Debt Collection Laws & Much Needed Change

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and Use of Technology, go to levin.senate.gov/…/2009/GAO.creditcarddebtcollection.102109.pdf, the FDCPA is woefully out of date because it has not been amended to address how debt collectors are using these new technologies to communicate with consumers about their past due debts, even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.

DIY Debt Settlement

Do-It-Yourself Settlement is a Great Option for Most Consumers

Despite advertising to the contrary by some debt settlement companies, you are well-positioned to settle your own debts with your creditors. In other words, there is no need to pay a lot of money to a debt settlement firm to negotiate for you, and doing it yourself means that you’ll have more money to put toward your debts so you’ll get out of debt faster. However, you’re more likely to settle your own debts successfully if you have a clearer understanding of the settlement process and know how to make it work for you. For these reasons, the services of a debt settlement firm that will support your do-it-yourself efforts with information, advice and encouragement can be invaluable. If you decide to get this kind of help, here is some of what you will learn:

• Something is almost always better than nothing. Although creditors understand that a certain percentage of the consumers they extend credit to won’t be able to repay what they owe and therefore set aside a reserve for losses as a result of defaults, they also want to minimize the amount of those losses. One way that most of them do that is by agreeing to settle past due debts for less than the full amounts owed. However, each creditor has its own policy regarding what it will settle a debt for. For example, you may find that you are able to save 60% with one creditor, but only 45% with another. For more detail read Debt Settlement-Why Banks Do It.

• Timing matters. The creditor you’re negotiating with may reject your offer, maybe because it’s too small, in which case you may want to increase the size of your offer, if you can afford to. It’s also possible that your offer was rejected because you’re off on your timing (See the next bullet in this post) or because there was irregular activity on your account prior to your default. For example, before you stopped paying on the account you tapped it for large cash advances, used it for balance transfers, or you suddenly began using your card much more than you had in the past. Of course, some creditors may simply refuse to settle with you, in which case you’ll have another shot at settling if your account is sent to collections or sold to a debt collection agency.

• Settle sooner rather than later. If you are going to negotiate with an original creditor (the creditor who extended you credit), usually you must do so before the account you want to settle is more than six months past due. Otherwise, you’ll have to try to negotiate a settlement with the collection agency that your creditor may hire to collect your debt or with the agency that may purchase the debt. It’s also possible that after the six months are up, your creditor will give your debt to an attorney who is authorized to sue you for the money. Complexities do exist. The more accounts you have with different creditors the more strategic you will need to be in how you prioritize the accounts so that you maximize savings and defer risk.

• Be ready to roll with the punches. Although settling a debt is not difficult, when you are doing it yourself, you may end up feeling lost, frustrated or unsure about what to do next. That’s why having the support and assistance of a debt settlement firm can be so helpful. Not only will the firm make sure that you understand the details and nuances of the process and provide encouragement and support when you need it, but it will also be available to help you figure out when you should take a dive and when you ought to throw your best punch.

Consumer Recovery Network provides consumers with all of the information and tools they need to settle their own debts as well as unlimited support throughout the settlement process. We also guarantee that if you don’t want to settle your own debts or try and are unsuccessful and hire us to do the negotiating for you, we will charge you for our efforts only if you accept the offers we get. And, if you do, we don’t expect you to pay us our fee until after you’ve paid your creditors what you agreed to. Furthermore, in 19 states we don’t charge anything for our negotiating services. In these states however, we do encourage the consumers we work with to donate what they would have had to pay to us if they were living in a state that did allow us to charge a fee for those services to a low income legal aid organization in their community or to donate nonperishable food items to their local food bank.

By: Michael Bovee

CRN President

Credit Card Bill of Rights – Whats it Mean to You?

Today we’re pleased to bring you a guest post from nationally recognized personal finance experts Ken and Daria Dolan of Dolans.com.

President Obama has signed the Credit Cardholder’s Bill of Rights, a set of rules that will change the credit card industry.

We don’t want to be cynical, but when we read news story after news story that “this sweeping legislation would reform and revolutionize the credit card industry” … we were not exactly, well, believers. After all, the credit industry has been rigged against consumers for a long time with thousands facing card cancellations, jacked up interest rates and hikes in fees as we speak.

So we dug into the law to find out if this is actually good news for us consumers or another toothless attempt from Washington that will fall flat.

Here are the major components of the new law, starting with the three provisions that have already gone into effect.

1. Banks must mail your bill at least 21 days before the due date.
2. Banks must provide at least 45 days notice before implementing any significant increase in fees or interest rates.
3. Banks are prohibited from increasing fees and/or interest rates without informing you, the cardholder, that he/she has exceeded their credit limit or has missed a payment.

Be sure that you check your statement’s due date to ensure that you are getting the required additional time to pay your bill.

Now let’s look at the rest of the provisions, which don’t kick in until February 2010.

Existing Balances

Issuers cannot retroactively change the rate on an existing balance unless the account is 60 days delinquent. If a customer is delinquent and the rate is raised, the rate must be lowered again if the cardholder pays the minimum balance on time for six months.

In response to this provision, we expect credit card issuers to increase rates for customers who carry balances right away, so pay the balances off ASAP if you can. Otherwise, be sure to make payments on time.

Teaser Rates

Issuers cannot raise interest rates for the first year after an account is opened and promotional rates must last at least six months.

Some limits on teaser rates are great, but the onus is still on you to be aware of when your low rate expires!

Payments

A consumer payment above the minimum applies first to the balance with the highest interest rate.

This is a no-brainer that should have been this way all along. This change alone will save consumers big bucks in interest!

Over credit limit fees:

Issuers cannot charge “over-limit” fees on credit cards unless the consumer has signed up to allow such transactions.

Save your money. If possible, use only 20% or less of your total available credit limit across all of your credit cards combined. Your credit rating will thank you.

Minors

For consumers under 21 years old, a credit card issuer must get the signature of a parent or another party to take responsibility for the debt, or it must obtain proof that the under-21 consumer can repay credit.

We hope this new rule will go a long way toward stemming the growing tide of college students who are in debt over the head. We recommend you help your college student get an “emergency only” credit card with a set credit limit.

Fees

Issuers cannot charge fees to pay by mail, phone, and electronic transfer or online, except for expedited service.

Disclosure:

Cardholders must get 45 days notice of change in terms.

It’s always been critical to read both the small print in your current agreement (or new ones sent along) and all inserts in your credit card bills. With this new rule, you won’t have the credit card company to blame if you miss an important change to your card rules.

Gift Cards

All gift cards must have at least a five-year life.

The new law also tackles some sneaky gift card tricks. It eliminates the practice of declining values on gift cards and hidden fees that punish cardholders for not cashing cards within a certain amount of time.

The gift card industry racks up billions of dollars for retailers and issuers every year. And millions of dollars worth of gift cards go unused each year.

Who doesn’t have a gift card stuck away somewhere that they haven’t yet used? Use it!

Not-So-Rewarding Programs

As you can imagine, the credit card industry is NOT happy about these changes.

They claim these rules will make it harder for consumers to get credit, that cardholders who pay their balance in full will see higher fees, and that rewards programs may be canceled.

We’ll see on the first two items.

We do believe we’ll see changes to many of the “rewards” programs currently offered as companies tighten their belts.

Take a hard look at any rewards program in which you participate to calculate if it makes sense to cash in the points now in case the purchasing power declines or the program is canceled or changed.

Score One for the Little Guy

Bottom line: This new regulation is a step in the right direction and will end many abusive practices.

Be a vigilant consumer … you are the ultimate police dog to ensure that your credit card issuer is complying in every way with the new legislation.

Here’s more help taming the debt beast and living credit smart:

• 7 Simple Steps to a Higher Credit Score
• 10 Steps to Debt Free Living
• Important Changes to Your FICO Score

Ken and Daria Dolan have spent 20+ years helping people like you live debt free and credit smart.   Read their newest report, “8 Secrets Your Credit Card Company Won’t Tell You,” FREE!