For West Asset Management, a debt collection firm with 1,500 employees in 13 states, harassment by telephone was the business model, says the Federal Trade Commission.

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Answer the phone and you’d be subject to cursing and false threats of arrest, wage garnishment or seizure of property by self-described attorneys. Hang up and instantly, there was another call. Don’t answer and your phone kept ringing.

At Unicredit America, faking up a courtroom was the preferred tactic. According to the office of the Pennsylvania Attorney General, employees dressed as sheriff’s deputies hand-delivered dubious subpoenas ordering at least 370 frightened people to its office in Erie, Pa. — which was done up as a courtroom with other employees posing as judge and bailiffs.

Do you know how to handle debt collectors? — Illustration by Corbis

California-based collector Rumson, Bolling & Associates, meanwhile, used outright threats of violence, reports the FTC. Unless paid, its employees vowed to kill alleged debtors and their pets. To rape their mothers. And on at least two occasions, to desecrate the bodies of the deceased children of debtors owing on funeral bills.

What is it with debt collectors? Most of the 450,000 employees at the nation’s 4,100 agencies, in the words of their trade association president, are “salt of the earth” who play by the rules in their difficult task: trying to collect an overdue $150 billion that’s owed in this tough economy to businesses ranging from huge banks and utilities to mom-and-pop florists and veterinarians.

But others — plenty of them, judging by the more than 140,000 consumer complaints to the FTC in 2010 (27 percent of all complaints filed, the most for any single industry) — rely on lies, harassment and extortion to get money.

West Asset Management, which paid a $2.8 million settlement to the FTC, and the parent company of Rumson, Bolling & Associates declined to comment on the FTC’s charges. Michael Covatto, president of now-defunct Unicredit, could not be reached for comment.

Low risk, high rewards

What motivates rogues to violate the Fair Debt Collection Practices Act, the federal law that dictates what collectors can and can’t do?

“Because the incentives are high, and penalties so low, there’s much more money to be made with threats and shaking people down,” says journalist Fred Williams, who spent three months as a debt collector for a Buffalo, N.Y., agency before writing the book Fight Back Against Unfair Debt Collection Practices.

Next: How far will collectors push the limits? »