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Monday, February 8th, 2010

Debtor Collects from Creditor Harassment

Anyone who has ever been hounded by a debt collector has probably fantasized about giving the collector a taste of his or her own medicine. That fantasy may be much easier to realize than most people imagine, as the story of a Dallas debtor shows.

Background: Your Rights as a Consumer

Laws are in place at both the federal and the state level to protect all Americans from overly aggressive debt collection practices. In fact, between the Fair Debt Collection Practices Act, the Fair Credit Reporting Act and the Telephone Consumer Protection Act, a lot of behaviors typical of debt collectors are prohibited.

In addition to other things, debt collectors cannot:

  • Lie about their ability to take legal action to collect on a debt
  • Call you repeatedly with intent to annoy or harass
  • Call you outside of 8 am and 9 pm local time
  • Contact you directly when you have indicated that you have legal representation
  • Contact you by any embarrassing media (like postcards)

Unfortunately, many consumers are not aware of their rights and so do not take legal action against collectors who break these laws.

A Man with a Plan

According to the Dallas Observer, a man named Craig Cunningham has taken it upon himself to stand up for his consumer rights.

The Observer reports that Cunningham made some poor investment choices when credit was easy and ended up with more than $100,000 worth of debt. But, when collectors began contacting him and asking him to pay up, he decided to fight back.

Essentially, here’s how Cunningham has managed to make the most out of a bad situation:

  • He hired a lawyer to represent him and help him understand the intricacies of the consumer protection laws that were relevant to his case.
  • He began recording calls from his creditors and saving all forms of contact he received.
  • With the help of his attorney, he filed lawsuits whenever a debt collector violated a national or state consumer protection law.
  • He began receiving court settlements from successful cases.

Most collection agencies, it seems, prefer out-of-court settlements (which often involve a statutory fine) to taking a case to trial, since settlements save them money. The Observer notes that Cunningham has thus far earned $20,000 from suits against law-breaking collectors.

If you think your rights have been violated by a debt collector, consider contacting an attorney to determine whether you could take steps to receive compensation for the violations.

For those who don't have the resources to fight each creditor, there's another option to end harassment: filing bankruptcy. Bankruptcy can give you legal protection from creditors and wipe out your obligation to repay debts.

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Sunday, February 7th, 2010

The Week in Finance From the FTC

The Federal Trade Commission announced this week two new measures to address lapses in consumer protection for U.S. citizens.

Mortgage Lender Required to Hire Consultant

According to a news release, the FTC has modified a settlement with Gateway Funding Diversified Mortgage Services, L.P., a mortgage lending company earlier cited for improper and discriminatory lending.

Gateway will now have to:

  • Hire a third-party consultant approved by the FTC to verify that the company complies with fair lending regulations
  • Introduce any remedial changes suggested by the consultant
  • Submit to annual assessments and detailed analyses of lending information for five years

The new measures are intended to prevent the sort of mortgage lending abuses, such as reverse redlining and predatory lending, that occurred during the subprime boom and paved the way for the real estate bubble, its burst and bankruptcy filings across the country.

Support for Bill Expanding Consumer Funeral Rights

Following a funeral scandal last summer in which workers in the funeral industry stole money from grieving families and disposed of bodies in unsavory ways, the FTC has announced its support of a house bill (H.R. 3655) that would expand consumer rights in the funeral industry.

The incident reportedly involved four gravediggers in the Chicago area pocketing funeral money after performing funerals for families. After the ceremonies, the four allegedly dug up bodies and dumped them wherever they found space.

The bill, if it passes, would do the following:

  • Give the FTC the authority to regulate cemeteries across the country
  • Expand consumer protections under the FTC’s existing Funeral Rule by expanding its application from funeral homes to crematories and sellers of caskets, urns, monuments and markers
  • Require those in the funeral industry to disclose and itemize prices upfront and identify any state laws that require certain purchases or expenses

The funeral industry has historically been one in which strict consumer protection is essential, since people are often forced to make financial decisions in a short amount of time and while under great emotional stress.

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Friday, February 5th, 2010

Understanding Credit Card Cancellations

Finding out your credit card has been canceled can be frustrating, embarrassing and worrisome.

Unfortunately, tough economic times may mean card cancellations become more common and more likely in the coming months.

Why Credit Cards Matter

Hopefully, you already know that your credit score is a number calculated through a formula developed by the Fair Isaac Corporation (FICO) and determines what kind of interest rates you’re likely to receive from lenders.

But what you may not have realized is that your credit card usage plays an important role in your credit score:

  • Age of accounts: The longevity of various credit accounts, including loans and lines of credit, is a factor in your credit score. So maintaining a credit card for a number of years is better than opening up new ones and canceling old ones.
  • Variety of account types: Another factor of your credit score is the diversity of your credit portfolio. Credit cards are one of the only tools that offer revolving credit, so they demonstrate how well a borrower handles this particular credit product.
  • Credit utilization ratio: Finally, credit cards help by giving you more credit available. Part of your score comes from a comparison between how much credit you have available to how much you’re using (using less is better).

So having a card canceled on you may damage your score in three different ways, and there is no law that requires credit card issuers to notify consumers about cancellations.

Having trouble paying your credit cards? Learn if bankruptcy may be right for you.

Reasons for Credit Card Cancellation

Even if you’re a responsible credit card user - meaning you pay your bill on time every month - your credit card company may cancel your card. Common reasons include:

  • Ratio shift: If your available-credit-to-debt ratio changes - that is, you start using significantly more credit - a card issuer may cancel your card due to "increased risk."
  • Lack of profitability: Sadly, if you pay your bill in full every month, the issuer isn’t making much money from you, and may cancel your card.
  • Lack of use: If you haven’t used your card in several months, it could get the shaft. Charge something small every month or so and pay it off immediately to prevent this.
  • Bad economy: Market conditions, like unfavorable interest rates or housing prices, may cause card issuers to close accounts.
  • Credit report information: Negative information in your credit report, whether true or not, can make an issuer pull the plug.

In some cases, you won’t be able to prevent cancellation, but you can stay on top of your finances by checking your credit report regularly and fixing any errors you notice. This will help you stay on top of any credit card problems before they arise.

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Thursday, February 4th, 2010

Obama’s Plans for Your Retirement Savings

In an age of disappearing pensions and rapidly shrinking Social Security funds, individual retirement accounts are more important than ever – but many Americans have no official retirement accounts, connected to their jobs or otherwise. The Associated Press reports that President Obama is launching a plan to change that.

The plan has at its center one serious statistic: almost half of American workers have no retirement savings option through their jobs. That’s frightening, considering that, as a nation, we don’t have a great track record of saving money.

Four Main Points for Retirement Savings

The retirement savings legislation, still in the drafting phase, at this point includes four main parts to improve Americans’ chances of living comfortably after they stop working. The four prongs are:

  • Automatic IRAs at work: Employers who do not already offer Individual Retirement Accounts (IRAs) to their workers would be required to do so. All employees would be automatically enrolled in such programs, with a chance to opt out. Studies have shown that participation in retirement savings plans is much higher when it’s automatic. To ease the administrative costs associated with the program, employers would reportedly be offered tax breaks for introducing the IRA plans.
  • “Saver’s credit” for contributions: Sources indicate that the Obama Administration wants to include a provision that would incentivize retirement savings for lower-wage workers by introducing tax breaks and potentially including government-sponsored matches for initial contributions. Some critics suggest that this measure will face too many obstacles because of the potentially high cost to the government.
  • Lifetime income: One aspect of the retirement measures that has been proposed would introduce investment products into retirement accounts that work on annuities and guarantee income for an investor’s lifetime. This measure would be intended to eliminate the possibility of a person’s money running out before their life, but could face challenges since accounts that offer such returns are often laden with fees. This might even include stronger retirement account protections in bankruptcy.
  • Heightened 401 (k) regulations: Lastly, the administration has mentioned introducing more transparency into the regulations governing 401(k) plans, so that investors would be better informed about the fees and costs of their accounts and avoid unnecessary expenses.

Remember: it’s never too early to start saving for your retirement, and with fewer guaranteed income sources for the elderly, it’s more important than ever to plan to support yourself financially after you stop working.

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