Don't Mess With Taxes

Just when you think you've heard it all, you haven't. Take, for example, a story in today's New York Times recounting how debt collection agencies are using the court system to keep people from getting relief from collectors via, you guessed it, the courts.

The story caught my eye because I've had family, friends and neighbors who've been harassed by debt collectors. It's also another example of the questionable, at least ethically if not legally, tactics many in bill collection industry use.

And it's a particularly disconcerting story just as the private collection agency folks are about to be forced upon taxpayers thanks to a new law.

Bad bill collection techniques: Let's make one thing clear from the get-go. If you run up a bill, you should pay it.

But I also know that there are many reasons, and many of them are good ones, why people get in debt over their heads.

Try as they might, sometimes efforts to pay such huge bills are darn near impossible. You can only pay so much if you want to keep a roof over your head or food in your refrigerator.

It's even more appalling when the debtor wants to pay and seeks revised terms that would make such payment more feasible, and the original lender decides it's easier and more profitable to simply sell off the debt rather than work out a new payment plan with the person who owes.

Once those debts are in the hands of a private debt collection agency, then the real horrors too often begin.

Phone calls, often incredibly rude and frequently threatening, are made to the debtor. Or, in violation of federal law, collectors call the debtor's friends and family, using similarly aggressive language.

Or, in the case of one of my neighbors, they call relative strangers.

Yes, I once got a call from a bill collector about a guy down the block. The collector proceeded to tell me about the alleged financial irresponsibility of my neighbor, a person I only knew to say hi to at occasional community gatherings. The bill collector actually wanted me to go to my neighbor and tell him to pay up.

Needless to say, I hung up on the collector. But I've never been able to look that neighbor in the eye since.

See you in court, or not: Such invasive and harassing calls are among the top complaints that the Federal Trade Commission receives each year about debt collectors.

The New York Times, however, looks at an even more extreme tactic.

Reporters Jessica Silver-Greenberg and Michael Corkery, writing for the paper's DealB%k column, examine how debt collectors sue for allegedly unpaid bills they bought -- and I keep saying allegedly because sometimes the debt/debtor information the collection agencies have is flat-out wrong -- and get courts' approval to garnish the presumed debtors' accounts.

But when the debtors try to fight the collection action in court, they can't. The most economical and practical way to contest the collection process is for a group of people who've experienced similar improper/wrong collection practices to file their own lawsuit as a class action.

That, however, is not allowed because most of the original debt purchased by collection agencies was issued under an agreement that says any disputes must be settled by arbitration. And class actions are banned in arbitration.

And that means that individuals fighting a collection agency would have to do so one by one.

"In short … debt buyers are using the courts to sue consumers and collect debt, then preventing those same consumers from using the courts to challenge the companies' tactics," write Silver-Greenberg and Corkery in their NYTimes article. "Consumer lawyers said this strategy was the legal equivalent of debt collectors having their cake and eating it, too."

Talk about the ultimate debt Catch-22.

After IRS debts again: And now the deep-pocketed debt collection companies and their armies of attorneys who help them devise skeevy creative collection strategies will be going after some taxpayers who have unpaid Internal Revenue Service bills.

Thanks, Congress, for saddling the IRS and us with these folks yet again.

From August 1996 through June 1997, Uncle Sam lost money on private tax collection. The same thing happened when the IRS tried it again from 2006 through 2009. Then-IRS Commissioner Douglas Shulman ended the second effort, saying the collection work "is best done by IRS employees."

That position is also held by current IRS chief John Koskinen. Noting that the tax agency already has the legal authority to use private collection agencies, Koskinen has testified on Capitol Hill that the agency has chosen not to use them "because of revenue outcomes, taxpayer service and cost effectiveness."

Plus, said Koskinen, the private collection agencies "do not provide the same protections to taxpayers from aggressive collection practices and anecdotal evidence suggested some taxpayers were being subjected to aggressive collection practices by at least some" of the private collection agents.

Consumer protection vs. political payback: Such arguments didn't persuade Congress.

Among those who advocated the unleashing of private collection agents on taxpayers for a third time are Sen. Charles Schumer (D-N.Y.) and Sen. Pat Roberts (R-Kansas), who spearheaded this latest effort, and long-time debt collector supporter Sen. Charles Grassley (R-Iowa). They and their colleagues in both the Senate and House who ultimately approved this latest measure swear things will be different this time, that collections will work better in 2016 and beyond than they did in two other failed attempts.

Schumer et al say the new mandatory private collection effort will draw "on past efforts and ensures that lessons learned are applied going forward. We have crafted a plan that has the safeguards necessary to protect taxpayers, the infrastructure to make it work effectively, and the resources it needs to succeed."

That infrastructure is still being worked out. But folks who watched the other private debt collection programs fail miserably wonder why the resources are going to private collectors instead of simply being added to the IRS' collection budget?

Can you say politics?

New York is home to several private debt collection companies that will benefit from the Treasury Department contracts. 

Those jobs for his constituents, says Schumer, is a key reason he pushed for the required hiring of private collection agencies. Both on the merits of the program itself and for jobs in New York, the Empire State's senior senator says "it makes eminent sense."

Not to be too cynical about it, but I suspect another "merit" is that that private companies like the collection agencies in upstate New York can contribute to political campaigns, whereas the IRS can't.

Third time, third strike? Chi Chi Wu, a consumer affairs attorney for the National Consumer Law Center in Boston, also remains skeptical about turning over tax collection to private agencies.

Whereas IRS officials have discretion to declare a tax debt uncollectible because of the taxpayer's financial condition, Wu notes that a private debt collector's mission "is to get blood out of stone."

Wu also points out that previous [failed] private tax collection efforts also contained consumer protection provisions. And we all know how those didn't work.

"Collecting taxes," Wu says, "is such an innately government action."

Maybe after this third time turns into a third strike, we can put this bad idea on the bench for good.

You also might find these items of interest:

• Have big tax bill? You could lose your passport
• 47 percent of former private tax debt collection cases left untouched by IRS
• Private tax debt collection requirement is part of transportation bill baggage