WASHINGTON -- People dread getting calls from bill collectors. And it's not always because they can't pay. It can be a degrading experience, especially with third-party collectors who are overly aggressive, even threatening.

A new report from the Government Accountability Office calls for major reform to the legislation that covers how companies collect old debt from consumers.

The reform can't come soon enough. Debt defaults are at the highest rate in 18 years. About 6.6 percent of credit cardholders were 30 days or more past due in the first quarter of 2009. In 2008, credit issuers had more than $23 billion in unsecured debt that was from 30 to 180 days delinquent.

There are many scrupulous debt collectors who compassionately work with borrowers to get them to repay what they owe. But there are also bottom-feeders in the industry who, by any means necessary, harass and intimidate consumers to pay up on accounts for which the collectors have paid pennies on the dollar.

It's the dreadful players in this industry and their often illegal practices that was the subject of the GAO report on the effectiveness of the Fair Debt Collection Practices Act, or FDCPA, which was enacted in 1977. The law, enforced by the Federal Trade Commission, dictates how third-party debt-collection companies can communicate with debtors. It prohibits the companies from using unfair, abusive or deceptive debt collection practices. The FDCPA does not apply to creditors collecting on their own accounts.

"With the economy in crisis and many people struggling to pay their bills, debt collectors have responded by becoming more aggressive," said Sen. Carl Levin, D-Mich., in a prepared statement following the release of the GAO report. "Debt collection abuses are not getting the attention they should."

The FTC reports it receives more complaints about debt collectors than it does from any other specific industry. Among the more common complaints are excessive telephone calls, collectors misrepresenting the amount or legal status of a debt, and the addition of unauthorized fees and interest to accounts. People also complain that collectors try to get them to pay on debts that have been discharged in bankruptcy, an action that is against the law.

Last year the FTC said it won the largest civil penalty ever -- $2.25 million -- in a case in which a company, among many other actions, physically threatened people and made unauthorized withdrawals from consumer bank accounts.

With a surge in companies trying to collect past-due debts, it's vital that federal (and for that matter state) laws are adequate to protect borrowers from dishonest debt collectors.

The FTC has already begun investigating what changes are needed. Although some sections of the FDCPA have been amended, it hasn't been substantially revised since its enactment 32 years ago. Continued...