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Debt Collection Issue [Winter 2007-2008]

Download: Debt Collection Issue [Winter 2007-2008]   (CA_News_winter_07-08.pdf)


Table of Contents

Debt collection rules eyed with updates in mind

By Ruth Susswein

Collectors are impersonating sheriffs' departments, telling consumers, 'I'll arrest you,' attorney Dale Pittman told the Federal Trade Commission (FTC) at a debt collection workshop this fall. "Consumers are told, 'We'll take care of you at your home or job.'"

The FTC heard charges against collectors of intimidation, deception and disregard for the law at the two-day event in Washington, DC. The agency is considering revisions to the 30-year-old national debt collection law, the Fair Debt Collection Practices Act (FDCPA).

Consumer advocates urged the FTC to crack down on abuses of the FDCPA and require companies to collect better information before contacting consumers."There's a lack of information about the debt and the debtor. Cases are being filed beyond the statute of limitations...abuses are rampant," said Lauren Saunders of the National Consumer Law Center (NCLC).

Consumer advocates argued that collectors ought to disclose basic information to the consumer before collection can begin, including:

  • Proof of indebtedness
  • Amount of the original debt
  • Original creditor's name
  • Breakdown of all interest and fees
  • When debt was sold and to whom

Collectors agreed that they need better information to collect debts, but counter that there are huge costs to storing so much data.

Both industry and advocates see value in establishing an independent, voluntary dispute resolution program to address problems.

Some of the recommendations presented to the FTC include the need to:

  • Give consumers important information about the debt up front, such as the original creditor, date of the delinquency and a breakdown of the original amount, interest and fees.
  • Provide written notice to cease communications and dispute a debt under the FDCPA.
  • Conduct a real investigation to verify debts disputed by the consumer and to prohibit collection activity without such proof.
  • Prohibit credit reporting of collection accounts until the 30-day dispute period expires.
  • Prohibit credit reporting unless a debt can be verified.
  • Require notice on the consumer's credit report if the debt is in dispute.
  • Ensure that any subsequent buyers of the debt receive past dispute information.
  • Ensure that exempt income, such as Social Security payments, is not frozen to satisfy debts.

The FTC has not released a time line for updating the FDCPA.

Mandatory arbitration: New form of debt collection?

By Ruth Susswein

Credit card companies and other firms are using binding, mandatory arbitration as a new way to collect on debts that they otherwise could not get at, according to a recent study by the consumer group Public Citizen.

Public Citizen charges that consumers are "railroaded" into accepting arbitration as the only means to resolving a dispute. If you have a credit card, cell phone, cable TV contract, insurance, new car financing or even a mortgage, you've probably agreed to a fine print clause requiring all disputes to be settled in a private arbitration forum instead of in a court of law.

With no choice, little discovery and very limited right to appeal, the study concludes that binding mandatory arbitration is a system where the company holds all the cards.

"Consumers have fewer tools to fight back through arbitration. There is no due process. Everything is secret and consumers must accept this forum with no right to go to court," said Laura MacCleery, director of Congress Watch for Public Citizen.

Public Citizen studied credit card arbitration cases in California. California is the only state that requires companies to provide some limited information on these proceedings. Consumer Action was actively involved in the fight to require arbitrators to disclose their secret findings.

It turns out that companies—not consumers—are bringing cases to arbitration. Public Citizen found that out of 34,000 cases consumers filed for arbitration only 118 times. Almost all (99.6%) credit card disputes studied were brought by corporations.

What's more, consumers won a mere 4% of the cases.

Public Citizen's study revealed that arbitrators decided most credit card cases based on documents supplied by the company without the presence—or sometimes without the knowledge—of the consumer.

"Consumers often don't show up [to the arbitration hearing] because they say they never got notice and don't know that the system is binding, that it is a legally enforceable judgment," said MacCleery.

One critical complaint is that arbitrators rely on repeat business from the same pool of clients, creating a strong incentive to rule in favor of companies. (Of the 19,000 cases studied by Public Citizen, companies came out on top 94% of the time.)

Some who favor mandatory arbitration argue that creditors win more than 96% of the time in court too.

While arbitration can be a fair, efficient way to solve disputes it has much more appeal when the process is voluntary and is chosen once a dispute arises.

Bills currently before Congress would ban forced arbitration plans.

The Arbitration Fairness Act of 2007 (H.R.3010 and S.1782) would make it illegal to require binding, mandatory arbitration in consumer and employment contracts between parties of unequal power.

Meanwhile here are some tips to keep the system from being stacked against you:

  • Read the fine print of every contract before you sign it. If you can opt-out of mandatory arbitration do so. Opt-outs may be time limited, so act quickly.
  • Look for a credit card that has no arbitration clause. (The AARP card from Chase doesn't require arbitration.)
  • If you receive a change-in-terms notice from your card issuer, read it. If you disagree with a change, ask if you can "opt out" (reject the change) without closing the account.
  • Never ignore a notice if a company files an arbitration case against you.
  • Respond in writing and send it by certified mail.

Paying your debts

Collection rights and recourse

By Ruth Susswein

Nothing creates stress like financial troubles. If you're months behind on your bills you're probably getting calls from collectors. Horror stories abound of consumers being hounded by debt collectors, lied to, embarrassed at work, and even threatened with jail time. Each year, more people complain to the Federal Trade Commission (FTC) about debt collectors than about any other problem.

Even if you owe someone money you have a right by law to be treated fairly. The federal Fair Debt Collection Practices Act (FDCPA) is designed to protect you from harassment but the law only applies to debt collectors and collection attorneys—not to companies collecting their own original debts.

If you receive a third party collection notice you are entitled to ask the collector to verify the debt. You must put your request in writing within 30 days of receiving the notice. The collector must stop contacting you until the debt is validated. Thirty-nine states also have debt collection laws that may apply to you. Check with your state Attorney General's office for more information.

If you can't pay

If you owe a debt but you are not in a position to pay it, here are your options:

  • Contact the company and explain why you can't pay. If you are temporarily unemployed, for example, you may be able to negotiate paying a portion of what you originally owed.
    Once you settle on an amount and repayment plan get a signed letter from the collector stating that the plan you agreed to releases you from further obligations. The letter is your proof of what you owe and don't owe.
  • If you can't pay your debt because you live exclusively on Social Security or disability income, collectors cannot legally claim this money even if you are sued. Such benefit income is classified as "exempt funds." Some unscrupulous collectors will sue you anyway and send a demand draft to banks to withdraw exempt funds. In response, banks may freeze your accounts—then checks bounce and you lose access to your money.
    "Make copies of a Social Security letter and bank statements to prove that the funds are exempt and fax it to the collector," recommended Robert Hobbs, author of "Fair Debt Collection" and deputy director of the National Consumer Law Center.

Debts can haunt you

"Pablo" told Consumer Action that he continues to dispute a 15-year-old debt that collectors keep hounding him for. The debt passed his state's statute of limitations years ago. Now a third bill collection company is attempting to collect the same debt.

Sometimes a debt is so old that you can no longer be sued to recover those funds. These debts are called "time-barred." You may still owe the money, but each state sets a statute of limitations (from three to 10 years) on how long a creditor still can sue you to reclaim certain debts.

The statute of limitations does not remove the debt from your record, and while collectors can no longer sue, they can keep trying to collect. Debts stay on your credit record for seven years.

Some debts have no statute of limitations, such as federal student loans, fines, child support and taxes.

If the money you owe is time barred, send a letter to the collector within 30 days stating that the debt has passed the statute of limitations. Check with the state agency that governs collections (usually the attorney general or banking regulator) or a private attorney to learn your state's limits.

Time-barred debt trap

The FTC warns that some collectors may tempt you with new credit to trick you into paying time barred debts. They will offer you a credit card if you agree to transfer the old debt to the balance. Don't do this, because it restarts the clock on the debt and allows the collector to sue you if you stop paying again.

Bill collectors are persistent—that's their job. But some cross the line from persistent to abusive. If you are being harassed by a collector, it could be a violation of the FDCPA and perhaps also a violation of state law.

Restrictions on collectors

Under the FDCPA, collection agents cannot:

  • Call you before 8 a.m. or after 9 p.m.
  • Misrepresent themselves.
  • Contact you at work if your employer prohibits it.
  • Threaten you or use obscene language.
  • Claim you owe more than you do.
  • Claim that you'll be imprisoned or your property seized.
  • Contact third parties about your debt. To locate you, collectors can contact your spouse, your attorney and your parents if you're a minor.

What can you do?

Even if debt collectors aren't breaking the law, you can stop them from contacting you. Send a certified letter insisting that they stop. (It's called a cease and desist letter). Keep a copy. Collectors may only contact you one last time to notify you about what their next step will be.

If you are being harassed, keep a record of all calls or record the call if it's legal to record phone calls in your state. File a complaint with the Federal Trade Commission's (FTC) Consumer Response Center at or call 877-FTC-HELP (382-4357), with your state AG, and with the collectors' trade group, Association of Credit and Collection Professionals at or (952) 926-6547.

Don't ignore the debt

If you are sued, show up in court and explain why you can't pay. Often you can negotiate a smaller payoff. If you don't show up in court you will automatically lose.

According to a 2006 Boston Globe investigation, 80% of debtors sued in Massachusetts don't show up in court, which makes winning very easy and very lucrative for collectors.

Once a judgment is filed against you, your wages can be garnished or your car may be repossessed to cover the debt.

Debt may be legitimate, but you can verify & dispute it

By Ruth Susswein

A bill collector calls, saying you owe a debt. The problem is, you don't recognize the name of the creditor or the amount.

There may be several valid reasons why you don't recognize the debt. The amount owed may be unrecognizable because of all the penalty fees and interest charges that have been heaped on the balance. The debt may have been sold or resold so you don't recognize the name of the company trying to collect.

Your first course of action is to ask the collector to verify the debt. This requires the bill collector to get confirmation from the original creditor that you owe the debt and how much is owed. You must request validation within 30 days of the attempt to collect. By law, once you've asked to verify the debt, collection calls should stop until the collector can provide you with validation that the debt is yours.

If you are not the person they are looking for, or you never purchased goods from or owed money to a certain company, you could be a victim of identity theft. You often don't learn this until the debt collector comes calling. If so, dispute the debt immediately. (See story below.)

Some people don't learn about a debt—or even a collector's lawsuit—because the bills and collector's notices were sent to the wrong address. Those who do get the notice often fail to understand how serious the situation is, warns Robert Hobbs, author of "Fair Debt Collection" and deputy director of the National Consumer Law Center (NCLC).

Hobbs said in the past it was not as common to sell debts to independent collection firms, but today the debt can change hands several times and subsequent owners of the debt keep trying to collect.

"In the last five years, millions of consumers have had default judgments filed against them because debt buyers can buy a $5,000 debt for just $50," said Hobbs. If a collector sues you and you don't show up in court, the debt owner by default wins the case and can pursue legal means to collect the debt.

Other people lose in court because they've negotiated a partial payment in the past and they don't have a record of the settlement to show a new company hounding them for the entire amount, plus penalties. If you reach agreement to settle a debt be sure you have a signed letter from the creditor or collector that you can use to dispute future efforts to collect the same debt.

What you can do

If your credit report shows a debt you don't believe you owe, dispute it—in writing—with the credit bureau (and collector or other creditor). You are not required to provide proof, but it can help to provide documentation that the debt has been paid. Keep copies of any materials you send. If the dispute is not resolved you can put a brief dispute note in your credit report while you continue to make your case.

Contact the collector to learn where the information came from, then dispute the debt with the original creditor as well.

When a debt is disputed collectors must confirm the debtor's name and the amount owed. This is little more than confirmation of the creditor's records, but it may help in some disputes.

Stronger law needed

At an Federal Trade Commission (FTC) debt collection workshop this fall, the NCLC urged the FTC to strengthen debt collection law to require documentation when a debt is verified. While collectors are required to verify the debt, they rarely, if ever, can produce documents showing the original contract, creditor and debt amount as well as a list of all fees and interest charges.

If you believe you are being unfairly targeted for a debt, send a cease and desist letter (by certified mail) telling the collector to stop contacting you and explaining the reasons why you dispute the debt. If you've paid the bill, provide details and ask the collector to send you all information in its files. It is the creditor's burden to prove who the debtor is and how much he or she owes.

If you provide proof that the debt is not yours, and the collector accepts your position, ask to be sent a letter confirming that you are not liable for the debt. Sometimes collectors resell debts and you'll want as much proof as possible so that this debt doesn't continue to haunt you.

Zombie debts

Debts can show up on your credit report more than once. The original default can be listed, along with each time the debt was sold and attempts were made to collect on it. And it can appear again if the collector sues you and gets a judgment against you.

The collection industry tells the FTC that when they learn of a dispute they stop collection efforts, and report the dispute to the credit bureau. Collectors say they don't waste time on debts they can't verify. But many consumers would disagree.

The industry is fighting any additional verification requirements, which they claim would be a financial burden.

What if you don't owe the debt? Keep cool, fight back

By Linda Sherry

It's frightening to be contacted about a debt you don't owe. It's even worse when the collection appears on your credit report.

A collection account on your credit report will count against you, and will cause your credit score to get worse.

If a debt is not yours, it could be a mistake or you may be a victim of Identity Theft. ID theft affects tens of millions of consumers each year. ID thieves steal your identity and use it to open up new lines of credit. The credit is used to buy things and you get stuck with the bills—and collection notices.


Act immediately

If this happens to you, take immediate and decisive action. Keep your cool and attempt to remain polite with the people you speak with.

  • Order your free credit reports—or paid ones if you've used up your free copies this year—by calling 877-322-8228. In cases of potential fraud or mistaken identity, don't order your credit reports online. You may be subject to a binding mandatory arbitration agreement, which may postpone any legal actions you choose to take.
    If you have been denied credit for any reason, you have a right to get a free credit report from the credit reporting bureau that provided it to the creditor who turned you down.
  • If you discover collection accounts that are not yours, follow the instructions with your credit report for disputing the information. Once you've disputed the debt, place a fraud alert on each bureau's version of your credit report. As a fraud victim, you will receive additional free reports. Also consider paying to have a credit freeze put on your record. For up to $10 per credit bureau, a freeze locks your credit file and prevents any new accounts without your consent. Contact Equifax, Experian, and Trans-Union for more information.
  • Start a file on the problem. Place notes and correspondence relating to the dispute in this file. Note the telephone numbers you call, times, dates and names of all companies and people you speak with. Save copies of all letters and send all correspondence by mail, return receipt requested. Write down all costs you incur (phone, copying, time off work, etc.) and save any credit denial letters you believe are related.
  • Contact the original creditor, and ask if the collection agency is authorized to collect debts on its behalf. Notify the creditor that they are trying to collect a debt from the wrong person. Ask what steps you must take to get a form or letter from the creditor (or collector) that releases you from further obligation.

Sometimes the debt is a case of mistaken identity, not fraud. For instance, a debt may originate from a check bounced by someone with a similar name and the bank turned over its records to a debt collection company to collect the debt. Enter the name of the original creditor in a search engine (such as Google) to look for more information about the company and its possible role in the collection.

Correct the record

Under the Fair Credit Reporting Act (FCRA), the credit bureau and the company that provided the information to the bureau is responsible for correcting inaccurate or incomplete information in your credit report. If the disputed information is inaccurate, the company must notify all three national credit bureaus to correct the information in your file.

  • When you call the original creditor or collection company, ask to speak with a fraud investigator or supervisor. Request the exact dates and amounts of the items being collected. Ask if any part of the amount is fees or added interest. (See "How to discover who's behind the collection calls".)
  • Within 30 days after you receive written notice of a debt, send the debt collector a certified letter stating that you do not owe the money. Ask for a copy of the contract that created the alleged debt. This stops the collection process, at least temporarily, until you've been given written verification of the debt. In many cases, collectors cannot provide this information.
  • If you are a victim of fraud or identity theft, contact the police or sheriff where you live to file a report. Also contact the appropriate law enforcement agency where the original transaction took place, especially if you think fraud's involved, such as a situation in which someone passed bad checks in your name, or a similar one.
  • Contact a lawyer. Many of the attorneys who are members of the National Association of Consumer Advocates ( help with debt collection cases.

How to discover who's behind the collection calls

By Linda Sherry

You don't have to be a so-called deadbeat to receive a collection call. If you are a victim of identity theft, you may be called upon to defend yourself against a debt you don't owe.

And it is not uncommon to find a collection account for a fraudulent debt, or even a debt unrelated to you, on your credit report. Even when the debt is legitimate and belongs to you, the techniques used by bill collectors—some outright illegal—can stress out even the calmest individual.

According to Bureau of Justice statistics, 23% of households that had discovered identity fraud became aware of the problem when they were contacted about late or unpaid bills. Thirty-four per cent of households experiencing problems as a result of identity fraud had been contacted by a creditor or debt collector. There are approximately 6,500 collection agencies in the U.S. working to recover funds everyday, according to a 2006 MarketData Enterprises report.

Companies known as "skip tracers" work for collectors, providing searches which list all persons on record with a given name in any particular area.

This quote from an article by Billy Wells of Pronto Process in San Antonio, TX, is featured on a skip tracer's web site: "I knew the region where my target lived and knew he had a non-pub phone number and I needed the new number and address. I just called the local police and asked if they knew him and they gave me a relative's name and when I called and asked for him, they gave me the correct phone number. Bingo! If I have a phone number, I got you. Often times the people with the same last name in a region are related. And they are not all hiding. Call the relatives and plan a reunion, high school, old Army buddies, offer a job...whatever."

What if your name is John Smith and you live in Los Angeles? Debt collectors might call you looking for a debtor named John Smith and chances are they won't believe you when you say you're not their guy. Collectors even can report the other John Smith's name and current address on your credit report, without any match to your Social Security number or the specific street addresses shown on your credit report.

If a collection account ends up on your credit report, you can dispute it. Then the credit reporting bureau checks with the "furnisher"—the third-party debt collector or other company that provides information about you to the credit reporting bureau. If the furnisher responds saying they're sure it's you, then the collection account goes back on your credit report.

This can be a particularly frustrating experience. What can you do now? On most credit reports you don't find the debt collector's phone number. You may have received letters from collectors containing a toll-free number—try not to use these numbers because toll-free "800" numbers have the ability to capture your number. They may not know your phone number but they will if you call their toll-free number. Collectors are paid on commission and are focused on getting paid, not on helping you prove your innocence.

Call the owner

If possible, contact the president or owner of the collection company directly. How can you figure out who's behind the collection effort and how to contact the company directly? The Association of Credit and Collection Professionals has a member's directory ( that lists many U.S. collection firms. If you can't find the organization under the name you have been given, it may be because it has several different names. If you can figure out where it's located, search on the city and state instead.

Another good source for finding the collectors behind the collectors is a web site run by Budd Hibbs (, an expert on the Fair Debt Collections Practices Act. Hibbs lists lots of information about industry players, and features consumers' own stories about how they've been treated by bill collectors.

Use online search engines such as Google to find out more about the collection firm and its principals. Contact local consumer assistance organizations or the Better Business Bureau to find out if the collector who is pursuing you is known for abusive and possible illegal collections tactics.

The federal Fair Debt Collection Practices Act (FDCPA) governs debt collection practices. It allows consumers to file private lawsuits against collection agencies that violate the law. (In-house collection departments run by the original owner of the debt are exempt from FDCPA.)

The National Association of Consumer Advocates (NACA), found on the Internet at, is a membership organization for trial attorneys who represent consumers. A large percentage of NACA member lawyers accept Fair Debt Collection Practices (FCRA) cases. Many take them on a contingency basis, which means you don't pay up front. If your case wins or settles, then it's payday for your counsel.

Under the FDCPA, third-party collectors may not make repetitive or excessively frequent phone calls to annoy or harass you; misrepresent their identities, or threaten to take any action that is illegal or that they don't actually intend to take. If you are subjected to debt collection abuse, file a complaint with your state bar association, attorney general or the Federal Trade Commission (FTC).

To find your attorney general, go to the National Association of Attorneys General (

You can contact the FTC if you have a problem with an out-of-state debt collection agency. Call 877-382-4357 or visit the FTC web site ( The FTC also offers an ID Theft web site called Deter, Detect, Defend with advice for victims (

In cases of mistaken identity, you have to be your own best advocate. Be persistent, be firm and don't give up.

'Often times the people with the same last name in a region are related. And they are not all hiding.'
— Billy Wells, Skip tracer

Collectors chafe at cell phone ban

Debt collectors want to call your cell phone, but they are blocked from doing so. The collection industry has worked hard to eliminate the ban.

In 2003, the Federal Communications Commission changed its interpretation of the term "autodialer" and, as a result, creditors and debt collectors are prohibited from using this technology to contact consumers' cell phones.

Now consumers must specifically consent to allowing debt collection calls to be made to their cell phones.

Collection calls to land lines are legal as long as the collectors follow the Fair Debt Collections Practices Act guidelines.

ACA International, an industry association representing debt collectors, filed a petition with the Federal Communications Commission in mid-2006 asking the commission to clarify the use of autodialers to contact cell phones for the purpose of debt collection.

Last month the House and Senate passed bills to extend the National Do Not Call Registry beyond its 2007 expiration date, dashing bill collectors' hopes for an amendment that would allow the use of automated dialing to cell phone numbers.

The Do Not Call registry, created in 2003, is one of the nation's most successful consumer protection programs. Legislation to provide permanent relief from telemarketers passed easily in the House and Senate.

Consumer advocates consider collection calls made to a cell phone to be a violation of debt collection law. It is illegal to call a consumer to collect a debt when the consumer is in an "inconvenient place." Bill collectors have no way to know where people are when they reach them on their cell phones.

The Privacy Rights Clearinghouse has noted: "Calls to a cell phone not only invade the 'zone of privacy,' but also mean the victim pays for the intrusion."

Remembering two consumer activists & friends of CA

Consumer Action notes with sadness the recent passing of two good friends—exemplary activists who did much to protect consumers.

Eugene Coleman (1937-2007), long-time president of Consumer Action's board of directors, died in October at the age of 70.

Pioneering consumer advocate Sylvia Siegel (1918-2007) died in August at the age of 89. A legend in the consumer movement, Siegel was responsible for saving California consumers billions of dollars in utility company charges.

Gene Coleman

Coleman dedicated his life to public service, and was well-known in San Francisco for his work in the community. An employee of the city's planning department for many years, Coleman worked tirelessly with the city's community-based agencies to meet the needs of low income and disadvantaged people, and he served on the boards of many non-profit groups.

Coleman retired as deputy director of the San Francisco Mayor's Office of Community Development in the spring of 2006.

He was as an active, resourceful and energetic leader in the community, and his contributions to San Francisco were recognized with the naming of a senior housing complex as the Eugene Coleman Community House.

In 1982, Coleman was elected head of Consumer Action's board of directors, and he held that post for 25 years, until his death.

During his tenure as Board President, Consumer Action grew from a tiny three-person San Francisco office into a nationally recognized organization with a staff of nearly 30 people and offices in Los Angeles and Washington, DC. Consumer Action's annual budget, which was $85,000 when Coleman joined the Board, now stands at close to $3 million.

Ken McEldowney, Consumer Action's executive director, said that Coleman was a great source of support during the organization's early lean years, and was always available to offer guidance to the organization. "His perspective and assistance will be missed," said McEldowney.

Consumer Action board member Sue Hestor, who is a longtime friend of Coleman's, said, "Gene Coleman led his life serving people. He worked with organizations dealing with people society shuns or ignores. He has left a hole in our lives that will never be filled."

Sylvia Siegel

Siegel began her work in San Francisco in the early 1970s, spurred by the discovery that no one was speaking up for consumers before the California Public Utilities Commission (CPUC) in opposition to huge rate hikes by the state's utilities. Before she could fill that void, Siegel first had to teach herself all the ins and outs of the extraordinarily complex world of utility regulation, a feat she managed so well that she soon became the scourge of California's utilities.

In 1973, Siegel founded TURN (Toward Utility Rate Normalization), a consumer group that has now been defending consumer rights before the CPUC for the past 25 years. Siegel and TURN have helped to reduce gas, electric and phone rates, promoted the institution of lifeline rates for lower income consumers and exposed unfair utility practices.

Siegel also worked closely with Consumer Action in its early years, and TURN represented Consumer Action and its members before the CPUC on many occasions.

McEldowney remembers Siegel as a tenacious fighter with a sharp tongue who stood for no nonsense from utility executives or CPUC commissioners.

"She was very passionate about protecting consumers. She was a feisty force to be reckoned with and consumers are better off for her dedication and sense of justice," said McEldowney.

Donations in memory of Siegel can be made to TURN.

Credit for this publication

This publication was funded by Consumer Action’s Managing Money Project, founded with a cy pres award from the Griego v. Rent-A-Center class action settlement.

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Debt Collection Issue [Winter 2007-2008]   (CA_News_winter_07-08.pdf)



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