How to protect yourself against debt collectors

Responding to a surge in consumer complaints, the federal government is cracking down on debt collectors.

The Federal Trade Commission has ramped up its enforcement efforts against debt-collection companies that violate consumer protections, pursuing nine cases against such firms and referring two to the Justice Department for prosecution. The Consumer Financial Protection Bureau, which started exploring ways to revamp debt-collection practices last year, is aiming to issue new rules to reform the industry in the next few months.

Fueled by a rise in "debt buying" and the lingering financial woes of the 2008 financial crisis, complaints about debt collection abuses have soared 900 percent since 2000, according to the National Consumer Law Center. In January alone, government regulators received more complaints about debt collectors than they did in the entire year of 2000, federal data show. Lawsuits against collection agencies also are on the rise, with some 200,000 such suits filed in New York alone in just one year.

Given the rise in both enforcement and complaints, what do you need to know as a consumer?

1. You could be tagged with someone else's debt. The financial crisis left many big banks and mortgage companies with untenable levels of non-performing loans. To get rid of those loans, many lenders struck deals to sell their bad debt for pennies on the dollar. But industry insiders say that some debt was sold with incomplete or inaccurate information, leaving the debt buyer to guess about the identity of the borrower. The result? People with common names, victims of identity theft and those who share a familyjavascript:void(null); name with a debtor are often mistaken for the real debtor.

2. The amount owed could be inaccurate or inflated. Like debtor names, outstanding loan amounts and whether loans had been repaid or discharged in bankruptcy are routinely among the many facts that have failed to get transferred to debt buyers. In addition, amounts owed can be inflated by a series of debt-collection fees.

3. Consumers have rights. If you have been contacted about paying a debt that you don't think you owe -- or that's more than you owe -- you are allowed under federal law to require the debt collector to provide proof of the debt. The collection company must send a "validation notice" within five days of their first contact with you. This written letter must detail to whom you owe the debt, the amount and offer instructions on how you can dispute the debt.

4. You have responsibilities, too. If you don't believe you owe all or some of the debt, you must request a "verification of the debt" within 30 days of getting the validation notice. That will stop the collection company from calling, at least until they send you proof that this is really a debt you owe. If that verification shows the debt belongs to another person -- or that the obligation was already satisfied through payment or bankruptcy -- you need to respond and explain the details. If you think it was simply an error or mistaken identity, ask for further proof, such as the loan application (which would include the borrower's Social Security number and signature) or information on what made the collection agency turn to you.

5. Telephone harassment of debtors is illegal. A debt collector cannot use profane language or threats. If you ask not to be contacted at work, or even contacted by phone, they are compelled by federal law to stop. Debt collectors also can't threaten to put you in jail. However, if firms have a legitimate claim, they can pursue legal action to garnish your wages to collect a debt. In addition, there is no legal limit on the number of times a collection agent can call in a given week. While "excessive" calling is considered harassment and is barred, there is no precise definition of how much is too much. If you feel you are being harassed, keep a log of the collector's phone calls and tape recordings of their messages. This can give regulators the evidence they need to end the harassment.

6. Complaints matter. If you are being harassed or unfairly treated by a debt collector, complaining to federal and state authorities has never been more important. That's because the Consumer Financial Protection Bureau is in the process of drawing up a new rulebook for the industry. To do that effectively, it needs to know what practices are being employed by debt collectors today and how those practices affect consumers. Where should you file complaints? The FTC is the first stop -- file complaints online at or by phone at 1-877-382-4357. The agency will put your complaint into the Consumer Sentinel database, which is available to law enforcement agencies across the U.S. You may also file a complaint with the CFPB, an agency formed under the 2010 Dodd-Frank financial reform law that protects consumers from abuse.