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.

You have the right to life, liberty and the pursuit of happiness.

When struggling to manage your debt, however, it often seems as though those rights have been suspended!

The struggle to pay bills can make you feel as though you don’t have a life. If it seems as though all you are doing is working to pay the bills and getting nowhere, you could feel imprisoned. If you are buried under a mountain of debt, a sense of gloom will sometimes permeate your thoughts. That sense of gloom can turn into DOOM if you have fallen behind in payments.

Enter the Debt Collector

{cue scary suspense theme music here}

Dealing with tough financial times is hard enough as it is. When debt collectors start ringing your phone at 8 am and do not stop until 9 pm, your phone begins to resemble something with scales and sharp teeth!

When you pick up the phone and speak to whoever is on the other end, you will experience different types of collection efforts. People in the collection business often develop either a good cop or a bad cop persona.

Speaking to and repeating your current financial hardship to a good cop collector can be tedious, but otherwise not unpleasant. Speaking to a bad cop collector can be about as pleasant as running your nails over a chalk board repeatedly.

We’ve Got You Covered

We will continue to develop our coverage of this topic and add resources for dealing effectively with collection abuse. Debt Bytes will publish a resource guide for victims of abusive and illegal collection tactics that will be linked to this post and all future posts on this topic. Here at Debt Bytes, we will cover debt collection extensively:

• You need to know how to be a winner in the collection game.
• You need to know you have rights that protect you from abusive and illegal collection practices.
• You need to know there are solid resources available to you for legal assistance if a collector violates the Fair Debt Collection Practices Act (pdf doc).

Debt Collection Questions?

For now, you can:

1. Post your question right here in the comment section below.
2. Start a new post with your question at Ask CRN.
3. Fill out our consultation request form to schedule a time to speak with an experienced CRN Debt Specialist.
4. Or call 800-939-8657 and press ext. 3 to schedule a consult.

CRN specialists have many years of experience assisting people with putting an end to their struggles with debt. Contact us to find out if we can help you.

Debt Happens. Freedom from debt happens too!

Government Report Recommends Much Needed Changes to the

Federal Fair Debt Collection Practices Act

If you are old enough, think back to how you communicated with others back in 1977, the year that the federal Fair Debt Collection Practices Act was written, which is the primary law protecting consumers from abusive debt collectors. You called people using a landline, wrote letters or met face to face. There was no Facebook, no cell phones or voice mail, no caller ID, and no fax machines. In other words, from a communication technology perspective, 1977 was light years away from where we are today. Therefore, as the Government Accounting Office (GAO) points out in a new report to Congress on the debt collection industry, Fair Debt Collection Practices Act Could Better Reflect the Evolving Debt Collection Marketplace and Use of Technology, go to levin.senate.gov/…/2009/GAO.creditcarddebtcollection.102109.pdf, the FDCPA is woefully out of date because it has not been amended to address how debt collectors are using these new technologies to communicate with consumers about their past due debts, even though in many instances by using them debt collectors are violating the intent of the FDCPA.

The GAO’s recommendation to Congress that it better protect consumers by amending the FDCPA so that it reflects today’s modern means of communication could not come at a better time. Just consider, consumer credit card debt has skyrocketed over the past several years, the rate at which consumers are falling behind on this debt has been increasing, and complaints about debt collectors are on the rise, fueled in part by the fact that a growing number of consumers simply can’t afford to pay what they owe and so some debt collectors resort to illegal tactics to try to get at least some money out of them. According to the Federal Trade Commission (FTC), the agency charged with enforcing the FDCPA, it now receives more complaints about the debt collection industry than about any other industry, and it saw a 34% rise in those complaints between 2004 and 2008. Underscoring the problem the Better Business Bureau and the offices of many State Attorneys General have also seen significant increases in complaints against debt collectors.

The GAO report also examines changes in the debt collection marketplace and how they are affecting consumers’ FDCPA rights and recommends that the FDCPA be amended to reflect the realities of today’s debt collection industry. For example, the report points out that debt buying has become much more commonplace that it was when the law was written. Debt buying occurs when a debt collector either purchases past due debts from a creditor or purchases them from another debt collector; sometimes those debts are bought and sold repeatedly. The problem this has created is that the buyers of the debts don’t always have adequate information about the debts when they attempt to collect them and as a result, they are more apt to try to collect the wrong amount of a debt or to contact the wrong person for payment, among other problems. The report notes that this tends to be a bigger problem the farther away from the original creditor a debt has moved. In other words, the buyers of debts that have been bought and sold more than once already are more apt to have inadequate or erroneous information about those debts. The issue of inadequate information is important because there are many instances of consumers whose lives have been made miserable by debt collectors demanding that they pay debts that did not belong to them or that they pay more than what they actually owed on a debt and some of these consumers have even been sued over the debts.

Here’s another reason why the issue of inadequate information is important. If a debt collector contacts you, you have the right to ask the collector to provide you with written verification of the debt. However, many debt collectors who buy debts claim that they do not have the information they need, like a consumer’s account billing statements, to provide the legally required written verification. Also, complicating matters, there is confusion about exactly what constitutes written verification because the FDCPA as currently written does not provide specific guidelines on this matter.

The GAO report makes another important recommendation. It advises Congress to give the FTC rulemaking authoring over the FDCPA. Rulemaking authority will allow the Commission to more effectively respond to an evolving marketplace and changes in technology. Makes perfect sense to me especially given that the FTC has this authority in regards to all of the other consumer protection laws it enforces and without rulemaking authority, the Commission is hampered in its ability to regulate the practices of debt collectors and protect consumers.

One last comment. The GAO report focuses largely on the debt collection practices of the very biggest credit card companies—all of which are federally supervised banks. However, it expresses concern about the debt collection practices of smaller, high-fee, sub-prime credit card issuers, which are often local banks. The problem according to the report is that these other card issues have been especially aggressive in their efforts to collect past due debt. I hope that the GAO takes a hard look next at this sector of the credit card industry.

Why does debt settlement work?

Banks in the process of lending, know that a percentage of accounts will not perform, meaning some accounts will default and go unpaid. There is a multi-billion dollar industry built around the known fact that not everyone will be able to repay their debt. This collection process is centered on a lenders effort to “lose the least”. The tools and mechanisms in place for this “lose the least” effort are by and large, predictable.

Once an account becomes seriously delinquent, the odds of ever being paid another penny on it decrease dramatically. Creditors have the option of accepting less than the balance in satisfaction of the entire debt, or drop the account into the collection pipeline and see what they get on the other end. This pipeline consists of 3 options, assign, sue or sell, or what I jokingly refer to as A-S-S.

I could write several chapters on each of these collection pipelines, but the purpose of this post is to focus on the math your creditor has to work with when you are unable to pay them.

Assigning your debt:

Assignment collectors are companies who, on behalf of the creditor, are attempting to collect on unpaid balances. Generally, whatever they collect, they are paid a percentage. Credit card issuers will grade the performance of those they assign debt to and will continually award collection files to the best performers, the companies who get them the most money. Assignment of debt also has different tiers. You may be contacted by one debt collection company for a few months, then a different one after 90 days, and even another one 90 days after that. The collector’s job is to get as much as they can for their client, the bank, and to secure the best return for themselves on their performance based fee. Assuming the collector is able to collect 50%, the creditor may see a return of as much as 35% of the assigned balance. This number is a moving target, and will likely be different per account, per portfolio, per tier, per creditor.

Being sued to collect your debt:

Creditors select accounts for immediate referral to law firms in order to collect. Some law firm’s collection attempts will be very similar to an assignment collector where the firm is paid a performance fee just like assignment collectors. Others may start off with that appearance, but will then begin legal process in order to collect. Attorneys who sue in order to collect will generally add legal fees to the final judgment amount. Most law suits for unpaid credit card debt go uncontested and default judgment is entered against the debtor. The judgment itself is a piece of paper, but with legal enforcement implications that allow for collection of the debt via lien, levy and garnishment. Being sued in order to collect has its own costs that will vary, with no guarantee the judgment can be collected on. For your creditor, this means higher cost’s with an unknown return (rest assured the return as an aggregate justifies the expense enough to keep this part of the pipeline in tact-otherwise it would no longer be supported).

Selling your debt:

There are different tiers of debt sales. Your account can be sold several times and will have a different value at each sale. I want to focus on the sale done by the original creditor, who you opened your account with. Five or so years ago, while attending a collection industry seminar, I sat down briefly with a VP of risk management for the now defunct WAMU, who told me at that time, WAMU was catching bids of 15 cents on the dollar for freshly charged off debt (that number was consistent with the daily updates I was seeing from industry newsletters I receive). Charge off generally means the creditor is no longer expecting to be paid and is recording the debt amount as a loss. That was then and this is now. In the current economy, portfolios of charge off debt are being bid at 8-9 cents.

When your debt is purchased, the buyer will then subject the accounts it purchased to the A-S-S principle described above. The buyer has risked their capital with an expectation that they will be profitable by making an ASS of themselves. Sorry, couldn’t help myself.

Historically, the percentage of non-performing credit card assets has been low, less than 5%. In today’s economy, that number has skyrocketed to all time highs. Default on mortgage debt, commercial debt, revolving unsecured consumer debt (credit cards) are all approaching, or have surpassed any prior precedent.

Focusing on unsecured credit card debt; how has all this affected settlement? Well, look at the math. Your creditor will often “lose the least” be reaching agreements with those in serious delinquency before they drop it into the collection pipeline. This is why settlement works, whether 10 years ago or today.

With these increased portfolio losses at all time highs, banks would prefer to work with the consumer in order to lose the least. Consumers, whose financial situation suggests settlement is a good option to pursue, will find by working directly with their creditors they will often be in the position to save the most.

There are a few of the larger card issuers with whom the best savings will not be achieved until the account is placed with outside collection, but for the most part, reaching an agreement with the original creditor is in the best interest of the bank and the consumer. It is why our focus at CRN is to design an individualized plan that will get our members out of debt in the quickest way possible. Our approach is one of the most affordable and effective in our industry. We are the crash diet and crash course for debt reduction.

To learn more about how you can succeed with negotiating and setting debts, not matter what stage of collection your accounts are in, you can get started as a CRN subscriber by clicking here: CRN Membership Enrollment. Affordable access to information the pros use, and access to professional assistance if you need it – is a click away!