Debt Collectors Offer Credit Cards to Restart the Clock on Time-Barred Debt

According to a report in the Wall Street Journal, debt buyers have a new trick up their sleeves. These debt collectors, who buy debt that has passed the statute of limitations, are offering MasterCards to consumers whose credit has been pummeled. The catch? In return for receiving the credit card, the consumer has to make a payment on the old debt – which restarts the clock and makes the debt current again.

Debts that are past the statute of limitations (a length of time that varies from state to state) are not collectible through the court system. In other words, the debt collector can’t take you to court and get a judgment to garnish your wages or take money out of your bank account. But by agreeing to receive the credit card, the debt is “re-aged” and is again eligible for legal action.

The Wall Street Journal article names CompuCredit and Genesis Financial Solutions as big players in this game. It also notes that the Federal Deposit Insurance Corp. and the Federal Trade Commission have gone after both banks and debt collectors who participate in this scheme, citing deceptive practices. Consumers typically don’t realize that their agreeing to repay an expired debt.

The bottom line? If you have time-barred debt, be wary of credit card offers that seem too good to be true.

Proposed Debt Collector Code of Ethics Garners Mixed Reactions

InsideARM is a debt collection industry publication. Sometimes it reports straight news. Sometimes it is downright snarky in the way it conveys information. “Consumers Still Complaining” appears to have been written by a Joel-Stein-wannabe and reinforces the notion that the debt collection industry is cavalier about legitimate consumer complaints regarding abusive debt collection tactics.

On the other hand, from time to time InsideARM publishes insightful articles that one assumes are meant to appeal to debt collectors’ “better angels.” One recent article, penned by Jerry Ashton, was titled, “Ethics: The Missing Ingredient in the Collection Industry Business Model.” He poses a rhetorical question, asking what would happen if a debt collection agency had a foundation of ground rules:

1. We will not work accounts out of statute
2. We will not work accounts that cannot be documented in full as necessary to satisfy the court
3. We will not work accounts that have been secured by the client by way of predatory lending practices
4. We will not work accounts that have been subject to accelerated fees
5. We will not work accounts that have been created through unethical sales practices
6. We will not (fill in the blanks)

Ashton goes on to say, “It may be time for an industry gut-check,” and encourages collectors and collection agencies to reset their moral compasses.

The reader comments in response to the article are telling. Some readers are clearly ready to embrace change, some say that they have already recalibrated their moral compasses, and others are quite defensive, suggesting debt collection-related transgressions are “news propaganda, the economic climate, political agendas.” Both the article and the comments are worth reading.

A tip of the hat to Ashton for broaching the subject, and to InsideARM for contributing to a much-needed dialogue about the ethics of some in the debt collection industry.

Lemberg Challenges Denver Post’s Characterization of Fair Debt Attorneys

Last Sunday, the Denver Post ran an article entitled, “Consumers Dealing with Debt Collectors Become Stuck in a Vicious Cycle of Lawsuits.” In part, the story said, “…Some say the Fair Debt Collection Practices Act has morphed into little more than fodder for lawsuit mills cranking out hundreds of cases yearly — thousands nationally — enriching the lawyers filing them and minimally helping the consumers for whom the laws were written.”

We felt that the Post took a one-sided view that neglected to look at the big picture, and had to bring that to the attention of the Post’s editor and reporter. In addition, we issued a press release, which said in part:

Lemberg asserts that the Denver Post piece unfairly singled out consumer attorneys as the beneficiaries of the FDCPA while failing to address the systemic problems of the debt collection industry. “The other side of the story is that collection agencies cut costs with ‘attorney mils’ and ‘lawsuit mills,’ bypassing traditional collection methods and abusing the taxpayer-funded court system to get judgments against consumers – often without ever notifying the consumer that he’s being sued,” he said.

Moreover, Lemberg noted that since the recession began, debt collection agencies have ratcheted up their illegal tactics. “As a fair debt attorney, I witness debt collectors routinely flouting the law, intimidating, threatening, and harassing consumers,” he said. “As a result, consumer complaints to the Federal Trade Commission regarding illegal collection practices are at an all-time high.”

While acknowledging that more lawsuits are being filed on behalf of consumers, Lemberg stated, “Consumers don’t have the resources to fight collector abuse, which is why the FDCPA mandates that collectors who violate the law have to pay consumers’ attorney fees.”

Lemberg feels the Denver Post story hit the mark in one respect: by calling attention to the fact that the FDCPA allows only $1,000 in damages for the consumer. Saying that the amount hasn’t increased since the law was enacted in the late 1970s, Lemberg noted, “The FDCPA needs to be amended to raise the amount of damages – something that Senator Al Franken proposed in the last Congress. Right now, debt collectors play a numbers game, and count on getting away with bad behavior more often than not. FDCPA penalties? They’re just the cost of doing business.”

Lemberg says that the foundation of the FDCPA is the notion that consumers deserve dignity and respect, and that debt collectors must play by the rules. He concluded, “The bad players in the debt collection industry can only be reined in if someone holds them accountable. Consumer attorneys who fight for the little guy should be commended, not demonized.”

When Debt Collectors Tag the Wrong Person

A recent article in the Los Angeles Times shone a spotlight on an all-too-common occurrence: debt collectors who go after the wrong person and wreak havoc on their personal finances. Given that original creditors often sell old debt to debt buyers, who may then sell it again, it’s no wonder that misinformation creeps into old files. Even when that doesn’t happen, debt collectors often use a “close enough” approach, trying to collect what they can from people who have similar names to those who owe money, or who may currently live at an address or have the phone number of those who owe money. The result? People who might not owe a dime may find that their credit history is marred, or worse, have their bank accounts frozen or wages garnished.

The Times provides some helpful information about what to do if you’ve been “tagged” with another person’s debt. First, you should ask for verification of when and to whom the debt was incurred, as well as other documentation. Second, dispute the debt in writing, and explain why the debt collector has you confused with another person. Include a “cease and desist” letter, telling them that they may not contact you again about the debt. Finally, check your credit reports. If there is erroneous information about the debt, instruct the debt collection agency to remove the information. You can also contact the credit reporting agencies and inform them about the inaccurate information.

Fred Williams’ New Book Takes You Inside the Debt Collection Industry

unfairdebtbookWe recently ran across a review of investigative journalist Fred Williams’ new book, “Fight Back Against Unfair Debt Collection Practices,” on boston.com. To research the book, Williams went undercover and actually trained with and worked in the debt collection industry. While the bottom line – that debt collectors will go to any length to collect money from anyone – isn’t a shocker, Williams does provide sound mechanisms for going toe to toe with collectors and asserting your rights. His blog, “Coping with Collectors,” is also an interesting read. Great work!

New York AG Files Felony Charges Against Debt Collector

As part of his ongoing commitment to hold debt collectors accountable for their actions, New York Attorney General Andrew Cuomo filed felony charges against the owner of a Buffalo-area debt collection agency for allegedly targeting military servicemembers and their families. Cuomo also filed a civil suit in order to shutter the debt collection agency and collect restitution, penalties, and costs.

American Heroes IIMany Americans are subjected to harassing and threatening debt collection calls, and all such illegal behavior is wrong. But there is something especially outrageous about a debt collection agency that makes it a point to go after our men and women in uniform, and to ratchet up the anxiety levels of their already-vulnerable families.

According to Cuomo’s press release, debt collection agency Stephanie Lowinger allegedly “instructed employees to find out where military members were stationed and identify their commanding officers. Lowinger had employees threaten to call and, in some cases, actually did call the commanding officers.”

Like many shady debt collection agencies, Lowinger’s debt collection agency went by many names, such as Neimen, Rona & Associates; Morgan, Stone & Associates; and Gordon, Cappolli & Associates.

Cuomo’s allegations against Lowinger include falsely claiming to be lawyers, investigators, detectives, and mediators; threatening consumers with arrest, jail, and lawsuits; threatening to seize assets; inflating the amount owed; attempting to collect debts without knowing whether or not they were valid; attempting to collect debts from family members; disclosing the existence of alleged debts to family members; harassing and abusive phone calls; and unauthorized charges to consumers’ credit cards.

The Attorney General’s press release says, in part:

Military service members can be vulnerable targets for abusive debt collection practices since their status, rank, or security clearance can be adversely affected. Complaints already received and evidence uncovered during the investigation show that military service members and their families were subjected to wrongful practices, including:

  • Unauthorized calls to commanding officers
  • Threats of arrest by military police
  • Threats of a dishonorable discharge
  • Threats of loss of security status
  • Threats of court martial

Kudos to Attorney General Cuomo continuing to shine the spotlight on shameful debt collection practices.

Beware of Zombie Debt Collection Tactics

redtelephoneWhile we don’t want to put too fine a point on this trend, it does bear repeating. As reported by NBC Chicago, junk debt buyers are increasingly hounding consumers, trying to convince them that they need to pay debts that they never incurred. Typically, junk debt buyers purchase old debt that’s been written off by the original creditor; often, they purchase debt that’s already been repurchased by another buyer. They might purchase $1 million worth of debt for $50,000 or less. What they receive for their money is usually a database that contains consumer names, amounts allegedly owed, and perhaps an old address or phone number.

Debt buyers then put technology to work for them, using data mining techniques to get a bead on the consumer. All too often, though, the results are anything but reliable. NBC Chicago quotes a credit counselor who says, “They’ll put Susan Smith that lives in Pittsburgh together with Susan R. Smith that lives in Pittsfield. And all of a sudden they’ll push the two together [and] all you’ll get is a notice that you still owe $480.”

In other words, debt collectors call the wrong people, tell them that they owe money, and try and coerce them into a “deal” whereby the amount will be reduced if they pay immediately. It’s easy to see why this method is effective. If a debt buyer cons just a few dozen people into paying up, he’s made a profit.

In the process, a debt collector may try to extract additional information from the consumer, such as his or her Social Security number, place of employment, or other data that will support the debt collection agency’s efforts to track the consumer down. It’s within your rights – and in your best interest – to refuse to supply a debt collector with additional information. He’s basically on a fishing expedition.

It’s also important to demand a validation of the debt. Because debt buyers often have scant information about the original debt, they’re often unable to validate the debt. Until they can, they’re not allowed to contact you. If they do provide validation, carefully go through your records and/or credit reports to see if you might have incurred the debt. If the debt is not yours, dispute the debt. If the debt is yours, see if it’s beyond your state’s statute of limitations. If so, the debt is uncollectible.

If you’re the victim of zombie debt collection tactics, know that you’re protected under the Fair Debt Collection Practices Act. The FDCPA doesn’t only apply to those who owe money; it applies to everyone.

Debt Collection Industry Publication Launches “The Complaints Issue”

InsideARM.com, a debt collection industry publication, recently announced the launch of “The Complaints Issue,” a site that purportedly “delves deep in the topic of consumer complaints against debt collectors.” Although the site doesn’t have much content yet, it’s fascinating to see how the debt collection industry spins the exponential increase of consumer complaints. For example, it notes that, between 2007 and 2009, there was a 1612.5 percent increase in the number of consumer complaints about debt collectors failing to identify themselves when making debt collection calls. Yet instead of calling out debt collection agencies to do a better job policing their employees, the article asserts, “…it might have something to do with consumer attorneys and Web sites.” Huh?

Even more interesting is a graphic about the increase in the number of other types of Fair Debt Collection Practices Act consumer complaints. While the failure of a debt collector to properly identify himself did rank first, there was a 1067 percent increase in complaints about debt collection agencies that did not send written notices and a 1019 percent increase in complaints about debt collectors who threatened violence. That’s significant.

The new minisite does offer some constructive advice to debt collection agencies, such as telling them to record all calls, fire debt collectors who violate the FDCPA, and institute bonuses for employees that comply with the FDCPA and don’t generate complaints. We think that debt collection industry publications should spend more proverbial ink on this kind of guidance, and less on placing the blame on consumers and their attorneys when they try to hold debt collectors accountable for violating the FDCPA.

Pulling Back the Curtain on Debt Buyers

We’ve previously discussed the growing trend of debt collection agencies using the taxpayer-funded justice system as a powerful – and profitable – way to get judgments against consumers. Many times, consumers aren’t aware of the lawsuits, or don’t know how to mount a defense, and can find that old debts come back to haunt them. We’ve also discussed the way that debt collection agencies are manipulating the Minnesota court system so it acts like an ATM.

The Minneapolis Star-Tribune published “Hounded,” awhile back, which was a series of investigative articles about debt collection in Minnesota. As a result, U.S. Senator Al Franken asked the Federal Trade Commission to investigate the practices of debt buyers in Minnesota. One article in particular point to the low threshold that debt collectors have to meet in order to collect on debt that would be deemed uncollectible in many other states. According to the article, debt buyers often “base their claims on data up to 15 years old that can be impossible to verify.” Unfortunately, the Minnesota court system “rubber-stamps most debt claims without scrutinizing them for accuracy. Proof is needed only if a debtor disputes a claim in writing, which happens in less than 10 percent of cases.”

The article goes on to paint a fascinating portrait of the history of debt buying, which has its roots in the savings and loan scandals of the 1980s. When S&Ls failed, the feds auctioned off $500 billion of unpaid loans, giving birth to the debt buying industry. Eventually, debt buyers moved onto consumer debt, and then were fueled by changes to bankruptcy laws in 2005.

According to the article, “The nation’s five publicly traded debt buyers last year paid $835 million to acquire $20 billion in old debt.” For every publicly traded debt buyer, though, there are dozens of private companies that also buy debt. In other words, it’s a huge business that is bent on preying on consumer ignorance.

Beware of Resetting the Clock on Old Debt

clockIf you’re not familiar with the term “out-of-statute debt,” you’re not alone. Yet, as Andrew Martin reports in the New York Times, there’s a burgeoning business surrounding the purchase and collection of debt that’s legally uncollectible. These debts are so old that the statue of limitations has run out, and the debt owner doesn’t have the right to take a consumer to court over the debt.

But that doesn’t stop old debt buyers from trying to collect on the debt, and to use increasingly abusive tactics to do so. To those debt buyers, it’s all a numbers game. If they buy $1 million of debt for $10,000 or less (the going rates is one cent or less on the dollar), all they have to do is harass a few consumers into making a tiny payment on the old debt. When that happens, the clock is reset, and the debt becomes current in the eyes of the law. Once the debt becomes current, the debt buyer can take the consumer to court to collect on the full amount of the debt.

What does that mean for you? Before sending a dime to a debt collection agency, make sure that the debt is yours to pay, and make sure that it’s collectible under your state’s law. The statute of limitations on debt collection varies from state to state, ranging from three to ten years.

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Sergei Lemberg, Esq., focuses his practice on defending consumer rights in the areas of Fair Debt Collection Law, Consumer Fraud, Auto Warranty and Auto Injury litigation.

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