Debtors' -- and Collectors' -- Obligations

Whenever people ask me what they should do about their debts, I encourage them to call their creditors and do what they can to make good on their promise to pay.

Morally, that's the right thing to do.

I also believe debt collectors have a moral obligation to treat debtors honorably and with respect. Just because someone is a debtor doesn't mean he's a deadbeat.

However, there is a lot of evidence that far too many debtors are treated abusively by debt collectors. To address this problem, the Federal Trade Commission is recommending changes to how companies collect past-due obligations.

Since 2007, the FTC has been evaluating whether there is a need to change the debt collection system, including updating the Fair Debt Collection Practices Act, which is designed to protect consumers from abusive, unfair and deceptive practices by debt collectors.

In its annual report to Congress about the fair debt collection law, the FTC said last year that it had received more than 78,000 complaints about debt collectors. The agency received more complaints about debt collectors than about any other industry.

After evaluating these complaints, the FTC put together a report released this year outlining proposed changes to address two primary concerns. First, the agency wants to change the law to improve the information that debt collectors use to find debtors. Second, the FTC wants the law updated to reflect the way creditors contact consumers.

To improve the information that creditors use to collect debts, the agency is recommending the following:

-- Require that when debt collectors contact consumers, they disclose the name of the original creditor and a breakdown of the debt owed, including the original principal, total interest and total fees.

I can't believe this isn't already part of the law. Turns out that debt collectors often have inadequate information because the right to collect a debt can be sold and then resold. "This increases the likelihood that collectors will reach the incorrect consumer, try to collect the wrong amount, or both," the FTC said in its report, "Collecting Consumer Debts: The Challenges of Change."

Under current law, if a consumer disputes a debt, the collector is required to verify what is owed before pursuing further collection efforts. However, "many collectors currently do little more to verify debts than confirm that their information accurately reflects what they received from the creditor," the FTC said.