without fear of contradiction that it has not hampered the work of collection agencies nor has it added to the costs of goods and services. It has, however, ended a series of practices that were, as a matter of public policy, distasteful. I am convinced, based upon this limited experience, that national legislation will do the same for all of the Nation.

Let me make it very clear that we do not intend to pass out legislation that will permit the debtor to go without paying his just debts. Our economy is not one which can allow some to pay and others to not pay. Neither are we proposing to pass legislation which will put the legitimate collector out of business. It is my hope, however, that we will pass legislation which will establish the parameters in which a collector can act that will be consistent from State to State and which will end the abuses in which some collectors have engaged that has brought disgrace and shame to everyone who has sought to engage in what is basically a very legitimate enterprise.

I look forward, Mr. Chairman, to reading testimony of the witnesses that you have scheduled, and I look forward to receiving suggestions that we may adopt that will improve upon the bill, of which I am pleased to be a co-sponsor. Mr. Chairman, I want only to commend you for the efforts which you have put into making this bill one of the most important pieces of consumer legislation that will benefit those who are so aften forgotten-namely, the poor and the downtrodden who must, of necessity, use credit and who, because of their limited resources, are the most abused by the collection practices.

Mr. ANNUNZIO. I also ask unanimous consent that the article that appeared in the Chicago Tribune on Monday, March 29, 1976, written by Arthur Siddon, be made part of the record.

[The article referred to by Chairman Annunzio follows:]

[From the Chicago Tribune, Mar. 29, 1976]

BILL COLLECTORS FACE PROBE IN CONGRESS

(By Arthur Siddon)

Washington-When a Virginia woman, crippled by polio, fell behind in car payments because of a foulup with her disability check, a bill collector stole her crutches to make her pay.

A New Jersey man was threatened in a telephone call from a bill collector to pay or else he would be found floating face down in the river.

A surgeon performing a delicate operation on a boy was called out of the emergency room for an urgent personal telephone call. It turned out to be a bill collector.

Last year more than $15 billion in unpaid bills were turned over to collection agencies. By using methods ranging from gentle reminders to threats of legal action and violence, the bill collectors recovered $3 billion of these debts.

Debt collection is big business, and consumer agency files are bulging with complaints about bill collectors.

Beginning April 6, the House Consumer Affairs Subcommittee will hold a series of hearings on federal regulation of the industry.

Just how often, the subcommittee wants to know, do bill collectors harass, threaten, and intimidate to collect overdue debts.

So far the record compiled by the subcommittee indicates that the practices are widespread.

"These hearings and the accompanying legislation is in no way to be interpreted as an attempt to protect deadbeats who refuse to pay their just debts," said Rep. Frank Annunzio [D., Chicago], subcommittee chairman.

"Nor are we trying to prevent businesses from collecting legitimate debts in an honorable way," he added, emphasizing the subcommittee is attacking only the abuses.

Debt collectors earn as much as 50 per cent commission on the debts they collect a strong incentive to push hard. Unfortunately, the people they push sometimes don't even owe the debt, Annunzio said.

Names of alleged deadbeats are obtained by accident through computer error and in dozens of other ways, he explained. "Regardless of your denial of the validity of the debt, you may then get the debt collector 'treatment,'" he said.

"This may include obscene or accusing phone calls to your home, or to the homes of your friends and neighbors at odd hours, and repeated harassment of your employer asking that you be pressured into paying," he said.

While 38 states have laws regulating debt collectors, only 10 states have "meaningful laws," according to a subcommittee staff member.

The result is that in most states anybody with a typewriter, a phone, and a post office box can become a debt collector-without any restrictions on how he operates.

The April hearings will focus on a bill introduced by Annunzio to regulate the debt collection industry.

Scheduled to testify on April 6 are Chicago Tribune reporters William Gaines and William Crawford. Their undercover work as bill collectors in 1974 resulted in a Tribune series documenting many of the abuses Annunzio wants stopped.

As a result of the series Illinois enacted a law requiring collection agencies to register with the state and face fines or revocation of registration if they harass, threaten, or publicly embarass debtors, or misrepresent themselves as government agents to obtain information.

Other scheduled witnesses include debt collectors, their victims, consumer groups, and federal and state officials-including Ronald Stackler of the Illinois Office of Consumer Services.

Annunzio's bill would penalize bill collectors who harass, intimidate, and use profanity or threats against a debtor, his friends, or employer. Also prohibited would be impersonation of government agents or attorneys to collect debts.

The proposal would limit the kind of legal action used to recover debts, and would place controls on the information available to a collector about a consumer. Violations would carry a maximum penalty of $5,000 and a year in prison. The legislation would also allow class action suits against bill collectors, with judgments as high as $500,000.

"The bill would either put out of business or put in jail those individuals who view debt collection as a God-given right to engage in any type of ploy or tactic to collect money," said Annunzio.

Mr. ANNUNZIO. I want to call our first witness, James Clark.

TESTIMONY OF JAMES CLARK

Mr. ANNUNZIO. In order to assure the utmost accuracy of our witness, I met with Mr. Clark prior to this morning's meeting and placed the witness under oath. The oath was given in the presence of witnesses and was administered without Mr. Clark wearing the mask, in his true

name.

Mr. Clark, we will now hear your testimony. You may proceed in

your own manner.

Mr. CLARK. Mr. Chairman, members of the committee, I have been involved in the collection business for about 5 years. I initially got into the collection business as an assistant to a law enforcement officer. I progressed down through the ranks, having covered a finance company, loan companies, and eventually coming to manage my own collection agency.

In this agency, we principally handled four different types of accounts. We handled record and book club accounts, we handled industrial accounts, we handled retail accounts, and we handled loan accounts. I would like to cover these briefly with you.

The record and book club accounts were perhaps the worst offenders: in the collection industry. At the beginning of each month, we got a computer printout of names, addresses, and dollar amounts of debtors. These carried no indication of what the debt was for; if it was legitimately incurred, illegitimately incurred, or whatever. I would estimate that in at least 50 percent of the record and book club accounts, the: debts were not legitimate.

We found that, due to the type of contract that the consumers entered into, if in fact it was a legitimate contract, it was a negative type of contract, wherein you purchased books and/or records automatically each month, if you did not send in a card notifying them that you did not want to purchase them. You had to purchase number of books and/or records over, for example, a 2-year period. The normal procedure of the record/book clubs was that, if you did not make a purchase within 3 months, your account was then due and payable in full. They never bothered to give you the entire 2 years to which you were entitled. So that on the first of the month, we might get a Mr. John Doe, at 111 Main Street, who owed $180, and we never knew whether he actually received $180 worth of books and/or records, or whether in fact they were just declaring his whole account due and payable in full.

There were slipups in the mails, and people sometimes never got their books or records. They got books and records that they did not order and that they had returned. However, when the consumer tries to write a letter to a computer, you don't usually get a successful answer. Therefore, on the 4,000 or 5,000 accounts that I received each month from the major record and book club accounts or companies in this country, like I said, at least 50 percent of them were illegitimate. And we would then be faced with the task of collecting illegitimate

accounts.

Let's move on to the retail accounts. They are basically charge accounts at retail department stores, clothing stores, or whatever. Those presented to real special problems, except that the dollar amounts were usually much, much greater. Instead of a $40 or $50 record club account, we are talking about $100 or $500 or $600 in a retail account.

The industrial accounts went as high as $300,000. It was the largest one I ever collected. We found that normally, in the industrial accounts, the debtor firm usually had a bookkeeping problem, and we could solve the problem by merely straightening out their records. On a few occasions, we ran into problems where the debtor firm went into receivership, into bankruptcy, and those are difficult accounts to collect.

Those were normally collected via the same means as average consumer retail accounts. We employed the same techniques, and I will get into those briefly in a few moments.

The loan accounts also presented a difficulty, in that most of the banks and/or loan companies usually have their own collection departments. And what they would do would be to work the accounts within their own system. This might linger on for 2 or 3 years, or 4 years, and then it might be thrown into a box when it was charged off. And oftentimes, at the end of 6 years, when the statute of limitations had expired on these accounts, they were given to us, the collection agency. In fact, we had no legitimate, legal right to collect the debt, but we were given it anyway, and faced with the task of doing that.

One of the techniques that I liked to use was once again, talk about Mr. John Jones who owes $5,000 to the bank, and it has been 7 or 8 years since he has paid on his loan. I would oftentimes get him to make a token payment of $1. I would do that by telling him he had to show good faith. Once he paid that $1 on his $5,000 bill-which

is 8 years overdue-the entire statute of limitations was revamped, and we now had an additional 6 years to collect his debt.

Let's talk a little bit about collection techniques, and this is where I want to center. Upon receiving a new account, I had to make a determination on how to handle it. I would base this determination on the size of the account, the creditor, the debtor, my attitude that day, and after speaking briefly with the debtor, his attitude.

I had several alternatives. I could handle it as a representative of our collection agency. I could handle it as representing myself as an attorney. I could handle it as representing myself as a law enforcement official. I could turn it over to a legitimate attorney. I could turn it over to a legitimate law enforcement officer, or any combination of these, and I will get into each of these individually.

When I handled an account as a representative of my collection agency, I called the debtor, and using a fictitious name, explained that the account was turned over to me, and that he had to pay it. I then made a determination as to why the bill was not paid. Either the debtor could not pay it, or he did not want to pay it. After making that determination, I decided what to do with it.

I would either make payment arrangements, demand the balance of the account in full, or proceed-if the debtor was not going to pay it or could not pay it-to get the money out of him anyway. It was my attitude that I had a job to do, just like each one of you people have a job to do, and it is my job to do the best I can for my employer and my clients, irregardless of what the consequences were to either myself or to the debtors.

The most common technique for collecting debts was known as beating. This is continuous calling of an individual. I can recall one individual in particular that got me particularly aggravated, and I did not like him very much. So I made a point, and I set up a schedule in our office, of calling the man every 5 minutes throughout the entire work day. I called him at home, I called him at work. He had gone to visit his aunt during the evening, and I called him over at his aunt's house. Finally, I got the man to pay.

That technique, known as beating, is effective. I may decide to handle the account by representing myself as an attorney. We had a situation in our office with a local, legitimate attorney in the city. For the fee of $75 a month, this attorney set up a quasi-office within our office, although during the entire time I was at this agency, I never saw this attorney enter our office. He put his name on our front door. He gave us his letterhead. He gave us permission to use his name, and we had a special telephone line installed, with his permission, that would answer when you dialed it, "Attorney Jones' office."

In this way, if I called the debtor, and he was not home, I would leave a message for him to call back on the "attorney line." When he called back, I would automatically become Attorney Jones, and explain to the man that the debt was now in my hands; that I had every intention of collecting the debt, and that unless he paid the debt, he was going to jail.

I explained to him that his children or her children would be put in orphanages, and that there would be someone out to pick them up unless he made payment arrangements immediately. In fact, I went so far on several occasions as when I was talking to a youngster, to

inform him that we had a warrant for his arrest, and that he must either report to the county jail immediately, or we would be out with our warrant immediately to pick him up. He would then tell us he wanted to save the embarrassment of being arrested in front of his neighbors, and he would report to the county jail.

We would then wait about 45 minutes, until this individual, we knew, had left home and was on his way to report to the county jail. And we would then call his house and talk to his parents, and we would say, Mr. and Mrs. Smith, you son is on the way in. You know he's going to jail. He may spend a lot of years there. But if you come into the office of the collection agency, or the creditor, and pay this bill before we sign the commitment papers, we will be able to release him. And 9 times out of 10, mom and dad wanted to keep son out of jail, and they came up with the money.

On several occasions, they did not come up with the money, though, and I never did find out what happened to the children once they got to the county jail.

We also had a situation in our office with a law enforcement official. In fact, we had several situations with them. One of them was that we could turn accounts over to this law officer, and never have to do anything on it. For a certain percentage of the gross amount, this official would take the case, file a lawsuit, act as the attorney for the creditor in court, obtain a writ of execution, take his own people out, conduct the sheriff's sale, and then act as the buyer at his own sheriff's sale-buy the goods himself, load them on the truck, and bring them back to us. And the next time we heard from this man would be when he came into our office to give us a check, and we did not really have to concern ourselves with the accounts at all.

That was a key kind of a thing. Because, as a law enforcement officer, he had a lot of pull over the particular people.

I have just been handed some of the documents that I brought with me. I spoke briefly before of the set-up that we had in our office. with a particular attorney who had tried to establish an office within. our office, but did not in fact. Ladies and gentlemen, this is one of the letters we were given, and I will read it to you. His name has been scratched out, but it was John Smith, Attorney-at-Law, with our address; the address of the collection agency, the special phone line within the collection agency that answered as Attorney Smith's office. It says, "Please refer to file number blank"-where we would insert a number. It says, "You owe blank"; x amount of dollars. "If you do not pay this amount in full within 5 days, you shall be sued. If you are unable to pay this amount in full immediately, please contact me.'

And then, the individual collector who was working on this particular account would then sign the attorney's name. Of course, there is a place here to insert the name of the creditor and how much money they owed.

Incidentally, the amount of money that they actually owed the creditors was usually of very, very little relevance. We would get an account, and let's assume Mr. Jones owes the X company $100. We would randomly add on to that amount of money a percentage for us, top money that the creditor would never see. And on this particular $100 account, it might be today $20, and tomorrow $75, again depending