CAC's national organization to answer debt-related questions and explain consumer rights).
Q: What are your debt-collecting strategies? How often do you go after bad debts in court?
A: It starts with a conversation. We send out a notice, listing (what they owe) and their rights. We follow up with a phone call within four to five days, asking if they got the notice. We're here to collect the debt but to work with (consumers) to try and resolve it. It's talking to people, listening. Not shutting them down. You have to have a dialogue. You do get more bees with honey.
Q: The recession appears to have dropped overall consumer debt. How has it affected what you do?
A: The recession has increased the volume of business, and we're working 10 times harder to recover the same amount of debt. People don't have the money.
Typically about 3 percent (of consumer debt) gets turned over for collection. Today, it's running around 6 percent. Our job is to help companies find the ones who can pay. Our job is not to go after people who can't pay.
Q: As debt collectors, you're different than debt settlement companies (that take a fee to work out a consumer's debts with creditors) or credit counseling agencies (that offer financial counseling and repayment plans, generally for little or no fee).
A: The consumer needs to know the difference. We represent creditors to negotiate resolution of a debt between (a company) and a consumer. It could be debt owed to a hospital, an auto parts store, a veterinarian. My fiduciary responsibility is to the creditor. My duty is to collect.
I have a bias that it's not in your best interest to work with debt settlement companies. They sometimes have consumers stop paying on bills in order to negotiate a settlement with creditors. It delays payment to creditors, it delays resolution, it makes matters worse before they get better. And the consumer often has to gather enough money to pay (the debt settlement fee) upfront. On the other hand, credit-counseling services teach consumers how to manage their finances and how to not get in the same problem again.
Q: What's your negotiating style in going after debt?
A: Generally, the idea is to evaluate the consumer's ability to pay and establish a payment plan that's resolved in a reasonable amount of time, say three to six months, depending on the (amount owed).
Q: What kind of reaction do you get when people pick up the phone and hear why you're calling?
A: Honestly, I think collection agencies receive more abuse than they give out. I had a guy years ago who threatened us with a bombing. I had a woman the other day, calling about a $2,000 or $3,000 deficiency balance on a car loan, who left the most foul-mouthed voice mail. She used every word in the book. People are under stress when they're in debt ... Our job is to sit down and work out a solution. We're trying to prevent "repeat performers" so a person has a chance to start over.