For debt collectors, it's the best and worst of times

William "Capt. Wild Bill" Horwitz is a walking contradiction strolling through his 10-acre farm.

A born collector, he has accumulated hundreds of pieces for his Cracker-style home through near-daily trips to flea markets — an old John Deere tractor, a 40-foot cherry picker, a collection of vintage Volkswagens, even some carousel ponies he couldn't resist.

Yet he's tight with a buck, and especially hates the notion of carrying any debt.

"I've never even been to an ATM before," Horwitz says, "but I almost bought one at an auction."

His aversion to debt is understandable. During 40 years in the debt collection business, time spent developing his Clearwater-based Audit Systems into a 50-person operation, Horwitz has repeatedly seen how debt can eat away at a person, break up families.

Lately, there are far too many examples.

For Horwitz and his fellow debt collectors, this is simultaneously the best and the worst of times.

Their services are in sharp demand. Double-digit unemployment translates to surging delinquencies, particularly acute in places like Florida, which has the second-highest rate of credit card delinquencies in the country. Retailers, hospitals and credit card companies are all willing to turn to experts like Horwitz in trying to get bad debt off their books as painlessly as possible.

On the other hand, it's hard to retrieve payments or promises when consumers increasingly have to choose between paying their mortgage and a past-due credit card bill.

Horwitz remembers the days when he could collect 10 to 20 cents on a dollar's worth of debt; now it's hard to squeeze a penny or two on the dollar.

"Times ain't good for the bill collector," he said. "People just don't have the money. Even the honest ones don't have the money to pay up."

Horwitz knows that he and his ilk are persona non grata. He knows the indelible image: "We're a bunch of bad guys beating old ladies at midnight."

Bill collectors have had a particularly bad run on PR as of late:

• The National Association of Attorneys General said debt collection topped the list of consumer complaints to state attorneys general offices in 2008.

• Florida gubernatorial rivals Alex Sink (Florida's chief financial officer) and Bill McCollum (Florida's attorney general) are pushing for more power to investigate consumer complaints against collectors. Their dueling statements came in the wake of an Orlando Sentinel report indicating that McCollum's office has done little to address 4,400 complaints against bill collectors received this year.

• And then there's the nationally publicized case of Tampa widow Dianne McLeod, who sued debt collectors in September, alleging they contributed to her husband's fatal heart attack. McLeod said her husband was stressed out by receiving as many as nine caustic calls per day from Green Tree Servicing; Green Tree called the suit "outrageous and meritless."

All of the negative publicity makes Horwitz angry and defensive. "We go out of our way to be legitimate, yet we're all grouped together," he says.

Collection agencies as a group tend to receive many more complaints than other industries, not surprising for a profession trying to get debtors to pay up. The Better Business Bureau of West Florida said it has received 525 complaints in the past 36 months, 167 of those in the past 12 months.

The BBB lists 13 complaints against Horwitz's company, Audit Systems, over the past three years. On a scale of A+ to F, it gives Audit Systems a slightly better-than-average C+ compared with all businesses, not just collection agencies.

Horwitz maintains that his company complies strictly with the Fair Debt Collection Practices Act (PDF), which dictates that collectors call debtors during certain times of the day and refrain from threats and foul language, among other restrictions.

Though the law has been in effect since 1977, many are still confused about its interpretation and whom it governs.

The act was designed to police third-party companies that are hired to collect a debt, not the collection practices of the primary owners of the debt, like a bank or credit card company.

"The primary collector can say or do anything," Horwitz said. "He's not regulated."

Once, he recalled, Audit Systems received a collections pitch from a well-known computer company, which insisted that Horwitz's workers portray themselves on the phone as employees rather than third-party collectors. The deal was scotched.

"Our success is because we keep our clients forever," he said. "I can't afford to have people who don't follow the rules."

A changed business

At 64, Horwitz has a background nearly as eclectic as his farm, dubbed Shady Shores.

He went to the University of Delaware to study agriculture but wound up in the Coast Guard. He played drums in a rock band; for years, Capt. Bill lived on a 50-foot boat.

Sitting on his dock with one of his two dogs, Snoopy the dachshund, at his feet, Horwitz talks in a slow but steady pace about the evolution of the business he knows best.

Go back, way back, and a good bill collector used to collect up to 25 percent of a company's outstanding debt, keeping 50 cents per dollar collected. Now, recovering more than 2 percent is reason to rejoice.

Vanished is the era of endless dialing, crisscross phone books at hand, often leading to wrong numbers or no one home. Typically, 95 percent of the calls were of no value; on a good day, Horwitz could make 15 to 20 successful contacts.

Today, it's largely a numbers game, thanks to technology.

Predictive dialing, based on computer models, increases the odds of reaching the right person at the right time.

"The technology is out there to allow me to make 100,000 calls a day and avoid answering machines," he says.

The latest and greatest tool at their disposal is "interactive voice response," or IVR systems, in which a machine does most of the work. If the computer reaches someone, it tells him or her to press 1 to speak to a representative.

Not only is it cheap on labor, but some on the receiving end prefer it because its less invasive. It puts the choice of talking into the hands of the one being called.

There are broader, systemic changes in the industry, as well.

Traditionally, banks and credit card companies, after writing off debt deemed uncollectible, have sold that debt to asset buyers for a fraction of its face value.

Asset buyers, however, have gotten burned amid the recession and last year's financial collapse. They can't readily collect on debt they've already purchased, so they remain reluctant to buy more. And with the credit squeeze, it's hard to line up financing to buy better debt that has a stronger chance of return on their investment.

"When buyers were greedy, they'd buy anything and package them up, just like bad mortgage paper," Horwitz said. "But after it's been through that many agencies, the only one buying it then is a fool."

Debt used to be sold to an asset buyer immediately after a business charged it off as a loss for the company. Now that debt is more likely to be kept in-house and worked aggressively.

Companies may use their own staff or hire a third-party collector, like Horwitz's Audit Systems, to work collections for a fixed period of time. One collector may have a contract to work the debt in the 60- to 90-day "bucket" while the debt is still on the books, another in the 90- to 180-day bucket after the debt has been charged off.

The earlier you get a shot at collecting, the better. "So there will still be some meat on the bones," Horwitz explains.

The future

What's next for the industry? That depends on regulatory reaction to complaints that there are many collectors who either ignore laws against harassment or aren't subject to them.

Cognizant of rising complaints, debt collection trade group ACA International recently said it supports looking into a national debt collector registry.

In theory, every individual debt collector as defined by the Fair Debt Collection Practices Act or state law would have to be registered and pass an exam. The registry would enable industry employers to track complaints, increasing the accountability of individual collectors.

"We feel a national debt collector registry could be an important step toward effectively weeding out those rogue collectors who are making life miserable for everyone else," Rozanne Anderson, general counsel for ACA International, said in September.

ACA also said it was open to considering a new program to resolve disputes.

Bill collectors say they play an unappreciated but important role in American commerce, helping businesses retrieve lost debt and helping consumers keep their promises.

In a 2008 analysis (PDF) prepared for ACA, PricewaterhouseCoopers said $40.4 billion in debt was returned to creditors by third-party collectors in 2007.

The collectors association maintains that without the return of that extra money, businesses would have been forced to raise prices to offset their unrecovered debt. So the consumer would wind up paying more.

"Someone has to pay the cost," Horwitz says.

Moreover, perhaps those persistent collection calls will put someone on the path to a debt-free life. Perhaps he or she will eventually get the sense of monetary peace that Horwitz says he enjoys every day on the farm.

"I've escaped looking over my shoulder and worrying about how I'm going to maintain my lifestyle," he said. "I don't have to worry."

Jeff Harrington can be reached at jharrington@sptimes.com or (727) 893-8242. Follow him on Twitter at twitter.com/jeffmharrington.

The scenario: John Q. Debtor owes $5,000 on an Acme Credit Co. account that is 30 days past due. Here are two sample paths of how that debt weaves its way through the debt collection process. Debt collectors say there is a limited market to buy assets that have been written off (Path A), leading more creditors to opt for Path B. • As "primary" owner of the debt, Acme and its in-house collections team are not subject to some of the restrictions in collection tactics under the Fair Debt Collections Practices Act (FDCPA). But if the company uses a third party to try to collect the debt, FDCPA restrictions apply.

PATH A : Acme works the account as a "primary" owner of the debt. Different groups within Acme rotate collection attempts. One group is assigned a 30- to 60-day "bucket" to attempt collection and, if unsuccessful, passes it on to another internal group working a 60- to 90-day bucket.

Acme may opt to charge the debt off after 90 days or in some cases continue to seek collection internally up to 90 more days.

Acme writes off the debt in its books, notifies credit bureaus and sells the account to an asset buyer. The amount paid, typically determined by auction, could range from a couple of pennies to a couple of dimes per dollar of debt, depending on the quality.

An asset buyer may send out letters saying an account could be referred to litigation if payment isn't made. Depending on the structure of the buyer, it may work the account internally or farm it out to a third-party collector — perhaps a series of third-party collectors, each given a specific time period to work the debt.

If still unsuccessful, the asset buyer could sell the debt outright to another buyer or rebundle it with a package of other troubled debt and sell the bundle to another asset buyer, perhaps for less than 1 or 2 cents per dollar of debt.

PATH B: As with Path A, Acme initially works the account trying to collect the debt internally, while retaining ownership.

After a certain time, typically 90 days, it farms out collection services to a third-party agency that's bonded and licensed in the states it does business in. The agency has a fixed time period, perhaps 30 days, to work the account. Then the agency has to return the account to Acme and notify the credit bureaus that it has done so.

If unsuccessful, Acme hires another third-party collector. The process could repeat itself several times, often each agency getting slightly more time to work the debt.

If the rotation of debt collectors is unsuccessful after four or five levels, the debt is sent to "the warehouse." The debt is listed with the credit bureaus and often collection efforts are passive at this point. John Q. Debtor may eventually be compelled to pay up to clear his credit. In some cases, asset buyers may purchase some debt where they feel confident that a debtor is able to pay and suing them would be beneficial.

Before you pay

You're way overdue on a credit card bill. The collectors have started calling. But just who are they, and what rights do they have to pressure you to pay? These days, companies are more likely to keep a debt in-house and aggressively try to collect earlier rather than later.

Consumers are not obligated to pay a debt if the statute of limitations has expired (typically within seven years). In most cases, the statute of limitations starts ticking the day the last payment has been made on an account. A debt can be reactivated, however, if even a minor, partial payment is made.

The Fair Debt Collections Practices Act, passed in 1977, forbid third-party debt collectors from engaging in certain practices. Debt collectors must contact debtors within the hours of 8 a.m. to 9 p.m. The act specifies that a debt collector cannot engage in behavior to "harass, oppress, or abuse any person in connection with the collection of a debt." They cannot use or threaten the use of violence or use obscene or profane language.

A collector can call a neighbor or relative for help in locating the person who owes a debt, as long as there is no communication about the debt. Collectors must state their name and must give the name of their employer if the person specifically asks.

Collectors may contact a debtor at the workplace unless the collector has been informed the employer prohibits such calls. If that's the case, the collector must cease all calls to the debtor's workplace immediately.

For more information on the FDCPA, go to http://www.ftc.gov/os/statutes/fdcpajump.shtm.

Jeff Harrington, Times staff writer

For debt collectors, it's the best and worst of times 11/28/09 [Last modified: Wednesday, December 2, 2009 2:25pm]

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