Filing Complaints with the CFPB

Throughout this website, and several others I contribute to, I suggest people file complaints with the Consumer Financial Protection Bureau (CFPB). I am usually responding to reader comments when I do, so the reason for suggesting filing the complaint is contained in each comment exchange, but only briefly. I want to be sure readers have a strong grasp as to why I am suggesting your complaint be filed with the CFPB, and also provide some commentary that I generally wouldn’t unless contained in a post like this.

First off, the CFPB was born from the recession that many attribute to the lack of stronger financial regulation. The CFPB has  regulatory and enforcement authority in several key economic areas that all of us interact with on a daily basis. You may be thinking “that is all well and good… it is nice to have someone looking over it all and watching out for us, but were we missing that before”? Yes and no.

Much of federal regulation and enforcement of consumer financial products was spread out, and in my opinion resulted in being more spread thin. Yes, regulation existed, but enforcement in key areas was so slow to grind out positive outcomes for consumers, it seemingly may as well have not existed. Take CFPB direct oversight of the three big credit reporting agencies as an example. These large credit bureaus affect the vast majority of adult Americans, yet no one had the authority and oversight the CFPB now has over larger participants in the credit reporting space. The CFPB is perfectly positioned to be able to curb how credit bureaus allow debt collectors to reage collection accounts on credit reports.

Something else about the CFPB, and part of what I really want to drive home to readers, is they do give a rip, and really want to hear from you about your interactions with businesses you engage regarding debt and credit.

Debt and credit complaints to the CFPB get results.

The CFPB is actively involved in helping you get results from the complaints you file. Read the entirety of the initial CFPB complaint process page to get a feel for how they will manage your complaint. You can see there are several CFPB touch points and involvement in helping you resolve your complaint. You will remain updated and aware throughout the life cycle of your complaint.

Filing your complaint with the CFPB all starts on this page: http://www.consumerfinance.gov/complaint/.

The types of complaints filed with the CFPB can include concerns about debt collection and credit reporting, and other key areas of our financial lives, such as:

  • Student loans
  • Mortgages
  • Bank accounts
  • Car loans and leases
  • Credit Cards and Prepaid Cards
  • Pay Day and other types of consumer loans

Be thorough and provide complete information when submitting your complaint to the CFPB. You can upload documents if they would be helpful.

I often encourage putting an outline of your complaint together before you submit it to the CFPB. This will help you remember everything including dates, times of day for conversations you may have had, and an outline of what was said and by whom. That kind of detail will come in handy for the CFPB and the person investigating your complaint at the business you filed the complaint about.

Regulatory complaints can guide the future.

The CFPB is a future looking agency, and not about what just happened. In other words, your complaint may be about the recent past, but your complaints combined with others (to the CFPB and other state and federal agencies) can shape the world we live in later on.

I help people resolve debt and credit issues. My work puts me in a position to care about the big picture when it comes to debt collectors. And even though the CFPB is currently only directly supervising larger participants in the debt collection space, that supervision, and current rule making for debt collection being considered, means debt collection complaints have, and will continue to, guide the activity and focus of the CFPB.

But it is not just the CFPB that is in place to affect change through the complaint process. Businesses who are the targets of the complaints care about the issues too. No, I am not saying they care so much to have prevented the issues you had, or are having, in the first place (though they may). I am saying that it will be some of the better positioned people in the organization that will often be looking into the complaints they get from the CFPB. At a high level, that information is going to lead to changes in business practices that will trickle down to the people, processes and policies that you and I interact with.

You may never have a mortgage or student loan complaint. And you may never have to file one years from now after you have had a mortgage or three, and paid off student loans, as a result of the complaints that led to positive industry changes earlier.

I suspect that over time, the CFPB complaint process will provide us all with a tool that we can use to vote with our feet and wallet before we decide to engage with a business or service.

Businesses and services using the portal.

I also suspect the CFPB complaint portal will provide a tool for businesses interacting with other businesses. One example of how that may happen would be the relationship between credit card banks and debt collectors they use, or debt buyers they sell unpaid accounts to.

Debt collectors will likely always receive a high level of complaints in our current system. It is the nature of the business. The CFPB portal is already loaded with complaints against debt collectors. But any collection agency or debt buyer with a high level of unsatisfactorily resolved complaints; a high metric for certain types of complaints;  or complaints going without response, could lead to a scenario where I can see banks using the data as what I will dub “the CFPB metric”. This metric could mean debt collectors and buyers losing contracts until the company shows improvement, or perhaps just ceasing doing business with anyone without a passing grade.

While I recommend doing everything you can to resolve complaints and concerns you have with businesses in the consumer finance space by dealing directly with companies and service providers, the CFPB complaint process continues to impress me. The speed and impact the system delivers to people I have heard back from is huge.

I should also point out that your filing a complaint is not just about you getting something resolved in isolation. Your complaint can potentially help someone else after they read about how that same company stepped up to do right by you. They can then file their complaint with the CFPB where the may not have before, or perhaps even contact the company directly with more confidence instead.

I see the CFPB complaint process ultimately leading to consumer markets that place a higher priority on fair dealings.

If you have questions or concerns about filing your complaint with the CFPB, or would like to share the outcome of any complaint you filed, you are welcome to post in the comments below.

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9 Plead Guilty to $20M Scheme to Defraud Soldiers.

Eight Alabama residents and one Georgia resident pleaded guilty to participating in a scheme in which they stole thousands of identities to file more than 7,000 false tax returns, according to the U.S. Attorney’s Office of the Middle District of Alabama. Over the course of nearly three years, the group defrauded the government of approximately $20 million. A 10th accused conspirator is scheduled to appear in court April 6.

The group collected identifying information from a variety of sources, including a military hospital. Defendant Tracy Mitchell of Phenix City, Ala., worked at a military hospital in Fort Benning, Ga., where she had access to service members’ identifying data, including information about soldiers deployed to Afghanistan, according to a news release about the case. Court documents cited in the release say Mitchell used the information she accessed at the hospital to file fraudulent tax returns.

Other defendants took data from the Alabama Department of Corrections, a call center in Georgia where two of the defendants worked and two unnamed Alabama state agencies. This went on between January 2011 and December 2013.

Identity thieves favor the tax-return tactic as a way to cash in on sensitive data, which they can get by breaking into databases containing the information (aka a data breach) or following people’s paper or electronic footprints.

The success of a tax-related identity theft scheme depends upon thieves filing fake tax returns early in the season before victims do. This leads to a delay in refunds for those who are entitled to them, not to mention the hassle of straightening out identity theft and dealing with the consequences of someone using your personal information. Losing control of your Social Security number may mean years of identity theft problems, which can take time to fix.

Additionally, identity theft can lead to damaging information on your credit report, potentially hurting your credit standing and everything it’s used for, like getting loans or applying for an apartment. To look for potential signs of fraud, you can get your free annual credit reports from AnnualCreditReport.com, and you can get a free credit report summary, updated monthly, on Credit.com.

Related Articles:

This article originally appeared on Credit.com.

This article by Christine DiGangi was distributed by the Personal Finance Syndication Network.

 

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What to do When Struggling or Late with Credit Card Payments

I generally begin any debt relief consultation I do with people who reach out to my company in search of help with credit card debt with this question:

“What has you reaching out to a perfect stranger? What is going on with you financially”? Then, I shut up and listen. I am sometimes the first person the caller has ever spoken to about the situation they are in.

The responses I hear vary, as does the time someone will take to outline the details of their hardship. By listening closely, I am able to hear the stress and fear they have about their credit card debt. I often hear the struggles they have gone through to try and keep current with credit card bills, or the difficulty they have had in communicating with creditors and collectors.

The other day, I heard one of the simplest and shortest answers to my initial question that I have had to date.

“My Debt Is Crippling Me.”

While this response does not provide details I generally look to key off of in order to identify the debt pieces or solutions to putting the person’s financial puzzle back together, it said a great deal in a very powerful way.

Struggles with debt and credit can feel crippling.

Overwhelming debt debilitates in the same sense that someone with a physical disability is forced to deal with every day of their lives. The stress and fear with credit card debt problems can often manifest into actual maladies. The worry and frustration about bills, and the lack of money, carries over from one day to the next. What am I going to do at the end of the month when these other bills are due? When will I ever be out of credit card debt? How did I get trapped in a home now worth far less than I owe? What if I get laid off with no savings? How would I get by with maxed out credit cards and no income?

One of the overwhelming benefits to people we talk with is that we can reduce, or even remove the stress and fear they have about their debt problem in one phone call. How do we do that?

For most debt problems, there is a debt relief solution.

This gentleman did not feel crippled when we finished talking about his problem because I plainly laid out the facts of his finances (after several additional questions to be sure), and was able to point out to him the mathematical rational solution to his debt. His solution did not involve needing to engage my company for a product or service, as he was past the point of debt settlement or a creditor sponsored hardship plan being a viable option.

He learned that, unlike someone who has a physical disability for the rest of their life, his crippling debt could actually be cured and with little fuss or expense. He was not at all excited to know that his only real option was to file for chapter 7 bankruptcy, but he saw the wisdom in doing so and hung up the phone with no fear and less stress.

I asked him before we hung up from the call “How crippling is your debt now?”.
He replied “Not at all.”

5 debt management tools that can provide a solution.

There is nearly always an answer to recover from debt. The answers do often involve tough choices and some action steps that are not exactly a thrill to take, but can be arrived at through the process of elimination. Generally, I can walk through the following things and eliminate 3 or 4 out of the 5:

  1. Monthly payment concessions through hardship plans.
  2. Debt Management Plans through a credit counseling service.
  3. Bankruptcy.
  4. Debt Settlement.
  5. Doing nothing (sometimes the right thing for brief period – couple months).

Knowledge removes the fear of the unknown, and unemotional, boring, old arithmetic is the compass to find your way to healthier finances.

My advice to anyone feeling crippled by credit card and other debt boils down to the “Four Gets”:

  1. Get real about your finances;
  2. Get informed about your debt relief options;
  3. Get a plan in place; and
  4. Get started

If you would like to start getting informed the same way the man who inspired this article did, you can consult with me at 800-939-8357, press option 2.

If you have questions about debt relief, or how you can make progress with the “4 gets” you can post in the comments below for feedback.

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Furnishers of Bad Information In Your Credit Report Are Costing You Money

The credit report topic has been covered well on our web site, but mostly as it applies to people who need some form of debt relief due to a financial hardship. While that is an important topic and a concern for more and more people as a result of our tough economy – what about the furnishing of bad data on people who are managing their debts well?

What affect does bad information supplied to the credit bureaus have on your credit report?

Your credit score and loan product price modeling is calculated not just by your timely payment history, but is also based on your credit utilization, debt to income ratio and a few other key points.

Due to how information in your credit report is factored, mistakes made by those furnishing information about you to the reporting agencies can have a major impact on how much credit will cost you and whether you are approved for a credit product at all.

This morning, I read a good example of the type of damage that can be inflicted by a simple loan classification error:

Issue: Most scoring systems take data at face value with little or no interpretation. If you track the erroneous “Installment Loan” designation downstream, the credit scoring systems would see the following:

  • An installment loan for an extremely large sum (i.e. $200,000).
  • Duration of payments for these loans was reported as 30, however, the number reported for an installment loan is seen by Metro 2® as 30 months, whereas, the number reported for a mortgage is seen by Metro 2® as 30 years.

Result: Most credit scores would be calculated based on the facts reported — “Installment” loan of $200,000 with what looks like payment term of 30 months. In effect, a 30 month payback period would require each payment be approximately $6600, whereas a 30 year payback period would yield a monthly payment in the vicinity of $1000. The perceived debt of $6600 per month could potentially negatively impact multiple factors of consumer lending such as approval scores, debt ratios, bankruptcy scores, pre-screen scores, etc.

And those types of errors are just the tip of the credit reporting iceberg. From a potential litigation standpoint, data furnishers that do not invest the time and resources required to evaluate the accuracy and integrity of their credit reporting on an ongoing basis are making a potential titanic mistake.

To read the full article click here: troubling times ahead for credit bureau data furnishers

This type of loan classification error would seem easy for the furnisher to fix. Indeed, common sense dictates that it should be fixed.  It will cost money to do it though.

My experience with credit reporting agencies and furnishers of information.

The credit bureaus and suppliers of the information that show on your credit report do not always think with “sense”, but think more in terms of dollars and “cents”. The key to “common-cents” and violations of the Fair Credit Reporting Act (FCRA) is that it is more profitable to do the wrong thing than the right.

Some credit report information furnishers get it absolutely bass-ackwards.

They seem to be saying “We know we have a problem and that it screws people over, but we will continue to do so until it is more cost effective to fix the problem than to continue to get sued”.

The linked article above speaks to a specific case in the 9th circuit that allows a class action to proceed against one company that may end up costing them between 29 and 290 million. My guess is that their legal defense bill alone would have covered the costs of auditing and correcting their reporting systems on a regular basis which would prevent actions like this from occurring.

It is a small wonder to me that more legal action is not brought against furnishers of bad information about you to credit bureaus.

Similar to the economy of furnishers and reporting agencies making changes only when it makes “cents” to do so, suing them for their transgressions and missteps has long been about the costs for bringing the action and what can be gained from doing so.

Do we need more class action lawsuits against credit reporting agencies and furnishers?

Maybe there is a class out there forming to bring the particularly egregious practice of reporting a balance still due after a settlement on a past due debt is reached, accepted and funded, and where both parties agree that the debt is settled, there is no balance due, but the amount of debt forgiven remains on the trade line and shows that portion of the balance as outstanding when it no longer is!  I wrote about this practice recently. Read more about it here: Why Does Capital One Screw People Who Settle Their Debt.

It is as important now as ever before for people to take responsibility for policing the accuracy of their credit profile. No one else is going to do it for you.

If you find inaccurate, erroneous or out of date information – you can fix it!

You have the ability to dispute bad information with the reporting agencies and you can also send direct disputes to the furnisher of the information. If they do not correct the discrepancies after sending your dispute certified mail return receipt it may be the best use of your time to next consult with a skilled consumer law attorney.

There are not that many attorneys experienced with FCRA violations around the country, but a case they may bring can be filed in federal court, which may make speaking with one you find with an office outside of your state worth the effort.

To locate an experienced FCRA consumer attorney you can go to www.naca.net and search using your zip code to find one nearest you.

Two attorneys I know that specialize in this area are:

Jason Rapa in PA

www.rapalegal.com

Michael or Justin Baxter in OR

www.baxterlaw.com

If you have questions or feedback about this topic, feel free to participate in the comment section below.

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Putting an end to dead debt, bogus collection fees and lawsuits FDCPA

The Consumers Union, a long standing consumer advocate and watch group, in partnership with East Bay Community Law Center, weighed in with their recommendations for amending the Fair Debt Collection Practices Act (FDCPA).

Read the report they published yesterday here: PAST DUE: Why Debt Collection Practices and the Debt Buying Industry Need Reform Now.

In their “PAST DUE” report, I found some of the most pro consumer recommendations for amending state and federal collection laws I have seen to date. Here are some of the key recommendations the report suggests should be adopted in order to better protect consumers and lessen the drain on publicly funded court resources:

The FDCPA and parallel state fair debt collection laws must be expanded so that the list of required “baseline” items also includes: (6) a statement explaining the consumer’s rights under the FDPCA; (7) the name of the original creditor, whether or not the consumer requests it; and (8) an itemization of the total principal, interest, fees and other charges that were added to the debt:

“Baseline” Information (currently required)

1. Amount of debt;

2. Name of creditor;

3. Statement re: assumption of debt validity in the absence of a dispute;

4. Statement re: if the debt is disputed the debt collector will “verify”; and

5. Statement re: upon written request the collector will provide name of original creditor if different from current creditor.

Recommended Additional “Baseline” Information

6. Statement notifying consumers of two significant rights they have under the FDCPA;

7. Name of original creditor; and

8. Itemization of: total principal, interest, fees and other charges that have been added to the debt.

The report recommends additions of items 6 though 8 to the already required baseline protections found in items 1-5. While I see recommendations 6 and 7 as good, I really like number 8! It is of major importance that there be an opportunity for consumers who find themselves in a position to effectively bounce back from past financial setbacks be able to do so with a correct measure of what they legitimately owe.

All too often highly inflated and sometimes bogus debt collector fees.

The report further identifies what is dubbed “Baseline Plus“recommendations:

The FDCPA and parallel state fair debt collection laws should also be amended to require that debt collectors make a good faith effort to retain certain “baseline plus” information to the extent possible. A debt collector should be required to provide all “baseline plus” information it has to the consumer within five days after their first communication. Courts should also require that all available “baseline plus” information be attached to any complaint in a debt collection lawsuit:

Recommended “Baseline Plus” Information

9. Proof of indebtedness signed by the consumer;

10. Date that debt was incurred and date of last payment;

11. Chain of title if debt has been sold;

12. Original debt;

13. Each payment credited to the debt;

14. Each fee and charge added to the debt;

15. Each payment credited against those fees and charges;

16. All other debits or charges to the account; and

17. Explanation of the nature of those fees, charges, debits, and all other credits to the debt, by source and amount

Item 9 will be hard to come by if asking for a wet ink signature due to the prominence of electronic acceptance of terms and internet applications for credit.

Numbers 10, 11, 12, 14 & 17 would certainly put the nail in the coffin of most zombie debt that exists today. It would also crimp the reselling of portfolios of bad debt that had already been sold at least once prior to the enactment date of  any future legislation that includes these, or similar provisions.

None of this is a bad thing.

The report discusses the drain on court resources around the country resulting from debt collection lawsuits that are filed mill style and shows how the collection of unsecured debt has its own “robo signing” issues similar to the well published woes of foreclosure mill law firms across the country. Past Due is well worth the read.

Amendments to the FDCPA are still some time away.

If some of the “Plus” lines found in the report from Consumers Union make it into the amended federal collection laws, I predict the following:

  • Fresh charge off debt portfolio values will increase to highs not seen since 2005
  • An end to lawsuits filed mill style
  • A bit of shrinkage in the number of debt collection shops that will continue operations
  • Traffic to some of the more whacky web sites about “How to beat a debt collector with Debt Validation” will drop dramatically
  • Debt buyers will adapt their portfolio performance goals and move to sue sooner after purchase than later

I believe that most of the suggestions found in the CU/EBCLC report will not only lead to better consumer protections, but also create better recovery  performance at legitimate companies operating in the collection space.

When you work with consumers who are trying to recover from financial struggles of the past or present for any significant period of time you can honestly say; the vast majority of people want to pay their obligations. You should certainly be able to do so with dignity and confidence that you actually owe the debt, are not paying too much, paying the right party and are able to put the debt behind you for good and move on with your life.

Your participation in discussing this important topic in the comments section below is welcome.

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Debt Collection Industry Insider Starts Petition to Reign in Collection Abuse

Collection industry insider, Bill Bartmann, has started an electronic petition he will submit to Congress where he suggests the following amendments to the Fair Debt Collection Practices Act (FDCPA):

We hereby petition Congress to amend the current debt-collection rules by adding the following provisions:

  1. Increase the penalty for violations of debt-collection rules from the current $1,000 to $10,000 for each violation.
  2. Ban all collection activities on debt that is older than the relevant statute of limitations.
  3. Raise the requirements necessary to file a lawsuit on credit-card debt.
  4. Require collection agencies to provide clear and understandable history of debt.
  5. Require all collection agencies to be licensed.
  6. Require all collectors to be licensed.
  7. Require an annual compliance audit for all collection agencies.

Learn more about the petition here:  http://www.stopthesecriminals.com

The FDCPA regulates the collection of debt. It is well recognized that amendments need to be made to this consumer protection law from the 1970’s in order to bring it current with advances in technology, and to assist in curbing the steady increases in reported collection abuses.

Collection abuse has been #1 in industry complaints to the Federal Trade Commission several years running.

2010 saw quite a bit of interest and activity toward amending the FDCPA.  The process to amend the Act is well underway.

Want to see the collection industry cleaned up virtually overnight?

Impose a 10k penalty per FDCPA violation.

Think a penalty of ten thousand dollars is that far fetched? The FTC recently put in place an up to 16k penalty per Telemarketing Sales Rule violation that is primarily imposed upon debt relief advertisers, marketers, and service providers – companies who promote they help consumers resolve delinquent debt.

Congress could certainly impose similar statutory penalty caps for violations of the FDCPA against collection agencies – companies who work with creditors and debt buyers to resolve delinquent debt.

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Credit Card Debts and Charge Off – What it Means to You

The term charge off describes an accounting function followed by your lenders. When speaking of revolving consumer credit card accounts, a charge off occurs when the credit issuer either chooses, or must, recognize an unpaid loan balance as a loss.

For lenders, losses are bad news. The bad news gets reported and can affect anything from loan loss allowance/reserves, securitization, liquidity, even solvency.

Because of the bad news nature of a charge off, your credit card issuer will generally wait until the maximum time allowed to charge off your unpaid debt. The time frame for your creditor to recognize the loss on your unpaid credit card balance is outlined in Generally Accepted Accounting Principles (GAAP) and is typically 180 days of consecutive nonpayment, or what the Office of the Comptroller of the Currency (OCC) has designated as “seven zero billings”. There will be instances where charge off will seem to occur at 210 days of nonpayment.

Most lenders will wait as long as is allowable to take the charge off hit to their books, but they can take the hit earlier than 180-210 days. It’s just not a common practice.

What does this mean to you?

Charge off is an accounting function with implications for your credit report, credit score, settling credit cards, signing up for a debt management plan…

While you are trying to navigate your inability to pay all of your debts and when evaluating the different debt relief options available to you, understanding the timing and affects of your accounts charging off will give you a needed advantage in your planning and timing.

The period leading up to, during, and after a charge off of your unsecured debts will impact:

  • Debt collection efforts with your original creditor
  • Debt collection with outside collection agency
  • Debt Purchasing and subsequent collection efforts
  • Debt Settlement/Debt Negotiation
  • Credit Reporting
  • Debt Management Plans
  • Risks of being sued on unpaid debt
  • Biting the Bullet and Filing Bankruptcy
  • Delaying a Bankruptcy

Each one of the bullet items above is deserving of a separate article. I will be posting some consolidated information covering credit card charge off in coming months.

If you would like to speak with a pro for free to discuss your specific situation and what you may be able to do to deal with debts not yet charged off, or that have already charged off, and now you are dealing with the debt collection pipeline, Click: Free Consultation Request. You can also just dial a CRN specialist direct: 800-939-8357 ext 3.

If you have questions about anything covered above and would like feedback, post in the comment section below.

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Settling a Capital One Card – Your Credit Reports and Lawsuits

My experience working with financially challenged consumers and their creditors nationwide since the economic downturn reflects that virtually every national issuer of credit cards, even larger regional credit unions, have gone as far as they can to assist their struggling account holders. Capital One is an exception to this. How Capital One goes about settling a debt with you, their treatment of credit reporting after agreeing to reduce your balance, and the fact that they are the most likely to sue for collection, all combine for one huge exercise in caution and awareness.

Credit card issuers offer plans to reduce interest rates on credit cards through hardship plans, debt management plans, credit counseling plans, or offer balance concessions through debt settlement, which go a long way in helping heal their individual account holders financial wounds and assists them in avoiding bankruptcy. In this way (credit card debt concessions), I see these financial institutions as actually helping the nations economy heal, one account holder at a time.

Not so with Capital One, in my experience.

Banks who are paying attention know that working out some type of arrangement with account holders, who will otherwise be forced into filing chapter 7 or 13 bankruptcy, is in their best interest. Creditors will generally offer fair concessions as a final option because they will lose the least. For more about this see: Banks Choose to lose the least.

I am not sure Capital One is paying attention.

Capital One is quick to use the courts in order to collect on delinquent accounts. They would apparently rather their account holders file bankruptcy where they may receive as much as 10% of the account balance in a chapter 7 (if they’re lucky)  or maybe as much as 40-60% over 3/5 years in roughly 30% of the chapter 13s that are filed (approximately 70% of chapter 13s are reportedly not completed).

I continue to encourage seeking bankruptcy protection if your debt is mainly with Capital One.

Now we have Capital One choosing to be spiteful, and perhaps illegally, with those few credit card holders they may offer fair concessions to. To see the collection letter referred to below in its entirety: Capital One Collection Letter

The coupon for $50.00 you will see in the collection letter linked above is not all that new a twist to get a delinquent CapOne credit card member to call MRS Associates (a debt collector). It is worth noting however, it is only a collection ploy and nowhere near worth taking advantage of the perceived “FREE STUFF”. The main problem I want to draw your attention and provide awareness to, is number 9 on page 2 of the collection letter.

9.  Credit Reporting of Your Settled Account. If your Account is settled before it is charged off, the remainder of your Account balance will be charged off. We will then report your Account to credit reporting agencies as settled with an outstanding balance.

Capital One Debt SettlementFair Credit Reporting Act (FCRA) and the requirement to report only complete and accurate information to the Credit Reporting Agencies (CRA’s)? This would FALSELY characterize the trade line and SKEW any later debt to income and/or utilization formula rendering them inaccurate as well. This means that Capital One could be causing consumer’s damages post debt settlement, when they are applying for future loan products whose interest rates and even approval will be factored on a credit report that contains erroneous and false information.

Reporting a balance still due and owing when it has been forgiven would falsely characterize this trade line in your credit report. How do we know the unpaid portion of the settlement is forgiven? Let’s look to number 8 on page 2 of Capital Ones collection letter:

8.  IRS Reporting of Debt Forgiveness. If we cancel or forgive $600 or more of principal on a debt you owe, we must provide a 1099-C tax form to you and the IRS. Please consult your tax advisor and the instructions accompanying your tax forms for more information.

How can number 8, indicating the required reporting of forgiven debt to the IRS, comport with erroneously reporting an outstanding balance when it has:

  • Been forgiven
  • Been settled for a lesser amount agreed to by both parties, thereby leaving no “outstanding” balance

How is Capital One NOT violating the FCRA when they report your debt after settling?

Remember the marauding Viking themed commercials that Capital One ran for many years on television? Here they are wreaking havoc through the lives of real people, NOT ACTORS!

If you have a Capital One story to share, especially as it relates to improper credit reporting, I invite implore you to share it in the comment section below.

Update: Since publishing the above Capital One article about credit reporting and settling Cap One credit cards a couple years ago, some softening of options available to account holders who fall behind has occurred. We do still see the poor credit reporting policy on settled accounts with Capital One, but have also seen how that is getting addressed using disputes with the credit bureaus. If you are serious about resolving unpaid credit card debt with Capital One and have other credit card debts to resolve, it is important to prioritize accounts and target the best savings with the available money you have and can project saving up in the short term. If you have an experience with Capital One collections, credit reporting, or lawsuits, please share in the comments below. If you have questions about how to handle debts with Capital One, post in the comments for feedback.

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Debt Settlement and Negotiations – Past, Present, Future

After 10/27/10 virtually all of the companies offering to settle debt for a fee will have to charge those fees based on a contingency. In other words, you pay for the service contingent upon who you hire having successfully negotiated a reduced pay off amount with your creditors that you then accept and fund. Makes a ton of sense right? Yes indeed!

People will, however, still need to approach the idea of hiring someone to settle debts with caution.

There are loopholes in the new law that can be exploited. And with the amount of money that can be made when circumventing the plain language and intent of the law is going entice some, and perhaps many.

Where we were.

Debt negotiation companies have, for the most part, been able to charge upfront fees. Often, the fees have been spread out over 6 to 18 months or more. This practice has long been recognized by some of us in the industry as one of the leading causes for consumers to “fail and bail” from their settlement program.

  • The reason for the fail; money that could have been aggressively saved up to fund the earliest settlement offer went to the service providers fees instead.
  • The reason for the bail; creditors and their assignees continue down a relatively predictable path to collect on unpaid accounts which can eventually lead to filing a court action to force you to pay.

Being sued does not necessarily mean the death of your debt settlement plan, but you need resources to address the lawsuit before it becomes a judgment. Without the money needed to address the issue, it will often mean the end of the road. Having paid upfront fees to a company who put their profit ahead of your success means you have limited, or no, resources to maneuver through the different stages of collection.

Where we are today.

You may have, or currently do, recognize a debt settlement plan to be a realistic approach for you to avoid bankruptcy. Having enrolled (or thinking of enrolling) in a plan with a company whose fees were/are/still paid prior to successful negotiations is equivalent to gambling. You bet you can get through the settlements before getting sued. The company you hired bets they can get you to pay them all their fees before you bail.

Many companies who sell or perform debt settlement today will find that, without the ability to charge the high upfront fees, they will not be able to keep the marketing machine going. They will leave the industry. In their wake, we will hear from many more consumers who were sold the hope of avoiding bankruptcy by sales people whose only motivation was to meet a quota, keep their telemarketing chair and get paid. For more than a year, the media and internet has been ablaze with stories of people being taken in by the promises of many players in the debt relief industry. They are a statistic of the “fail and bail”. The statistics will get worse as several companies close their doors and leave their customers in a lurch, having paid in advance for a service that now will not be completed. At least, not by the people who were already paid for it.

Where we’re headed.

Do I sound a bit jaded? That’s because I am. So much so, that I can see where we are potentially headed in this industry.

Beginning in September, I think we will start to see some similarities with new and existing companies offering debt settlement  based on the now required (in most cases) contingency fee structure. Two of the similarities will be:

  1. The new sales approach; “You need to come up with money as quick as possible to settle with your creditors”. – This is a good thing! It has been missing from the message of the majority of people selling debt settlement for a decade.
  2. Many of the companies offering success fee debt settlement will charge between 25%-30% of savings where possible (some states have limits or caps on fees –Illinois is capped at 15%). – This is a bad thing!

When comparing 50% of your account balance as an average settlement, 30% of savings is roughly the same as charging the 15% of debt enrolled that has been the average in the industry to date. Fees could actually be higher than before with debts settled early in the program and for less than 50%.

We will still see high “fail and bail” statistics because companies will settle a debt and collect their contingency fee first, before moving onto the next settlement. There really is no problem with that per say. They did a job and should get paid for it. It is the correct model to have. Always has been. The problem is if the fee is too high, it still takes just as long to settle the debts as it did prior to the FTC banning upfront fees for a settlement service.

Where We End Up?

I estimate it will take a year for the industry to settle in to the new business and operational realities created by the new FTC rules. Some companies are going to try to adapt, only to quickly find it no longer worth their while. Some will find that they should have been doing business this way all along, and will thrive. The amount of companies around a year from now will be far fewer than we have today. Within 12 to 18 months, the industry will have completed the all too necessary cleansing of those who came to it in order to make a quick buck.

Bottom line… if you are a suitable candidate for debt settlement, which is someone who otherwise would have to file bankruptcy, look for companies with the lowest contingency fees, and who have been around a while.

If you have any questions or concerns about any of the changes I mention above you are welcome to post in the comments below for feedback.

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Debt Settlement Estimates of Savings, Fees, and Time to Complete

Debt Settlement is a very real option for consumers who are trying to avoid bankruptcy. Unfortunately, the decision to try it is too often made from an emotional perspective. This has, is, and will forever be; the wrong perspective to use in your decision making regarding this particular debt solution.

Many people are understandably unsure, scared, and overwhelmed by what to do about credit card debt.

Those promoting debt settlement for high paid commissions have been able to capitalize on the emotional appeal of avoiding bankruptcy, even when the math would clearly show settlement to be an unwise choice in your particular circumstance. It will be increasingly difficult for those selling debt relief services to do this after 9/27/10.

Knowing What to Expect From Debt Settlement.

One of the more dynamic requirements found in the recently announced FTC rules that will govern the for profit debt relief industry, is the requirement for Good Faith Estimates. There are several estimates that will be required, such as:

  • Total fee for service
  • When an offer to creditors will be made
  • How much money a consumer must set aside before an offer will be made
  • How long it may take to achieve represented savings results and thereby complete your settlement program

These estimates, combined with; savings claims having to be backed up by the actual experience of the service provider (more on how HUGE this is in future posts), account balance increases, estimate of the service providers fees and a few other whammy’s – make for fantastic features for consumers evaluating a debt settlement service!

These fact-based estimates of total savings, fees and program lengths must be provided along with key disclosures prior to consent to pay. In other words, before you sign up for a service. Now you get to see the numbers! Your decision to attempt settlement should always be factored on a very clear understanding of:

How it costs and how long it will take.

When all costs are considered, it may not be worth it. If a program would take too long due to your limited resources, you expose yourself to increased risks of creditors using the courts in order to collect.

CRN, for years now, has broken this down in detail during our initial consult with you prior to even suggesting working with us. We do not take a file if we cannot settle one or more accounts within 180 days of membership, nor do we accept a person into a program unless we can see clearly prior to enrollment that you can complete your work with us in 18 months or less (except in rare circumstances).

The required compliance with these new FTC rules will show consumers considering settlement that the program length of 36 months (even longer) hyped by the industry are so problematic, they should avoid debt settlement all together.

Companies and sales people have inappropriately signed up the wrong people in order to make huge commissions.

WARNING:

  • Get any company you are thinking of hiring after 9/27/10 to put estimates in writing prior to hiring them. If they are unwilling to do so, I would suggest finding someone who will.
  • Companies whose front-end sales people lack sufficient negotiation experience (pretty much all sales people) will likely have to use blanket percentages and timing estimates that may not accurately reflect the reality of your situation. This may cause you to conclude settlement is not a good option.
  • Companies whose fees are set too high may cause you to conclude settlement is not a good option. Look for credible companies with low fees.

If you have questions about any of the elements above, you are welcome to post in the comments below for feedback. You can also consult directly with me if you would like an estimate of how much debt settlement will cost you, and how long it will take, by calling 800-939-8357 and press option 2.

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