I read an interesting article in the New York Times about illegal collection tactics used by collection agencies. Collection agencies sometimes buy old debt from established companies for pennies on the dollar, then pursue aggressive collection against the consumer, even including lawsuits.
Sometimes, however, the debt itself is stale (meaning the statute of limitations for collections has run) or was never valid in the first place.
Often consumers are misled by the aggressive collectors and agree to pay without confirmation that the debt is collectible. I have seen several instances where a consumer will authorize the collection agency to draft the consumer's bank account – which is always a bad idea.
If you receive a call or a letter from a debt collector about a debt that you don't recognize or that you dispute, you must assert your rights. First, demand a written verification of the debt so you can review whatever documentation exists. Second, never authorize the debt collector to access your bank account or a credit card. Third, you can assert your rights under the Fair Debt Collection Procedures Act to stop all phone calls and communication. Fourth, if you do get served with a lawsuit, contact a lawyer immediately for guidance – it is far easier to stop a judgment than to undo one.
As a rule, if you receive a call or letter about an old debt, do not assume that the bill collector is accurate or truthful. Get a copy of your credit report to conduct your own investigation. If you owe the money, you can usually negotiate a payment for pennies on the dollar – I have done this type of negotiation and we usually end up at 40 to 60 cents on the dollar for recent, verified debt.
Filed under Consumer protection by 
Just when I thought I had seen it all, today's mail brought a credit card promotion called "Upfront Rewards" from a credit card issuing bank. The promotion offers immediate delivery of a Dell laptop if the applicant agrees to transfer an existing $5,000 balance and "maintain a minimum balance of $3,500 for at least 18 months. Should the balance fall below $3,500 then the card will be charged a flat $600 fee.
An analysis of this promotion suggests that it is not quite the deal it seems to be. Firstly, this Dell laptop (which the promotion calls an $850 value) is going for around $400 on eBay (for a new machine).
So, if you take this deal and your balance falls below $3,500 you would be slapped with a $600 charge in addition to whatever interest you had already paid.
Now, if you are very disciplined and you maintained a $3,500 balance at the current 9.9% rate (although the card rate is "variable" with a rate of 3.49% to the Prime Rate on purchases and 11.99% on cash advances, what happens?
According to my amortization calculations 18 months of interest on a $3,500 balance at 9.9% results in a charge of $280.72 of interest. So the minimum you are paying for this promotion would be $280.72. Of course the issuer is assuming that you will not be so disciplined and will use the card and build up a balance of more than $3,500. In a best case scenario, you would save $100 or so from the eBay cost of a new Dell (slightly used models can be had for less) but you would absorb 18 months of risk for delinquency or early payoff charges. And, of course, in 18 months, your laptop will be worth about $50 if you are lucky.
If you do not pay down your initial $5,000 balance and pay interest on it for 18 months, then your interest cost jumps to $534.12, which, of course, is more than the open market cost of the Dell.
I must say that this promotion got me to open the direct mail piece, even if this is not a deal I could recommend. I will keep my eyes open for the first time I see one of these accounts in a bankruptcy that I file for a client.
–Jonathan
Technorati Tags: credit card promotions, balance transfer offers, adjustable interest rates on credit cards
Filed under Consumer protection, Recent credit card use by
NACBA (National Association of Consumer Bankruptcy Attorneys) recently distributed a letter from Senators Chuck Grassley and Jeff Sessions to Justice John Roberts, the Chief Justice of the United States. The Chief Justice is the head of the Committee on Practice and Procedure of the Judicial Conference. This Committee is the organization that drafts and revises the official bankruptcy forms that must be used in the nation’s bankruptcy courts.
In this letter, Senators Grassley and Sessions express dismay that the forms created after the enactment of the new law do not require low income debtors to complete extensive financial disclosures.
Currently, debtors whose incomes fall below the average income for their State of residence do not need to fill out around 10 pages of forms – presumably if their income is below the State average, they are not abusing the process.
As a practicing lawyer who sees struggling debtors on a regular basis, I find this mean spirited letter by Senators Grassley and Sessions disturbing. In my view, the only impact that these proposed rule changes would have would be to drive up the cost of bankruptcy. We have already seen the filing fee jump from $194 to $299 in Chapter 7. Attorneys fees charged by most debtor’s lawyers have gone up dramatically because the new law imposes significant and burdensome filing requirements. And the credit counseling requirements of the new law require cash strapped debtors to spend at least an extra $100 to get their two certificates.
Fifteen years ago, I was charging $600 total for a Chapter 7, including the filing fee. Now, if you want a decent lawyer, you are looking at close to $2,000 for the same service.
I wonder if Senators Grassley or Sessions have ever spent a day with a debtor’s lawyer talking to the distraught families who have made the difficult decision to file for bankruptcy. Or have they spent a day in the 341 hearing room listening to debtor after debtor testify about financial hardship brought about by job loss, divorce or illness. Or have they watched a Motion for Relief calendar where bankruptcy judges have had to tell mothers and fathers that they will be losing their homes.
Every responsible lawyer and citizen should want honesty and integrity in the bankruptcy process. Study after study has shown that most bankruptcy debtors are not abusing the system. It strikes me as the epitome of hypocrisy that a Congress who squanders billions of our tax dollars would take such an interest in solving a problem that does not exist when its own house is not clean.
Interestingly, the Citizens Against Government Waste awarded Senator Grassley its Porker of the Month in May, 2005 for adding $11 billion to a transportation bill.
Filed under Consumer protection, Median income test issues by
I recently saw a post on Jay Fleishman’s New York Bankruptcy and Consumer Law Blog where he made a very good point – that is if you are having trouble opening a checking or savings account, you should investigate to see whether Chex Systems has negative information in your file. Chex Systems is subject to the Fair Credit Reporting Act and derogatory and inaccurate info can be challenged. Banks use ChexSystems to see if you have bounced any checks – if so, your application for a new bank account can be denied.
Here is the link to getting a ChexSystems report. If you get your report and it contains accurate but damaging information, you may want to contact the bank involved and settle up your dispute. If there is negative but inaccurate info in your file, you should dispute the negative entry just like you would a derogatory entry in a credit report.
Filed under Consumer protection by
Credit Reporting Agencies Deleting Positive Information?
One of my recent Chapter 7 clients (case successfully discharged) wrote me to say that he has noticed a disturbing occurrence on his credit reports. He advises that positive credit information (a paid off home mortgage and five other paid in full accounts) are no longer showing up on his credit report. Positive credit, of course, helps your credit score go up.
I did some research on this issue and found the Federal Trade Commission’s Official Staff Commentary Section 607 item 7, which reads:
Consumer reporting agencies are not required to include all existing derogatory or favorable information about a consumer in their reports. (See, however, discussion in section 611, item 14, infra, concerning conveying consumer dispute statements.) However, a consumer reporting agency may not mislead its subscribers as to the completeness of its reports by deleting nonderogatory information and not disclosing its policy of making such deletions.
I read this as meaning that credit reporting agencies may delete favorable information as they wish, just as they may delete unfavorable information before the 7 year maximum reporting time for unfavorable information. Presumably, however, it is misleading for a credit reporting agency to purge your file of positive information before the 7 years period but retain adverse information without disclosing its policy about how it retains and deletes information.
My client indicates that he has written a challenge letter to the credit bureau in his case – I would suggest to him that he include in his challenge a request for a copy of the policy statement about how the credit reporting agency purges data that was sent to the credit bureau’s members.
Tags: credit bureau challenge, credit bureaus, credit scoring, fair credit reporting act, ftc official staff commentary, purging of positive credit information
Filed under Consumer protection, Post bankruptcy credit rebuilding by Jonathan
Spread the Word!