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Published: Thursday, 10/15/2009

States target unethical debt collection tactics


WINSTON-SALEM, N.C. - With many Americans in dire financial straits, states are cracking down to make sure aggressive debt collectors target only people who legitimately owe them money.

National consumer credit laws prohibit collection agencies from harassing, deceptive, or unfair practices such as telling neighbors or family about what is owed, or calling before 8 a.m. or late at night. Since the recession started, at least a half-dozen states have adopted additional limits, such as imposing statutes of limitation on collections and adding opportunities to punish abusive practices in court.

Lawmakers are increasingly focusing on firms that buy bad debt from credit card companies and other lenders for pennies on the dollar and profit when they collect more than they paid.

Debtors - some agree they owe money, others say they've already paid or are disputing their bills - have reported being bombarded with calls and subjected to foul language and threats of arrest or deportation.

A North Carolina law that took effect this month requires debt buyers filing collection lawsuits to produce documents proving they're the ones owed the money. Trying to collect on a debt that a company should reasonably know is invalid could lead to lawsuits and civil penalties of up to $4,000 per violation.

North Carolina's law came too late to help Eleanor Chittum, 63, who lives in a Winston-Salem convalescent home. Her records showed she owed $1,439 to Direct Merchants Credit Card Bank on a Visa card, but paid off that account by transferring it to another card. She was stunned when a collection company contacted her to say she owed $1,800.

"Then they sent me a bill for that amount, and I said, 'Why do I owe that? I paid it off,' " she said. "I was shocked to see this bill come in like that."

A North Carolina company called Brock and Scott Holdings Inc. filed a lawsuit in late 2007 saying Ms. Chittum owed them the original amount plus interest. The company's lawyer said it wasn't required to prove from the outset that she owed the debt, just that its records were kept properly.

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