She Was Going to Lose Her Home. Greg Pinado said that after his wife took the first call, she was afraid she was going to lose her home.
It was the first of half a dozen calls from Security Credit Systems Inc. of Buffalo, N.Y., the collection agency hired by County College of Morris (CCM) in Randolph Township to collect on a tuition bill from 1997.
The situation has shed light on the laws governing collection agencies and the tactics used to collect debts, tactics that sometimes skirt or violate federal consumer protection laws.
Pinado, 27, a former Berkeley Heights resident, now lives in Saddle Brook. He claimed that the collection agency threatened to put a lien on his home and further legal action if he didn’t pay.
He said the agency and the college never told him that he didn’t even have to pay the bill because the six-year statute of limitations on payments had run out.
Pinado was a student at County College of Morris in 1997 before he transferred to Fairleigh Dickinson University in Madison. He signed a promissory note to pay CCM if the college did not receive payment through a $2,100 grant he expected from the N.J. Higher Education Student Assistance Authority.
Pinado transferred from CCM and said that for eight years, he heard nothing from the college, believing the bill had been paid by the state grant. He has since learned that the grant was not provided because the wrong college code was listed.
The first call for collection came on Dec. 30, 2005, when an individual spoke with Pinado’s wife and allegedly used profane language, demanding the payment and claiming to be calling from CCM.
“He first called my wife and threatens to put a lien on my home, take legal judgment where I would be charged attorney fees,” Pinado said. “My wife was so frightened and badgered that she gave the man my work number.’’
The collection agent proceeded to call Pinado at his job as a pharmacy manager in Bergen County. It was the first of about a half dozen calls so far to his home, workplace and cell phone.
Pinado said the same person would call using different names and threatened that Pinado’s credit would be damaged if he didn’t pay. The most recent call came on Thursday, Jan. 19.
“The big thing was when they threatened to ruin my credit,” said Pinado. Diane Zitek, a CCM spokeswoman, said the college tries to collect student debts without forwarding them for collection.
“We spend years sending letters and reminders and then we turn it over to a collection agency,” said Zitek. “We have a promissory note that he (Pinado) agreed to pay if the financial aid did not come through.”
Zitek also said there is no statute of limitations on payments that are forwarded to collection agencies.
“He’s not dealing with the college anymore,” she said. “He’s dealing with the collection agency.”
But Glenn Chulsky, a Succasunna attorney who specializes in representing consumers complaints about collection agencies, said there is a six year statute of limitations for collecting bad debts in New Jersey.
Zitek said the Pinado case was unusual because the college has no deferred payment plan for tuition and has a “very small rate of default.”
Robert Dixon, vice president for sales and marketing for Security Credit Systems, said he would investigate Pinado’s claims that the collector had allegedly acted improperly.
Dixon said his company has many major college accounts and that colleges are sensitive to public criticism about collecting bills.
“You have to act in a normal, civilized way,” said Dixon. “When there is smoke and a student complains, colleges don’t like it.”
Dixon said there was more abuse by collection agents in years past.
“Things have really been cleaned up a lot,” he said.
Chulsky also said that in cases he has represented, the problems were not typical of the companies but usually involved “rogue employees.”
Dixon said the statute of limitations may have expired on Pinado’s bill but that did not bar the collection agency or the college from continuing efforts to collect on the owed bill. He also said the collection agency has no legal ability to force anyone to pay and that ability lies with the college.
Karen Vanderhoof, vice president for finance at CCM, said on Monday, Jan. 23, that the college was pulling Pinado’s bill for collection until the college can verify the facts.
“Until we pull all our records and validate what happened to the student, we’re putting collection on hold,” said Vanderhoof.
Pinado said he will pay the bill if it does not have a bad impact on his credit rating.
The Federal Trade Commission’s (FTC) 2005 report said that in 2004, the total number of complaints received about third-party debt collectors increased to 58,687, from 34,565 in 2003, a 70 percent increase.
A 1999 study conducted for the American Collectors Association, the trade association representing collectors. reported that collectors make an estimated 87 million consumer contacts every month – more than a billion annually. A 2004 report showed that collectors make 3.375 billion consumer contacts a year. At this rate, the complaints received by the FTC represent about 1 in every 58,000 contacts.
The collection business is big business in the U.S. In 2002 there were 5,215 collection agencies employing 445,000 collectors in the United States, according to a 2005 report by the American Collectors Association.
U.S. collection agencies earned $16.5 billion in 2004, annually, having tripled in the past 10 years.
The industry report also said the collection industry saves the typical American family $331 a year. This represents money they would have spent if businesses raised their prices to cover losses to bad debt instead of recovering the revenue through a collection agency.
“The debt collection industry is out of control,” said Steve Tripoli, a consumer fraud investigator with the National Consumer Law Center in Washington, D.C. “There is an aggressive new group of collectors who are evading the letter and spirit of the law.”
Tripoli said the maximum $10,000 fines imposed by the Federal Trade Commission are considered part of the cost of doing business by large collection agencies.
“For the past decade there has been a new breed of agencies who realize you can basically step on the law and get away with it,” said Tripoli. “You pay your fines and get on with your business. There is a gzillion rogue operators. Flaunting the law is standard practice for debt collectors.””
Nate Thompson, a spokesman for the Association of Credit and Collection Professionals, said all collections agencies must be registered with the secretary of state of their home state. He also said unethical or illegal collections practices aren’t effective in colleting payments.
“The most effective collectors are the ones who work with the consumer and not threaten or invoke fear,” said Thompson. “If you bring in emotions, you’re not working toward a resolution.”
One of the Largest in the Nation.
Security Credit Systems Inc. of Buffalo, N.Y., was formed in 1983. Dixon said the company is one of the largest in the nation in representing colleges and universities. Among the clients are Duke, Princeton, Cornell and Purdue.
Dixon said his company’s collectors are careful to act ethically and legally because colleges are sensitive to any public criticism.
“You don’t fool around with business like this,” said Dixon. “If you don’t serve students’ accounts correctly, you won’t keep the business.”
Dixon said many complaints regarding outstanding college bills are unfounded and are by people who simply don’t want to pay.
“There are very few innocents out there,” he said. “Students don’t expect schools to come after their money and they’re upset about it. There is a lot of nonsense spewed out by people who owe money.”
Dixon also said his company assigns experienced collectors to larger accounts and has ongoing training and seminars. He said new collectors train for about two weeks.
And while there are statutes of limitations on payments, Dixon said it is perfectly ethical for a college or collection agency to keep seeking payment.
“It’s still a moral obligation to repay,” he said. “There is nothing immoral or unethical about asking for repayment.”
Dixon said collection agencies were the target of significant bad press in the mid- to late-1980s. But he said since the late 1990s, the public perception has changed.
“Now, it seems the public has turned against debtors in general,” said Dixon.
There were no complaints on file with the state Division of Consumer Affairs against Security Credit Systems Inc., according to consumer affairs spokesman Jeff Lamb. He said the state requires that credit agencies file a $5,000 bond to do business in New Jersey.
Consumer advocate Budd Hibbs also said he had no record of complaints against Security Credit Systems Inc. Hibbs hosts a consumer radio show in Texas. His website, www. Budhibbs.com, tracks complaints about collection agencies in addition to offering information to consumers.
Hibbs said Buffalo is known as the “debt collection of the world” and that in the debt collection industry, a particularly egregious collector is known as a “Buffalo-style debt collector.”
Hibbs said the successful collection agencies usually use tough tactics to collect.
“Most people don’t respond to “please pay,”” said Hibbs. “They respond to “we’ll take you to court if you don’t pay.””
Chulsky, the Succasunna lawyer, said he does not charge for lawsuits against collection agencies because he accepts only those that are obvious violations. As part of the settlements or court decision, the legal costs are paid by the collection agency.
“It’s usually clear and easy to show a violation,” said Chulsky.
Collection agencies are regulated by the Federal Trade Commission (FTC) and the federal Fair Debt Collection Practices Act.
The act prohibits “abusive, deceptive, and otherwise improper collection practices by third-party collectors.”
The FTC 2005 report says the most frequent complaint was harassment. Many consumers said a debt collector called too often, others complained of collectors calling several times within a very short period, “screaming obscenities and racial slurs, or even threatening violence to the consumers or their family members.”
Another common complaint was that consumers did not receive the required written notice that lists the debt and other information.
The FTC reported that some collectors send consumers nothing in writing and illegally refuse to reveal the name of their collection agency, thereby preventing the consumer from registering a complaint about the collector.
The law also provides that if the consumer disputes the bill in writing, the collector must cease collection efforts until it has provided written verification of the debt.
Another common complaint involved calling a consumer’s place of employment: A debt collector may not contact a consumer at work if the collector knows that the consumer’s employer prohibits the consumer from receiving such contacts.
Another complaint was that collectors illegally revealed the alleged debts to third parties such as employees, relatives, children, neighbors and friends.
The act also requires debt collectors to cease all communications with a consumer about an alleged debt if the consumer communicates in writing that he wants all such communications to stop or that he refuses to pay the alleged debt.
This doesn’t stop collectors from filing suit but it does prevent them from calling the consumer.
Another source of complaints involves the use of false or misleading threats of what might happen if a debt is not paid. These include threats to institute civil suit or criminal prosecution, garnish salaries, seize property, cause job loss, have a consumer jailed, or damage or ruin a consumer’s credit rating.
The act prohibits such threats unless the collector has the legal authority and the intent to take the threatened action.
Debt collectors may not state that the consumer will be arrested if he doesn’t pay a debt; that they will seize, garnish, attach, or sell the consumer’s property or wages, unless the collection agency or creditor intends to do so, and it is legal to do so; or take actions, such as a lawsuit, when such action legally may not be taken, or when they do not intend to take such action.
An FTC report to consumers said a collector may contact in person, by mail, telephone, telegram, or fax but may not contact at inconvenient times or places, such as before 8 a.m. or after 9 p.m.
Consumers who believe a debt collector has violated the law has the right to sue in a state or federal court within one year from the date the law was violated. The consumer can recover money for the damages plus an additional amount up to $1,000. Court costs and attorney’s fees also can be recovered. A group of people also may sue a debt collector and recover money for damages up to $500,000, or 1 percent of the collector’s net worth, whichever is less.