Debt: The next big American crisis?

For Donna Lundon and Greg Bjerk of northern Minnesota, getting calls from debt collectors was something that happened to other people.

Donna Lundon: Just perfect credit. I stayed on top of all my bills.

But when the economy began slowing down in their small town, Donna's cosmetology business dried up. And one maintenance worker's salary wasn't enough to support 3 young children. They used a store credit card as a safety net.

Donna Lundon: We weren't buying anything extravagant. Food, toilet paper. Nothing that wasn't absolutely necessary.

Soon they fell behind - and got trapped in the common cycle of credit-card debt. With late fees and a 25 percent interest rate, the balance ballooned to $9,000 and they could no longer even make the minimum payments.

Donna Lundon: It's very humiliating.

Once they stopped paying the bill, the store hired a debt collection agency - Academy Collection Service - to take over.

Greg Bjerk: They were calling our house at least ten times per day.

Like most collection agencies, Academy works on commission, so there's an incentive to be persistent. But there's also a federal law to protect consumers from overly-aggressive collectors. For example, a debt collector can't call late at night, lie, swear, or tell anyone about the money you owe. The idea is to protect consumers from harassment.

The calls kept coming for months, all through the Christmas season. When the phone rang on Dec. 31, Donna thought it was more of the same.

Donna Lundon: When I seen it on the caller ID, I didn't even get up to answer the phone ‘cause I was nursing my baby. I was going to let it go.

But when Donna listened to the message a few hours later, she froze. This was a collection call like none she had heard before.

Tape recording:

Man: Have you ever been raped? Yeah.

Donna Lundon: As a woman, that's gotta be one of the most terrorizing things you could ever hear.

When Greg got home, they immediately called the police.

Officers confirmed the call came from Academy Collection Service and referred the case to local prosecutors, citing illegal telephone harassment. But no charges were ever filed against the company.

Donna Lundon: I don’t understand why people could do this to me, or to anybody. This is not a good thing. You can't, you cannot do this to people.

Pete Barry: It would be hard to-- to surprise me with anything a debt collector could do to collect a debt.

Attorney Peter Barry has sued hundreds of debt collectors and represents Donna and Greg in a federal lawsuit against Academy Collection.

Chris Hansen: Why would a debt collector leave a message saying, "Have you ever been raped?"

Pete Barry: To stir up emotion.

Barry says that in tough economic times, some collectors turn to more abusive tactics to earn their commissions. The Federal Trade Commission reports that it gets more complaints about debt collection than any other industry.

Pete Barry: I've seen everything from physical threats, profanity, threats to the workplace.

Chris Hansen: But isn't the reality that if people pay their debts, they wouldn't put themselves in a situation where they could be potentially abused by a debt collector?

Pete Barry: Sure. Debt collectors are entitled to collect what's due and owing to them. But consumers have a right to be treated with truth, fairness, dignity and respect."

Rozanne Andersen: The fact is, is that the track record is excellent.

Rozanne Anderson is the lead attorney for ACA International, the nation's largest debt collection industry trade group. We asked her about that message allegedly left by someone at Academy -- a member of her organization.

Rozanne Andersen: That is insane. That-- that is ludicrous. That has nothing to do with debt collection. If any one of our members-- actually had to face me and say, "Oh, sure, we do that all the time," I would be shocked, and I probably wouldn't be sitting here representing the industry.

In a letter to Dateline, a lawyer for Academy Collection acknowledges that the call was placed by a employee who has since resigned. Calling the message "offensive" and "inappropriate" he says Academy "does not promote... or tolerate abusive conduct."

But in fact, Academy has a history of violations. The federal government recently sued the company and Academy paid fine of more than 2 million dollars for what prosecutors called "harassing and abusive tactics."

Chris Hansen: Whether it's correct or not, debt collectors have this image of phoning at all hours, harassing people. Where do you think that image came from?

Rozanne Andersen: I know that it's outdated in terms of a stereotype. But I also know that it came from the bad acts of a few.

Chris Hansen: So, you would say this is a minority of the debt collectors getting a majority of the attention?

Rozanne Andersen: Absolutely.

So do most collectors follow the rules, as the industry spokesperson says? Or is breaking the law standard operating procedure?

Coming up, we talk to a group of people who make collection calls for a living... and bring our hidden cameras along.

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