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Collectors cross the line

Debt collectors protest that most firms are ethical, law-abiding and provide a needed service that helps reduce borrowing costs for all consumers. But the new economics of debt collection can encourage belligerent campaigns, including dogged pursuit of innocent consumers.

As I discussed in "Zombie debt is hard to kill," there is now a booming market in the pursuit of debts so ancient that they used to be considered un collectible. This year a whopping $110 billion of such debt is expected to be sold to collection agencies, up from virtually nothing 10 years ago.

Because the old liabilities cost collectors as little as 25 cents for each $100 in face value, companies can make a profit if they can get debtors to repay even a tiny fraction. Along the way, some collectors realized they also could squeeze money from people who didn't even owe it.

Some consumers pay because their finances are so disorganized they don't realize the debt isn't theirs. Others are coerced into paying by illegal threats of lawsuits or ruined credit. Some, like Alappat, pay rather than risk losing a desired loan.

'Why are they allowed to do this?'

The collectors are nothing if not persistent. Mary Kitzmann of Alexandria, Minn., endured four months of calls from Allied Interstate over a debt she didn't owe before the state attorney general's office succeeded in getting the company to admit it had made a mistake. Five months after that admission, Allied called Kitzmann again, trying to collect the bogus debt. Some consumers endure collection attempts from a string of different companies as one collector sells its un collectible debts to another.

A collector tried to dun Phyllis Maurice of Whittier, Calif., for more than $23,000, saying she owed the money in advertising services for two businesses: a detective agency and a psychic consultancy.
" I have been a preschool teacher for over 30 years and have never owned (either business)," Maurice said.
Maurice enlisted the help of an attorney friend who wrote the collector a strongly worded letter, demanding proof that the debt was Maurice's. Maurice hasn't heard from that collector, but later she got a call from another collection agency about the same debt.

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