CONSUMER WATCH - Threats from collection agency are deemed illegal - The Texas firm's case is a lesson in how far a company can go to force payment of a bill.

"The situation will not die, I guarantee you!" the woman said in a steely voice, adding that she would call "every day."

It was not a stalker or a jilted lover.

It was a debt collection company.

And it was illegal harassment, according to the Federal Trade Commission, because the caller went on to threaten that the person's wages would be seized.

Last week, the commission announced that LTD Financial Services, a major collection agency, agreed to pay $1.375 million to settle charges that it misled and threatened consumers several times in violation of federal laws.

Houston-based LTD, which handles about 1.25 million consumer accounts a year, didn't admit any wrongdoing.

The amount of the settlement was extraordinarily high considering that the government charges against LTD -- backed by evidence such as that answering-machine message recorded by a consumer -- concerned only the company's tactics.

"We are not saying the people they called didn't owe the money," but the methods used violated the law, said Thomas Carter, senior legal council for the FTC's Southwest region in Dallas. As a result, all of the money amounts to penalty, not restitution.

"This is a precedent-setting case," Carter said, sparked by nearly 1,500 complaints to the agency about LTD's tactics. "It sends a strong message to the debt collection industry: You can't turn a blind eye to this kind of stuff."

LTD executives declined to be interviewed but issued a statement saying the company cooperated with the FTC investigation since it was first contacted by the agency more than two years ago. The firm settled, the statement said, "at the advice of legal council and in order to avoid costly litigation."

The company said it had improved employee training and installed consumer complaint call-in lines to address any problems but remained puzzled about why it had been targeted because the number of complaints to the FTC had declined. However, the company didn't address the substance of the complaints.

But if LTD officials expected their collection brethren to rally behind them, they were wrong.

"No one likes to have a bad apple in the industry," said Jan Stieger, executive director of the California Assn. of Collectors. The group, established in 1917, is the oldest debt collection trade group in the country.