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How to Avoid Debt Collection Scams

Being hounded and harassed by shady debt collectors is the ultimate nightmare. Here's how to make sure you don't fall for phony bill collection scams.
Avoid debt collection scams
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Brian Stauffer

Michelle Minton had never felt so scared or humiliated in her life. The 42-year-old was at home with her two toddlers in Springville, New York, one morning when the phone rang. The caller, who said he was from a collection agency, immediately demanded that she pay the $2,100 she owed in credit card debt. Michelle racked her brain: Had she missed a payment? Was it something she charged before she got married? Nothing came to mind. "I think you must have the wrong person," she said calmly. That's when things turned nasty. "Listen, there's already a judgment against you," the man warned. "If you don't give me the money right now, the police are ready to arrest you and throw you in jail. And if your husband can't get home in time, social services will take your children." Horrified at the thought, Michelle panicked and gave the caller her checking account number. "When I hung up the phone, I was shaking and crying, and so were my kids," she says. "I felt like I had just been robbed."

In fact, she had been. The outstanding balance belonged to someone else with the same name, and the caller was just one of a growing number of collectors who berate, badger, and bully consumers into paying debts that aren't theirs in the first place. By the time Michelle pulled herself together and called the bank to freeze her account, the money was already gone.

Each year thousands of people are similarly victimized by fraudulent collectors, so intimidated by abusive tactics that they often pay up simply to end the harassment of themselves, their employers, family, and friends. "Operators like these have mastered the art of making people really, really afraid," says Bud Hibbs, a consumer advocate in Fort Worth, Texas, who runs the Web site More people complain to the Federal Trade Commission (FTC) about debt collectors than about any other industry, and with the economic downturn those numbers are rising: The FTC received some 45,000 complaints in the first six months of 2009, a 20 percent jump compared with the same period the year before.

Even if you are behind on your bills, you don't have to put up with foul play. The Fair Debt Collection Practices Act, as well state laws, provides strict guidelines that bill collectors must follow. They also impose penalties for any violations. "It's important to remember you have rights," says Jean Chatzky, personal finance expert and author of the newly revised Pay It Down! From Debt to Wealth on $10 a Day (Portfolio Trade). Michelle filed papers with the state attorney general's office, and after several months it recently brought charges against a dozen collection agencies in northern New York, including the one that contacted her. "I'm so glad they're going to see their day in court," she says. Your best move? Learn how to recognize—and fight back—when sleazy collectors cross the line so you won't get scammed in the first place.