Patricia Nell Warren

Legalized Extortion

Filed By Patricia Nell Warren | January 24, 2008 8:13 AM | comments

Filed in: Living, Living, Politics
Tags: billing errors, consumer rights, financial crisis

I'm on the warpath about blood-sucking financial practices in the U.S., that drain the life out of many of us, a drop of blood at a time. Last time I wrote about legalized loan-sharking. This time I'm going to bark about a form of legalized extortion by the collections industry. It starts when a consumer disputes a billing error. The company continues to demand payment, and when the customer refuses, the company turns the claim over to a collections agency. What many people don't realize is that debts get sold to more than one collections outfit. They're being set up for multiple demands on the same bill.

Not only that -- when a debt is finally paid, the paper trail isn't always updated. So other collection agencies try to collect on that same erroneous billing as well.

Let's say that IPoop Phone Company slams your phone service away from AT&T. You catch IPoop in the act, and make them surrender your service back to AT&T. But IPoop bills you $100 for some "services" during the 48 hours when they had you, even though you didn't authorize the slam or ask for their services. You contest the billing and refuse to pay it. IPoop sells your unpaid bill to collection agencies. You continue to contest the claim by all the methods suggested by nonprofit orgs and government agencies who have tons of good advice about consumer rights. But the old IPoop thing goes on your credit record anyway.

The collections industry knows they have you over a barrel. In order to get a car loan, or a home loan, or a re-fi, or a business loan, or a line of credit, you have to deal with festering items on your credit record. Your mortgage broker advises you to pay the $100 to clean up your credit record. So you buckle and pay it.

Do the collection attempts stop? Of course not. The iPoop paper has been sold to other agencies. So the collections letters and calls keep rolling in. You keep on send the registered letters and do all the other stuff you're supposed to do. But six months later -- even after the statute of limitations has supposedly run out -- the problem is still there. The collections industry has various little strategies to get around the SOL. Now you're looking for a re-fi, and you wind up paying the $100 a second time to "clean up your credit record."

This exact scenario is happening to my own LLC right now, over a 2003 phone-service charge of $75.00 relating to a slam attempt. We already paid it once so we could qualify for a re-fi...only to face collection attempts from several other agencies.

The U.S. consumer debt was at a mind-boggling $2.46 trillion in mid-2007, and it soared another $15.4 billion in November alone. A certain percentage of this astronomical figure is erroneous billing that people have refused to pay. One source I found says that 2.4 percent of cable TV billings are errors. Medical Billing Advocates of America say they find errors in a whopping 8 out of 10 hospital bills. I'll bet that if anybody did a wide-ranging study, they'd come up with a shocking figure of how much billing error is lurking in the national debt.

Selling portfolios of bad debt has become a thriving new business for cash-strapped American companies. I can only imagine many billions of dollars of billing errors are being worked in this manner by the U.S. collections industry, so they can milk Americans for a second, even third payment, on an "debt" that has already been paid off under duress. And some desperate people will always pay up, because they need to fix their credit records in a hurry to get a loan or re-fi.

The collections industry counts on your desperation. They count on the fact that many people can't afford to spend days of valuable time writing the letters and making the phone calls, perhaps even hiring one of those firms that supposedly help you solve problems like this...all of which will cost you more than just paying the bill. The collections agencies know they're going to win on a certain percentage of those debts -- enough to make it worthwhile for them.

In the last few years, my LLC has seen a spike in the number of billing errors that we've had to fight. Right now we're disputing with a plumbing firm, a hospital, a phone company and a moving company that we hired to move our book stock to a new storage site. It's reached the point where I suspect that some big corporations deliberately create a certain number of erroneous billings so they can fatten the next portfolio of debt that they plan to market to collections agencies. How could a consumer even prove that a company had deliberately fabricated a billing?

Like I said -- this is legalized EXTORTION. The crime lies in the threat of ruining your credit to blackmail you into paying. And supposedly it's already illegal, under the U.S. Fair Credit Reporting Act. If you or I got caught running an extortion racket like this, we'd wind up behind bars for life without parole.

I don't suppose any of the Presidential candidates would ever take on the challenge of doing something about this problem if they got elected...even though it's one of the many things that is pushing the American consumer's financial face into the dirt right now.

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The debt collection places are definitely in cahoots with credit card companies and big business. It's almost like a pyramid scheme except it actually makes money for all involved (except, of course, for the sucker at the end who's getting screwed).

I really wish there would be some reform in this area, but I think you're right. No candidate is going to touch it.

My brother got hit with one of them because he stopped paying his two-year contract on his cell phone. He got out of it because he was being sent to Iraq - a completely legit reason according to his contract.

Of course, the collection agency kept on calling my place (I was next of kin, I guess? I don't really know why) and I kept on telling them that he didn't live there. I guess they just thought that I was trying to get rid of them, but I was like, he's in Iraq, stop calling this American number.

Oh, well, he had to deal with it from over there and it got straightened out, but it was really annoying until then.