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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.

Additional Resources

Fair Debt Collection Practices Act (PDF)

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Posted in Financial Literacy | 2 Comments »

Friday, January 29th, 2010

FTC Hails Victory Over Abusive Debt Collection Practices

The Federal Trade Commission announced this month that it has settled charges with three debt collectors accused of various types of abusive debt collection. The settlement, which reportedly includes the largest civil penalty ever levied on a debt collection agency, comes in conjunction with future restrictions for the defendants.

Fair Debt Collection Practices Violated

According to the case, the defendants violated terms of the Fair Debt Collection Practices Act, which outlines acceptable behavior for agencies responsible for collecting on debts. These guidelines prohibit a variety of actions, including:

  • Contacting a debtor before 8:00 am or after 9:00 pm local time
  • Contacting a debtor after receiving a written request not to do so
  • Contacting a debtor at her place of work after being told not to
  • Calling the debtor with the intent to annoy, harass or abuse
  • Contacting the debtor directly when he is known to have an attorney
  • Misrepresenting a debt or using deceit to collect money
  • Threatening arrest or legal action when neither is an option
  • Seeking more than a person legally owes
  • Publishing a person’s name on a “bad debt” list
  • Reporting information incorrectly to a credit reporting bureau
  • Contacting a third party about a consumer’s debt
  • Contacting a debtor by embarrassing media (like a post card)

In this case, the men were charged with threatening arrest and legal action when none was warranted as well as using harassment and abusive contact to collect debts. The men in question were senior managers at debt collection agencies and as such either participated in the illegal actions or were responsible for such actions among their employees.

The Settlements

One of the three defendants, Keith Dickstein, owner of Academy Collection Service, Inc., apparently paid a $2.25 million settlement in 2008. The two defendants who settled early this year, Edward S. Bastian and Edward Hurt, were saddled with fines of $375,000 and $300,000 respectively for abusive collection practices.

The fines were suspended after each man paid $7,500, based on their ability to pay; payment of the remainder will depend upon their future compliance with debt collection laws.

Your Consumer Rights

Federal law outlines many protections for consumers. Make sure you have an idea of what consumer rights you have so you can take legal action, if necessary, should they be violated.

Additional Resources

Fair Debt Collection Practices Act (PDF)

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Posted in Financial Literacy | 11 Comments »

Thursday, April 9th, 2009

After Filing Bankruptcy: Attempting to Collect Discharged Debts Is Illegal!

When you receive your bankruptcy discharge, you are legally excused from responsibility for any debts that have been discharged.

Unfortunately, some unscrupulous creditors count on people filing bankruptcy not knowing how far their protection extends and attempt to collect on debts after the court has excused them.

Don’t Pay What You Don’t Owe

The fresh start granted to you by the court protects you from the following.

  • Mail contact from creditors: Letters indicating that payment is due are prohibited; if you receive any, show them to your attorney.
  • Phone calls from creditors: Again, you have no obligation to pay discharged debts. Contact from creditors asking you to do so is forbidden. Record the time and date of any such calls.
  • Lawsuits from creditors: Because you no longer owe money on discharged debts, creditors have no legal recourse to collect them.
  • Failure to update your credit report: Creditors that threaten to continue reporting a discharged debt as unpaid to scare you into paying it are breaking the law. Be sure to check your credit report for accuracy and note any wrong information you see.

Why Creditors Attempt Collection

Put simply, creditors stand to make money by attempting to collect on debts you don’t owe.

If you pay them, they get cash they otherwise wouldn’t have.

In some cases, the people or groups attempting to collect aren’t even your original creditors! Here’s why:

  • Say you owed one credit card company $1,000, but the debt was discharged in bankruptcy. You now owe the company $0, which is how much they can legally collect from you.
  • A third party collector may offer to buy your debt from the credit card company for, say, $10 for the privilege of “owning” the discharged debt. The credit card company may agree, since $10 is more than $0, so they technically make a profit.
  • The collector can then hound you about paying the debt, even though you no longer have any legal obligation to do so. If you end up paying, they make $990. If not, they only lose $10.
  • Because enough bankruptcy filers are unaware that they don’t have to pay these debts (or feel somehow guilty about not having paid them), many pay. This makes the illegal debt collection profitable even when some people refuse to pay.

Contact a Bankruptcy Lawyer

If any of your creditors tries to collect on this “zombie debt,” you have the right to contact a bankruptcy lawyer.

You have rights and can take action to protect them – that’s what the fresh start is all about!

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Posted in Post-Bankruptcy Debtor Education | 2 Comments »

Friday, January 16th, 2009

Creditors Scramble to Get What They Can From Debtors

Faced with the deep recession and more consumers filing bankruptcy, banks and lenders are feeling the squeeze.

Not only are many consumers backed into corners with unmanageable debt and few options, debt collectors are realizing that their options are limited too.

Many people are simply unable to repay their debts--and as the old saying goes, you can't get blood from a stone.

According to a recent article in The New York Times, lenders and debt collectors are now scrambling to get what they can from borrowers, even if it means forgiving a portion of the debts.

Some creditors are now accepting greatly reduced payments, allowing debtors to clear the debt.

This new wave of debt forgiveness has nothing to do with charity and is not an act of kindness.

Creditors are reacting to the devastating economy and working with debtors may keep them from losing everything.

Creditors Know of Chapter 7 Bankruptcy

Make no mistake; lenders are fully aware that if a debtor files Chapter 7 bankruptcy, many debts could be completely discharged.

As the recession deepens and more Americans are losing their jobs in mass layoffs, banks and credit card companies are preparing for more defaults in 2009. As a result, these creditors are competing for payment.

While some companies are scaling back consumer credit lines and hiking up fees, others are giving customers more leeway.

The New York Times reports that Bank of America said in 2008 it waived late fees, lowered interest charges and, in some cases, reduced loan balances for more than 700,000 credit card holders.

American Express and Chase Card Services are reportedly working with customers too, and the Times reported that every major credit card lender is giving debt collectors more options to help distressed debtors.

Debt collectors are also feeling the squeeze, as they are generally paid based on the amount of money they are able to recover. The number of borrowers who are receiving payment extensions has reportedly doubled in recent months and deals to forgive 20 to 70 percent of credit card debts are becoming common.

Just a few years ago, banks and credit card companies were far less likely to work with debtors. However, as the number of people filing bankruptcy grows so does the amount of bad debt that credit card companies are forced to write off. This has forced many creditors to change their debt collection strategies.

Creditors realize that consumers now have fewer options to pay off debts.

Debtors who may have used equity in their homes to pay off debts in the past no longer have home equity.

As costs of food and fuel have soared and many consumers have lost their jobs, savings have been depleted and filing bankruptcy becomes the only option.

So, if you have outstanding debt, consider giving your lender a call a having a chat. Perhaps you could pay off that account for less than you think.

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Posted in Credit and Bankruptcy | No Comments »