Every day thousands of consumers — hard working businessmen and women, mothers, fathers, grandmothers, students — walk through airport security where their purses, bags and wallets are screened and cleared on their way to their new destinations. Yet, unbeknownst to their carriers and their fellow passengers, they are carrying highly explosive materials onto their planes — ticking time bombs in the form of little pieces of plastic, that could blow up at any moment and incite what could amount to personal financial terror.

I am, of course, talking about credit cards, because the banks that issue them have had the ability for years to explosively increase the interest rates on your outstanding balances for virtually any reason. Through the artifice of carefully thought out contract provisions and court precedents in selective states, banks have had free reign to set off their own version of a hidden bomb, which consumers have carried willingly after being aggressively solicited and enticed into playing the card issuers’ profit making game.

I’ve Been “Jacked”!

The explosions set off by card issuers when they cause your interest rates to go through the roof, and thus increase the minimum payments and the cost of the purchases you already made with the card and had budgeted for can set off other explosions in your vicinity — the rates on other cards in your purse or wallet may blow up too. While it can only take one rate increase to ruin an already weak budget, a series of such explosions often leads to the destruction of a consumer’s finances and bankruptcy.

Interest rate increases on credit cards have  been a huge source of profits for banks, but the current recession and the joblessness faced by millions of card holders has caused the detonation of their little bombs (which banks handed out like candy prior to the recession) to blow up in their faces.

The default rate on these credit card accounts are at historic highs. For more on this, please read this recent post on Mike Shedlock’s (Mish) blog: reflections-on-credit-card-fees-and-chargeoffs.

Now however, with the soon to be enacted CARD ACT, many of the banks’ trick and trap policies, which were designed to ensnare the public into becoming debt servicing slaves, are about to be curbed. However, banks will and have already begun to adjust to the coming new reality by finding new ways to profit from their plastic explosives.

One way they are doing that is by switching consumers’ interest rates from fixed to variable rates based on a formula that might charge say 12.9% above prime. Although this switch may not seem like a big deal right now with federal interest rates at historic lows, those rates will most certainly rise in the not too distant future, perhaps significantly, and when they do, the cost of using their credit cards will increase for consumers. In other words, those plastic explosives will detonate in consumers’ wallets yet again, sending potentially more shock waves through their finances. And unfortunately, I suspect that the timing of these future interest rate increases will come at a time when our economy is widely recognized to be solidly on the path to recovery.

For another example of how far those who issue standard grade plastic explosives in the name of profit will go to get around the CARD Act, please read nationally-syndicated personal finance columnist Kathy Kristof’s personal story in her recent blog post, Credit Reform and My New 703.8% Card.

Kristof wrote:
“Consumer reporters were all crowing about a 79.99% rate credit card that was launched in response to credit reform a few months ago–collectively horrified that a law designed to cut rates and eliminate sneaky fees was inspiring increasingly abusive bank behavior. I thought that was about as bad as it gets until I took a close look at the statement for my new Macy’s card, which I had opened with “instant credit” while Christmas shopping. It made that 79% card look like a bargain.”

Kristof went on to explain that based on her average daily balance of $3.41, her minimum charge worked out to “an actual annual percentage rate” of 703.80%!!!! Also, her blog linked to a good resource over at www.getrichslowly.org for additional information about the CARD ACT. Click: An Act To Inhibit The Placement Of Small Incendiary Devices Upon American Citizens to read more.

For additional information about the CARD ACT and to learn how you can win free help from Consumer Recovery Network, a fair and ethical debt settlement firm, by sending it your personal story of what happened to you when one of your banks triggered your plastic explosive and the rate on your credit card went sky high, visit CARD ACT-CRN Contest.

Credit Carnage

More than half of the debt-stressed consumers my company has consulted with over the past several years has indicated that “a plastic explosion” was a key factor in their being unable to keep up with their debts. Furthermore, if you’ve been hit by plastic shrapnel, I know that you will easily relate to the analogies I have used here. I know they are appropriate because I work with the carnage of these explosions every day.

Looked at in this perspective, card issuers and their fee traps have already blown up the finances of millions of consumers. How many more explosions will we see between now and February 22nd when rate jacking, as we have known it, will end? While I see the variable interest rate ticking time bomb referenced earlier in this blog as having the greatest potential to spark renewed controversy over credit cards, many card issuers have already mentioned they will revert back to the annual  fees they charged years ago and that they will also be limiting the rewards programs that they used to compete for market share and consumer loyalty.

{So, what’s in your wallet?}

By the way, a great place to compare credit card interest rates and reward programs and to read consumer feedback about specific cards is “Credit Card Ratings”. Now, more than ever, in this rapidly changing credit card marketplace, it is important that you use respected, reliable resources to research and understand the credit products you are using or considering using.

CBS Money Watch Blogger gets it wrong!

Click here to read how wrong ( http://moneywatch.bnet.com/retirement-planning/blog/what-works/too-much-credit-card-debt-dont-blame-your-bank/101/ )

With quotes like the following, you should really click the linked blog above for the full read:

“Of course, the U.S. congress passed the CARD Act as a measure to “protect” consumers from the fee-generating schemes employed by greedy credit card issuers aimed at targeting defenseless consumers. PAHLEESE! I’m not buying it.”

“The real losers here are the millions of folks who use credit cards…”

“If you think banks credit-card fees are the source of your financial troubles, then you have the mind set of a money LOSER.”

While Mr. Martin ends his brief article with sound advice, everything but that last paragraph leads me to question the depth of thought he lent to the topic prior to his missive.

• Mr. Martin, are you aware of the pernicious practice of rate jacking a consumer on purchases already made and budgeted for, thereby increasing the costs of that purchase (often dramatically)?
• Are you aware of the now widely documented and recognized arbitration scam used by major card issuers and foisted on the American public?
• How about that card issuers securitized and sold to investors credit card receipt portfolios and that this practice, as quoted by the FDIC, accounted for half of their funding source, a practice which enabled  unhealthy expansion in credit (remind you of sub-prime mortgage backed securities anyone)?
• Have you seen any of the investigative reports on credit card practices done by Frontline which establish these practices as having been developed to profit off the backs of low income and middle class Americans?

I can only hope some of what he wrote was tongue in cheek, but it does not appear so.

While I would tend to agree with the underlying message of your words suggesting consumers become more constrained and informed in how they approach spending and budgeting, and agree that this premise should extend to governments and politicians, please do not suggest that banks are innocent in their enabling the credit fueled boom/bust we are experiencing.

Did consumers create the sophisticated loan programs that are not done blowing up in our nations face? No. How could they? They are money LOSERS in your words.

Were banks bailed out having the costs pushed onto the American taxpayer (that would be you and your CFP clients)?

Are banks done failing and being taken over by the FDIC as a result of their risk taking?

Mr. Martin, how many people do you speak to every day that lost a portion of their income in the current recession and who made every effort to communicate with their creditors openly about the need for a payment restructuring whose plight falls on deaf ears, only to then have their rates jacked from 8.9% to 29.9?

Mr. Martin, are you heavily invested in bank stocks? Did you personally, or in your capacity as a financial planner encourage others to; invest in pools of securitized debt obligations?

CRN is Holding a Contest!

It’s our way of celebrating the fact that in February of this year, the Credit Card Accountability Responsibility and Disclosure (CARD) Act will prohibit credit card companies from rate jacking consumers. This means that their pernicious practice of increasing interest rates on consumers’ existing account balances, for virtually any reason, will end. But before going into the contest details, I want to quickly outline why CRN believes that the end to rate jacking merits a contest.

There are many reasons why so many consumers struggle with crushing debt;  cut in work hours, job loss, medical issues, and other difficult events are just some of the more common. But rate jacking (also known as universal default) is another reason, and when consumers are rate jacked, they become the victims of greedy creditors searching for higher profits under the guise of risk management.

One of the effects of rate jacking is that it increases the cost of purchases consumers have already made and budgeted for. It also increases their monthly minimum payments, making it almost impossible, for many consumers to keep current. Some of these consumers end up having to pursue credit counseling, debt settlement, or bankruptcy to deal with their debts. Case in point, over the last several years, more than half of all the consumers CRN consulted with had had their interest rates increased.

Adding insult to injury, when a consumer is rate-jacked by one creditor, the consumer’s other creditors usually follow suit. Often, when this occurs, consumers who would have been able to get out of debt by applying a simple debt rollup strategy, lose that option.

During the months leading up to implementation of the CARD Act, the media has spilled a lot of  ink on this topic. I have also written about and spoken against rate-jacking more times than I can count. So, the end of rate jacking is a GREAT REASON TO CELEBRATE!

Contest Details:

Submit your personal rate jacking story to CRN no later than 1/31/10. You can submit it via the comment section of this blog post (see below), by email (michael@consumerrecoverynetwork.com) or send it by regular mail:

CRN
217 Cedar St. #281
Sandpoint ID 83864

There is no limit on the length of your story. The only criteria are:

1. You must describe having been “jacked” by one or more of your creditors and the effects that it had on you.
2. Your entry should indicate if you have resolved the problems that resulted from the rate jacking. If you have , please explain.
3. You must include your name (first name is sufficient), a valid email address and your daytime phone number (when submitting your story via the comment section of this blog, this information will not be made public). You may be contacted by me or another CRN debt specialist for additional details about your experience.

The winner will receive a FULL CRN Membership at absolutely NO COST! This includes the CRN “Settle Down” educational series, full service debt negotiation services, and unlimited one-on-one assistance and support from an assigned CRN specialist for a period of 2 years. Depending on the winner’s financial circumstances, and the results of program implementation, the prize value may be worth thousands of dollars. (prize is transferrable; see below)

CRN staff will read all entries and choose 6 semi-finalists. Then, a panel of CRN specialists, personal finance writers and well-known consumer advocates will choose a winner from those 6. The contest winner will be notified by phone and email, and will have 90 days to claim their prize. Their story will be published here on 2/15/2010.

What a unique opportunity to tell your story & win a great prize that can help turn your finances around!

Michael Bovee, CRN President

NOTE: CRN reserves the right to publish any contest submissions, but will never publish your name. CRN understands that some consumers who enter CRN’s contest may have already resolved the financial problems that were the consequence of their having been rate jacked. For example, they may have been forced to file bankruptcy. Therefore, if one of these consumers is chosen as the winner of CRN’s contest, that individual can transfer their prize to a friend, family member or co-worker who can benefit from a CRN membership. Who doesn’t know someone who could use help getting out of debt? Especially in this economy!

Well… maybe shocking to some.

I do not often post on consults I do. This one from about six weeks ago provides both warning and sound advice.

A gentleman in Indiana called in to the toll free line here at Consumer Recovery Network after hitting our website while researching debt settlement. I answered the call and proceeded down a list of general things I ask during a typical debt consultation.

He had already spoken to a representative of a NY law firm after hearing a radio commercial advertising services to reduce debt. He felt he had a pretty good foundation of what settlement was. As I started to lay out some facts about debt settlement, he started to lay out a little confusion. His confusion is a direct result of things that were not covered in his consult with the representative of the law firm.

The end result of the consult I did was that he now knew about the knock on effects of settlement and that it should only be considered as an alternative to bankruptcy. He recognized he was not close to bankruptcy, but did have a need to get out of debt. During the consult he recognized he could quickly sell 2 cars he was not using for under blue book and pay off his credit cards.

I heard from him the next day.

Being the considerate type, he had called the law firm rep after speaking with me, to inform him he would not need to enroll in his program. The rep (obviously the consummate closer) tried to overcome his objections and continue to sell him on settlement.

He told the rep that he did not want late payments reported on his credit report for the next 7 years. The rep told him “Oh, that’s only for corporations”!

He told the rep that he was not willing to risk being sued. The reps response was “Well… I suppose it could happen, but you would be the first”!

First what? First person the rep lied to that day? This guy exemplifies what is wrong in the industry! He should be answering his telephone with “Thank you for calling the Bib-N-Fib. Can I take your order?”

I could tell my car selling buddy thought I would be shocked to hear that someone was so willing to deceive in order to make a buck. Instead, I shocked him when I informed him it came as no surprise at all. I did tell him that I was highly skeptical that the representative that he was speaking with was an actual employee of the law firm. The rep was likely just a sales guy at a call center where callers from radio and TV ads are funneled, and whose only purpose is to sell callers on settlement so they can get paid a commission. Even if they have to lie, omit or deceive to do it!

I don’t think car guy would have gotten the same nonsense if he called the law firm directly.

The point of this article:

Consumers should only speak to the actual service provider they would work with. Any middle man has one motivation and that is the commission. Some are far more artful in their selling techniques than who car guy talked to (let’s hope most), but why would you need to speak with anyone other than who you are going to work with? You wouldn’t.

If you are looking into bankruptcy and have a consultation (do more than 1), you are speaking to the attorney or an employee of the firm on their direct telephone line or standing in the office.

If you are looking into a debt management plan offered through consumer credit counseling, you are speaking to the counselor or an employee of the agency on their direct telephone line or standing in the office.

Why in the world should you look into a settlement company any other way? You shouldn’t.

There are thousands of places on the internet offering a consultation to see how they can help you get out of debt. There is a daily bombarding of radio and television commercials offering debt help. The vast majority have no direct connection to the company that will actually be providing you a product or service.

If you hear from whom ever you are speaking to that they are going to “refer” you to the best, most reputable this that or the other thing, your talking to a sales guy. He or she gets paid by selling to you and will not be working with you after you start. They often have no accountability to the actual service provider.

ALWAYS start at the source!

I cannot identify one exception to this. Can you?

I have long held the position: If banks cannot be profitable by lending money at no higher than 15% interest, they should be considered too incompetent to be a bank.

Currently the cost of money for the banks is next to nothing, but they loan it out charging consumers as much as 30%. That is quite a spread!

The argument I hear for high interest rates is often one of risk. The banks use available data from resources like your credit report which may (or may not) suggest that your behavior reflects a higher risk of default. This risk data is then used, by applying some twisted logic, as justification for increasing your interest rates. Let’s see… some arbitrary or even actual data shows an account holder is at higher risk for not being able to make one of their payments and so the bank’s solution is to increase your rates making your payment higher than those at a lower risk. Gee, that’ll assure timely payment! How’s that working for ya Mr. Banker?

Judging from the increase in bankruptcies, delinquencies and charge offs… Not so much!

Obviously, the current job market is adding to the payment pressure consumers are under, but even those who are employed are often just one interest rate increase away from the edge of a financial cliff. I speak to them daily.

This Bloomberg article from yesterday: A CLUE, shows that some in a position to affect change, via the proposed legislation, actually get it.  It doesn’t take a crystal ball to see that a cap on interest rates will provide for a future where consumers can actually afford to borrow, spend, and successfully pay back their debt, thereby assisting in an economic recovery. There are lawmakers who possess, or are willing to borrow from their constituents, the backbone needed to support a return to sound lending principles.

Yes, I understand that we are approaching an election cycle and perhaps there is a desire by politicians to look good at home, but this legislation has never been more relevant than it is today.

Let’s hope it gets the traction it needs this time!

FICO Data Reveals That Settling Your Debts Damages

Your Credit Scores Less Than Filing for Bankruptcy

FICO, the company that calculates consumers’ FICO scores — the scores that are the most widely used by American creditors to determine whether or not they will extend credit to a particular consumer and the terms of that credit — recently released data showing how different negative actions consumers might take in regard to their credit will affect their scores. Among other things, the data shows that settling your debts is far less damaging to your FICO scores than filing for bankruptcy. In other words, the data helps make the case for why settlement rather than bankruptcy is an excellent alternative for many cash-strapped consumers, assuming that they either settle their own debts or work with a reputable settlement firm that charges fairly for its services.

The data released by FICO and available on its web site at: http://www.myfico.com/crediteducation/questions/Credit_Problem_Comparison.aspx, shows that as a consequence of filing for bankruptcy, consumers may see as much as a 240 point drop in their FICO scores. In contrast, if they settle their debts, their FICO scores may drop by 125 points at most. Interestingly because of the way that FICO scores are calculated, when consumers have higher scores prior to either filing for bankruptcy or settling their debts, their credit scores are harmed more by settlement or bankruptcy than are the scores of consumers who had lower FICO scores to begin with. According to FICO, the reason for this difference is that the scores of lower scoring consumers already reflect their credit missteps.

Despite the FICO data, I must caution you not to base your decision about which debt relief option to pursue based on that information. All debt relief options — credit counseling, settlement and bankruptcy — will have a negative effect on your credit histories and/or FICO scores for some time. (See my recent blog, Debt Relief Options vs. Your Credit Score).

When you are deciding how to deal with your debt, your primary concerns should be gaining a clear understanding of how each option works and its pros and cons, and determining whether the numbers associated with a particular option make sense for you. For example, your first test if you are considering settlement should be whether or not you can accumulate the money you need to fund your creditors’ settlement offers before your risk of being sued by them for what you owe begins to escalate. If you cannot come up with the money you need to settle your debts relatively quickly, then bankruptcy is probably your better option.

For free help determining which debt relief option would work best for you, fill out CRN’s consultation request form: https://www.consumerrecoverynetwork.com/contact

FTC Sues Three Companies Marketing Bogus Credit Card Rate Reduction Programs to Consumers

The FTC announced this week that it had filed lawsuits against three companies: Economic Relief Technologies LLC, Dynamic Financial Group (U.S.A.) Inc., and JPM Accelerated Services, http://www.ftc.gov/opa/2009/12/robocall.shtm. The lawsuits, which were filed in Florida, Georgia and Ilinois, allege that the companies have been marketing worthless credit card interest rate reduction programs to consumers via automated phone calls, also known as ‘robo” calls. According to the FTC, not only have the companies failed to deliver on their promises, but their calls have violated the federal Telemarketing the Do Not Call Rules.

Telemarketers working for the three companies told consumers who were interested in the program that the program would allow them to save thousands of dollars in interest within a short period of time and would make it possible for them to pay off their debts faster. Consumers were also told that to achieve these benefits they would have to pay as much as $1,495 up-front, but were promised that if they did not save a “guaranteed” amount — usually $2,500 — they could get their up-front payment back. Few consumers ever received a refund however.

Consumers who want to learn more about their rights and responsibilities regarding pre-recorded telemarketing calls, should read the following two FTC alerts: New Rules for Robocalls and Reining in Robocalls, which can be found at http://ftc.gov/bcp/edu/pubs/consumer/alerts/alt162.shtm and http://ftc.gov/bcp/edu/pubs/business/alerts/alt161.shtm.

Consumers should know that they have just as much likelihood (if not more) of successfully reducing their interest rates with their creditors on their own rather than by paying someone to attempt to do it for them. If you try it on your own and you hit a brick wall, do not get discouraged. Try again a week or so later and you may have success.

One little tip for those consumers whose high interest rate credit cards may force them to make a payment late: Missing a payment by as a little as a week or two will often give your account a different status that will qualify you for interest rate and minimum payment reductions that were curiously unavailable to you prior to your late payment. However, I must stress that this strategy for getting such reductions is only appropriate for someone who was already unlikely to be able to meet the minimum payment requirement.

Media’s Lack of Understanding About Debt Settlement’s Potential for Consumers

is Frustrating and Bad for Consumers

Sure, there are exceptions, but I’ve found that most media run the other way when it comes to covering debt settlement. They seem completely unwilling to get educated about do-it-yourself settlement options and about ethical debt settlement firms like CRN, that provide debt-stressed consumers with a valuable service and charge them fairly for that service, unlike most debt settlement firms. Instead, they either ignore debt settlement or they paint debt settlement firms with a broad brushstroke, characterizing every firm in the industry as a rip off.

Not only is this characterization unfair to those members of the settlement industry that truly want to help consumers get out of debt, but it’s also unfair to consumers who are burdened down with debt and looking for a way out. If they work with the right firm, debt settlement can be a great solution for many of those consumers. Yet, most media reports scare consumers about settlement and warn them to steer clear.

With countless consumers struggling to deal with mountains of debt and with the consumer bankruptcy rate on the rise, the media is doing consumers a disservice by not providing them with fair and balanced information about debt settlement. By fair and balanced I mean:

• explaining the goal of debt settlement

• detailing when settlement is an appropriate option and how it compares to other debt management options

• educating consumers about how to settle their own debts and the resources available to help them

• telling consumers how to chose a reputable debt settlement firm

• warning consumers about the warning signs that a firm is not on the up and up

So, I am issuing the media a challenge: Get informed about debt settlement! Understand how it can (and should) work and who it’s right for, warn consumers about the bad firms, and inform them about the good ones. Under the right circumstances, debt settlement can be a great option for consumers and every bit as legitimate an option as debt consolidation, working with a credit counseling agency or filing for bankruptcy. So, it’s time for the media to inform consumers who are drowning in debt that there is another option available to them — debt settlement.

Every day I receive a daily Google alert in my e-mail inbox that features links to articles, press releases and blogs about some aspect of debt settlement. It’s one of the ways that I stay abreast of what is happening in my industry and it’s the kind of information that any financially-troubled consumer might find by searching on the Internet for helpful resources using key words like debt settlement, debt problems, debt settlement firms, or debt negotiation. However, I’ve been dismayed to see that more often than most of what I read in these alerts is not factual and appears to have been written by debt settlement firms or their representatives with the goal of getting unsuspecting consumers who are confused and scared about their financial situation to work with them.

Here are common examples of the kinds of misleading blather I read in the alerts that show up in my e-mail box each morning:

• Press releases that supposedly are announcing news about a particular debt settlement firm or some aspect of settlement. In fact, the releases contain no news content of any sort and are being used by unethical firms to get consumers to click through to their web sites. At least one of the wire services transmitting these “press releases” appears to be little more than a vehicle for posting articles on the web and not a true wire service at all.

• Poorly written articles about settlement with titles that have been chosen to make it appear as though the articles actually provide valuable advice and information to consumers who need help managing their debts. In fact the information in these articles is marginally useful at best and sometimes totally misleading. You’ll find the real purpose of these articles in a closing paragraph where readers are encouraged to contact a debt relief network, which the articles claim is comprised of highly ethical settlement firms with proven track records for helping consumers. Don’t believe it!

• Half-written blog posts about some aspect of debt that are surrounded by lots of ads for debt settlement firms. I assume that the agenda of whoever writes these posts is less about completing the post and providing readers with truly useful advice and information and more about getting readers to click on one or more of the ads.

• For-profit debt settlement organizations that use names to make them sound like they are non-profits or that imply that they are affiliated with a federal government debt settlement program. The theory here is that consumers will be more apt to trust a non-profit or a firm that’s affiliated with the government. Fact: Debt settlement firms are businesses, not nonprofits, and there is no federal debt settlement program.

• Articles, blogs and press releases encouraging consumers to visit specific debt settlement forums before choosing a debt settlement firm. Supposedly, consumers who participate in these forums will have an opportunity to communicate directly with other consumers who are working happily with a debt settlement firm or who have already settled their debts with the help of a particular firm. Although there are legitimate forums where consumers can obtain truly useful information, some forums have been created by debt settlement firms or their representatives and if you participate in one of them, the consumers you communicate will be nothing more than people who are being paid by the firms to share information with you, to gain your trust and to recommend the firms to you. Other forums work a little differently. For example, in some of them, someone will try to get you to provide him with your name and e-mail address and then that individual will sell your information to a debt settlement firm. Not long after, the firm will contact you offering to help you resolve your debt problem.

Obviously you must be very, very careful when you search for debt settlement assistance online because there are a lot of firms out there who are willing to use underhanded and misleading tactics to gain your trust and who are all too ready to promise you the moon, take your money and give you little or nothing of real value in return. Therefore, before you share any information with anyone on a debt settlement forum, before you agree to work with any debt settlement firm or to pay the firm money, check it out with the Better Business Bureau, http://www.bbb.org/us/Find-Business-Reviews and with your state attorney general’s office, http://www.naag.org/attorneys_general.php. In other words, when it comes to debt settlement the old adage caveat emptor, or buyer beware, definitely applies.

Michael Bovee

Government Report Recommends Much Needed Changes to the

Federal Fair Debt Collection Practices Act

If you are old enough, think back to how you communicated with others back in 1977, the year that the federal Fair Debt Collection Practices Act was written, which is the primary law protecting consumers from abusive debt collectors. You called people using a landline, wrote letters or met face to face. There was no Facebook, no cell phones or voice mail, no caller ID, and no fax machines. In other words, from a communication technology perspective, 1977 was light years away from where we are today. Therefore, as the Government Accounting Office (GAO) points out in a new report to Congress on the debt collection industry, Fair Debt Collection Practices Act Could Better Reflect the Evolving Debt Collection Marketplace and Use of Technology, go to levin.senate.gov/…/2009/GAO.creditcarddebtcollection.102109.pdf, the FDCPA is woefully out of date because it has not been amended to address how debt collectors are using these new technologies to communicate with consumers about their past due debts, even though in many instances by using them debt collectors are violating the intent of the FDCPA.

The GAO’s recommendation to Congress that it better protect consumers by amending the FDCPA so that it reflects today’s modern means of communication could not come at a better time. Just consider, consumer credit card debt has skyrocketed over the past several years, the rate at which consumers are falling behind on this debt has been increasing, and complaints about debt collectors are on the rise, fueled in part by the fact that a growing number of consumers simply can’t afford to pay what they owe and so some debt collectors resort to illegal tactics to try to get at least some money out of them. According to the Federal Trade Commission (FTC), the agency charged with enforcing the FDCPA, it now receives more complaints about the debt collection industry than about any other industry, and it saw a 34% rise in those complaints between 2004 and 2008. Underscoring the problem the Better Business Bureau and the offices of many State Attorneys General have also seen significant increases in complaints against debt collectors.

The GAO report also examines changes in the debt collection marketplace and how they are affecting consumers’ FDCPA rights and recommends that the FDCPA be amended to reflect the realities of today’s debt collection industry. For example, the report points out that debt buying has become much more commonplace that it was when the law was written. Debt buying occurs when a debt collector either purchases past due debts from a creditor or purchases them from another debt collector; sometimes those debts are bought and sold repeatedly. The problem this has created is that the buyers of the debts don’t always have adequate information about the debts when they attempt to collect them and as a result, they are more apt to try to collect the wrong amount of a debt or to contact the wrong person for payment, among other problems. The report notes that this tends to be a bigger problem the farther away from the original creditor a debt has moved. In other words, the buyers of debts that have been bought and sold more than once already are more apt to have inadequate or erroneous information about those debts. The issue of inadequate information is important because there are many instances of consumers whose lives have been made miserable by debt collectors demanding that they pay debts that did not belong to them or that they pay more than what they actually owed on a debt and some of these consumers have even been sued over the debts.

Here’s another reason why the issue of inadequate information is important. If a debt collector contacts you, you have the right to ask the collector to provide you with written verification of the debt. However, many debt collectors who buy debts claim that they do not have the information they need, like a consumer’s account billing statements, to provide the legally required written verification. Also, complicating matters, there is confusion about exactly what constitutes written verification because the FDCPA as currently written does not provide specific guidelines on this matter.

The GAO report makes another important recommendation. It advises Congress to give the FTC rulemaking authoring over the FDCPA. Rulemaking authority will allow the Commission to more effectively respond to an evolving marketplace and changes in technology. Makes perfect sense to me especially given that the FTC has this authority in regards to all of the other consumer protection laws it enforces and without rulemaking authority, the Commission is hampered in its ability to regulate the practices of debt collectors and protect consumers.

One last comment. The GAO report focuses largely on the debt collection practices of the very biggest credit card companies—all of which are federally supervised banks. However, it expresses concern about the debt collection practices of smaller, high-fee, sub-prime credit card issuers, which are often local banks. The problem according to the report is that these other card issues have been especially aggressive in their efforts to collect past due debt. I hope that the GAO takes a hard look next at this sector of the credit card industry.