Debt: The next big American crisis?

More than six million people have lost their jobs since the recession began, and the debt collection industry is busier than ever.

Rozanne Andersen: There's no question. The- it is at an all-time high.

Rozanne Andersen, who represents industry trade group ACA International, says contrary to its predatory reputation, the debt collection business plays an important role in the nation's economy.

Rozanne Andersen: The collection industry returned $40.4 billion to U.S. businesses in 2007.

But there's another part of the industry that collects billions, even though it sometimes flies under the radar. When a traditional collection agency can't recoup money for a retailer or credit card company, those businesses often sell the delinquent accounts to debt buyers-- usually for pennies on the dollar.

These debt buyers are then free to collect, and keep, whatever they can.

Harvard's Elizabeth Warren says there's big money to be made in this second level of debt collection. There's also less oversight and the greatest potential for abuse.

Elizabeth Warren: So the second level tends to be the pay it or your life becomes a living hell.

One company that's tapped into the business of buying second hand debt is LHR, recently named one of Inc. Magazine's fastest growing companies.

LHR's corporate slogan suggests it's a cut above the typical collection agency, one of the good guys.

“LHR: The right way.”

But Army Sgt. Charles Houston and his wife LaTonya don't see it that way.

Chris Hansen: How would you describe the way LHR treated you?

LaTonya Houston: Terrible.

It started with a car loan from 2001. Six months into the loan, after LaTonya had emergency surgery and lost her job, she voluntarily returned the car to the financing company.

LaTonya Houston: We thought, okay, this is it.

Chris Hansen: This was done.

LaTonya Houston: Yes.

But seven years later, Charles, an Iraq war vet, got a surprise call from someone claiming to be an "investigator." The caller told him they still owed the full $11,000 for the car. The case, he said, was now a military matter.

Charles Houston: And they was gonna start some actions on me, have me put out of the military.

Chris Hansen: Put out of the military?

Charles Houston: Yes.

And there were follow-up calls made to his wife.

LaTonya Houston: Well, yeah, he told me he was a military liaison.

Chris Hansen: He was treating this like a criminal matter? And did you buy it?

LaTonya Houston: For a while, I did.

Charles was worried. The family budget was already stretched to the limit on his soldier's salary.

But his wife had her doubts. So she googled the "military investigator's" phone number.

LaTonya Houston: And it turned out to be LHR.

Chris Hansen: The debt collector.

LaTonya Houston: The debt collector.

The Houstons sued LHR and got a financial settlement, though the company didn't admit any wrong-doing. But we wondered, were the LHR collectors who the Houstons encountered rogue employees tarnishing an otherwise reputable company? Or is ignoring the rules all in a day's work? To find out, we visit an after-work hangout for LHR collectors near Buffalo, N.Y., and-- wearing a hidden camera-- ask about job opportunities.

Tina Erdley (on hidden camera): I like it. It's good money. It’s challenging. It’s a good job.

This collector, Tina, says that after a couple weeks in training, she quickly rose through LHR's ranks.

Tina Erdley: I was actually promoted within four weeks to the senior side of what I do. I do collections.

She gives us a sample of her official-sounding "talk off" - the rap she uses with consumers. It sounds designed to make them think a lawsuit is on the way.

Tina Erdley: I tell them it’s a pending legal matter.

She appears to be well-versed in the law governing debt collection.

Tina Erdley: The FDCPA regulates what we say on the phone.

But she says following the law is optional.

Tina Erdley: But once you get on the phone and are actually talking to somebody, you kinda say what you need to say.

Another LHR employee, Joe, says some of his co-workers follow the rules. Others... not so much.

Joe: When you're starting off you have to be very, like, a lot more reserved. But once you've been in there, once you get promoted and like on team you can bend the rules a little bit more.

Joe says he "walks the line" most of the time, but also knows how to cross it - with a tactic that sounds like harassment

Joe: One of the things that I like to do, which is pretty nasty though, is that I'll find out where somebody works and then I'll find out who the owner of their company is, find out their number and call them at home. I love that. Call the boss at home. That's my favorite thing to do.

And remember how that other LHR collector passed himself off as a military liaison?

LaTonya Houston: He told me he was a military liaison.

This collector uses a similar-sounding scare tactic.

Sarra-Jane: So do you threaten people with that kind of thing?

All: Oh yeah, all the time.

Rob: "I'm LHR's legal liaison."

And among this group, there seems to be little fear of getting caught.

Sarra-Jane: And are you kind of allowed to say what you want kind of thing? Are you given a free reign?

Man: You can't, you can't swear. And you can't threaten people. But, like, we do every day.

So, why would they risk breaking the law and inviting law suits, like the one filed by the Houstons?

Sarra-Jane: Does the company ever get sued though?

Man: Oh yeah, oh yeah.

Sarra-Jane: Oh yeah?

Man: The thing is, though, is that they get, we bring in a lot of money so it's like it’s worth it for people to still be illegal and collect money.

LHR didn't respond to our requests for comment, but after seeing some of our hidden-camera video, the company said it terminated the employees involved.  It called their statements unacceptable and not representative of what they train their collectors to do.

But Attorney John Fugate, who represents the Houstons, says what we heard on hidden camera is common throughout the industry.

John Fugate: Paying off these lawsuits is just a part of doing business for many of these companies. It's more profitable in many cases for them to break the law than it is to abide by the law.

Skirting the law may be commonplace... but what happens when collectors take it a step further and pose as law enforcement?

Jay: You said you were an officer?

Detective: I work with the Bethesda, Md. police department, sir.

John Fugate: They're using mafia-like tactics.

Next, we listen in to an alarming collection call as it happens.

“You need to give him a call otherwise we're gonna have you picked up.”

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