Last week, we answered a question we frequently receive: Are you still protected under the Fair Debt Collection Practices Act even if the debt collector is mistakenly calling you? The answer was yes, but a recent report by CBS 5 highlights why it’s important to stay on top of the problem. That story discussed two consumers who, despite notifying a debt collection agency that the debt was not theirs, suffered a major hit to their credit reports. One woman was dunned by T-Mobile, even though she’d never had an account with them. Three different agencies tried to collect the debt, and then she discovered that debt collection agencies had noted the debt on her credit report over 20 different times.
Having errors on your credit report will hit you where it hurts – in your pocketbook. If you have poor credit, you’ll end up paying a higher interest rate on loans, and may even be denied the opportunity to obtain credit, rent an apartment or house, or get a job or promotion.
Many consumers who are on the receiving end of Allied Interstate debt collection calls experience harassment and other illegal tactics as defined under the federal Fair Debt Collection Practices Act. It shouldn’t come as a surprise then, that Allied Interstate has also racked up a lot of complaints by consumers who have opted in to the Do Not Call registry.
According to an article in the Washington Examiner, 7,784 Do Not Call complaints were filed against Allied Interstate. Unfortunately, the DNC law doesn’t apply to debt collection agencies, so the Federal Trade Commission can’t nab Allied Interstate for violations.
Charles Pekow, the columnist who wrote the Examiner piece, did a great job connecting the dots between Allied Interstate and, for example, DirectTV, an Allied Interstate client who is among the top 10 offenders of the DNC law.
The committee in charge of hammering out differences in the financial reform bill completed their task this morning, sending the massive bill to the House of Representatives and the Senate for full votes. The final bill contains a hard-won provision for the Bureau of Consumer Financial Protection, which will be overseen by the Federal Reserve. The good news is that it will close some of the loopholes that allowed the events leading up to the nation’s 2008 near financial collapse to unfold. The bad news is that lobbyists for auto dealers ultimately prevailed, creating a loophole that excludes auto dealers from oversight by the new agency.
Pending legislation in New York would help to prevent unscrupulous debt buyers from filing an endless string of lawsuits and obtaining legal judgments against consumers for invalid debts. A coalition of organizations, including the New York State chapter of AARP, are pressing for passage of the Consumer Credit Fairness Act (S.4398-A, A.7558-A). According to a press release issued by the coalition:
“Every year, debt buyers bring hundreds of thousands of debt collection lawsuits against New Yorkers. Many of these lawsuits should not be brought in the first place. Debt buyers regularly file frivolous cases even when they have no proof that the people they’re suing actually owe the money,” said Susan Shin, Staff Attorney at NEDAP.
“These debt buyer lawsuits are especially abusive because New Yorkers often receive no notice that they were sued until after judgments have already been entered against them,” said Robert Martin, Associate Director of DC 37 Municipal Employees Legal Services. “Debt buyers wreak havoc on people’s lives by using these judgments to freeze people’s bank accounts and garnish their wages.”
If you live in New York, call your state senator and assemblymember and urge passage of the bill.
A scathing editorial in the Minnesota Star-Tribune denounces debt collection agencies like Portfolio Recovery Associates that use taxpayer dollars to obtain judgments against consumers and then have them arrested, booked, and jailed over unpaid debts. According to the editorial, 845 arrest warrants were issued in 2009, and the number has increased 60 percent over the past four years.
The editorial calls for a reform to Minnesota laws to conserve taxpayer dollars and protect consumers. It notes that debt collection agencies make big bucks off of collections, and says Portfolio Recovery Associates “netted $44 million on revenues of $281 million last year.” It states the essence of the problem as:
When a consumer doesn’t show up in court, a judge may issue an arrest warrant for failure to appear. At that point courts and cops become debt collectors’ pawns. Law-enforcement agencies would prefer to focus on serious crime; having to serving these warrants is not the best use of officers’ time. Even more questionable is some courts’ practice of setting a debtor’s bail at precisely the amount owed; creditors can then petition for this money. In effect, public servants are doing collectors’ work for them.
Third party debt collection agencies – especially those that are debt buyers – are notorious for filing hundreds or thousands of small claims court cases against consumers every year. Often, the consumer being sued never even knows that legal action has been taken, and thus doesn’t show up in court. As a result, a judge has no choice but to rule in favor of the debt collector. Once a debt collection agency has a judgment in hand, it can garnish your wages or potentially seize other assets.
The other factor at play is that debt collection agencies often use the courts as the first attempt to collect a debt, rather than the last. In other words, they don’t call and they don’t send written notices; they just file suit. This means that small claims courts – the purpose of which is to resolve minor legal issues between two parties who don’t necessarily have lawyers – is being choked by massive numbers of suits filed by debt collection agencies’ legal departments.
The Massachusetts legislature has taken a bold step to slow down the flood of small claims court lawsuits by including a provision in the Economic Development Reorganization Act that would tie court costs to the number of suits filed by a law firm or person. So, for example, if a company has already filed five small claims cases, the cost would go up to $75 per case. If a company has filed 100 cases during a calendar year, they would have to pay $240 for each additional case they file.
The debt collection trade associations are going into overdrive to fight this provision of the legislation, but we hope that the Massachusetts legislature resists the pressure and passes the bill prior to the July 31 deadline. If they do, it will force debt collection agencies to work with consumers, rather than doing an end run around them and trying to get a legal judgment on the sly.
The Federal Reserve has been working to implement some of the provisions of the 2009’s Credit CARD Act, and recently announced rules relating to credit card fees. According to a CNN Money report:
- Consumers won’t have to fear being charged a fee for failing to use their credit cards.
- Penalty fees can’t exceed the dollar amount incurred by the consumer’s violation that spurred the fee. For example, if a customer is late making a $20 minimum payment, the fee can’t exceed $20. A consumer who exceeds her credit limit by $5 cannot be charged an over-the-limit fee of more than $5.
- Consumers will no longer face multiple penalty fees, if the violation was based on a single late payment.
The report went on to note that the Federal Reserve hasn’t issued regulations regarding interest rate increases imposed on consumers who don’t meet their payment obligations. Still, it’s a good start.
If you received a debt collection letter printed on letterhead from an attorney’s office, wouldn’t you think the debt collection agency was instigating legal action against you? Of course you would. A federal judge in Pennsylvania recently ruled that a debt collection letter can only come from a lawyer if an attorney reviewed the account as was poised to take legal action.
In Lesher v. Law Offices of Mitchell N. Kay, Judge Andrew J. Smyser ruled that the Law Offices of Mitchell N. Kay violated the Fair Debt Collection Practices Act (FDCPA) when they used their letterhead to send a collection letter offering a settlement for a Washington Mutual debt. Although the letter included a one-sentence disclosure saying that an attorney hadn’t reviewed the account, the judge’s written opinion stated, “A law firm’s letter does bear an implied threat of litigation, and does connote that it is a communication from an attorney.” This violates the provision of the FDCPA that says that a debt collector can’t falsely represent or imply that communication is from an attorney when no legal action is planned.
Because of this violation, the judge sided with the consumer and against the law offices. Our impression? Debt collection agencies are becoming increasingly aggressive in their debt collection tactics, and it’s critically important to hold their feet to the fire when they cross the line.
Every day, the StopCollector team receives interesting questions from our clients and potential clients. When we receive a question we think will be of interest to our readers, we’ll post it to the StopCollector blog.
Here’s a question we received last week:
I don’t owe any debts at all. The irony is, I have perfect credit, but I can’t get collectors to stop calling for people I don’t even know. I assume they are getting my number from the phone directory because the names of the people they are looking for are close to mine. Does the Fair Debt Collection Practices Act still apply to me, even though I have no debt?
That’s a great question! All too often, debt collection agencies call the wrong person to the point of harassment. Thankfully, the Fair Debt Collection Practices Act (FDCPA) covers anyone subjected to unfair collection practices – even those who owe no debt or who are called in error. The bottom line is that you have the same rights under the FDCPA that a debtor has, and can collect damages from the debt collector when you file suit in federal court.
The New York Times recently published a thoughtful article about the crushing burden facing many young people as a result of student loans. Although it’s next to impossible to discharge student loan obligations through a bankruptcy proceeding, the financial reform legislation currently before Congress may change that. Under proposed legislation, the status of federal student loans would remain the same, but private student loans would be eligible for discharge in a bankruptcy proceeding.
