Saturday, November 19, 2011

How Debt Collectors Find You

You've been very careful hiding from debt collectors. You moved to a new home, changed your telephone number and even switched banks. Unfortunately, doing all of these things isn't always enough to throw a collection agency and its skip tracers off your trail. Here are just a few of the methods that debt collectors use to find you:

The Post Office

If you moved recently, you may have filled out a change of address form with the post office. The post office uses your forwarding address form to reroute any mail sent to your old address to your new address. Even if you did not provide collection agencies with your forwarding address, the post office will provide a debt collector with that information upon request.

Credit Reports

Because you owe collection agencies money, they have permissible purpose under the FCRA to pull and review your credit report. As soon as you notify your current creditors of your change of address, those creditors report the new address to the credit bureaus. Your new address then appears on your credit report and debt collectors can use the information to contact you.

Skip Tracing

Collection agencies often employ skip tracers. A skip tracer is a form of private detective that helps collection agencies locate debtors who have "skipped" out on their debts. Skip tracers review public records, such as marriage certificates and property records to find out everything from your current contact information to your Social Security number. In certain states, skip tracers and debt collectors alike can even search the DMV's records for information about your whereabouts.

Social Networks

Think your information is safe on Facebook or Google Plus? Think again. Even if you set your social networking profile to "private," individuals viewing your profile can still see your location. If the person viewing your profile is a debt collector, he or she can use your city and state as a starting point for tracking you down.

Your Relatives

Collection agencies can obtain the names of your family members through the "next of kin" information on your credit applications, through your social networking profile, or through the good old fashioned phone book. While a debt collector cannot give your family members any information about your debt,  the collector can contact your family members in order to obtain your telephone number or address. Federal law restricts collectors to only contacting a given family member once unless the company has cause to believe the individual purposely lied to help you hide from your debt.

Friday, November 18, 2011

Court Ruling Restricts Collection Attorney Scare Tactics

No matter how much debt collectors have hounded  you in the past or how many FDCPA violations they rack up, know that the corruption that runs rampant in the collection industry doesn't always run unchecked. This past April, the U.S. Third Circuit Court of Appeals ruled that a collection agency's company attorney can only send the debtor letters using the attorney's letterhead if the attorney is acting in a "legal capacity" rather than merely as a debt collector himself.

Sound confusing? Let me break it down further. First, lets take a look at the FDCPA's rules regarding what debt collectors can and cannot do when communicating with debtors. Here's a peek at Section 807

Section 807: False or Misleading Representations

 807. False or misleading representations
A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section...

(4) The representation or implication that nonpayment of
any debt will result in the arrest or imprisonment of
any person or the seizure, garnishment, attachment,
or sale of any property or wages of any person unless
such action is lawful and the debt collector or creditor
intends to take such action.

(5) The threat to take any action that cannot legally be
taken or that is not intended to be taken.

Collecting By Fear 

In a nutshell, this means that the collection agency can neither threaten to sue you outright nor imply that they may sue you if they either don't have the legal right to do so (such as after the statute of limitations passes) or if the company does not intend to take legal action.

While this seems like good old common sense, the reason these provisions are included in the FDCPA is to protect debtors from abusive debt collectors who use fear as a collection tool. A debtor who believes he'll be facing a lawsuit if he doesn't pay is more likely to pony up the cash than someone who knows the collection agency doesn't have a leg to stand on. Collecting by fear is generally considered unethical. Thus, the FDCPA forbids this debt collection method unless the collection agency is willing to back itself up with an actual lawsuit.

Collection Agency Attorneys

Now, remember that talk we had about collection agency attorneys? If so, then you'll recall that collection agencies that do not use in-house attorneys sometimes pay third-party attorneys to draft letters to debtors. These letters usually contain a small disclaimer somewhere noting that the attorney has not personally reviewed the debtor's case. Collection letters on an attorney's letterhead are an effective collection tool because they essentially let the collector skirt the "implied" lawsuit ban put in place by the FDCPA. The debtor sees a letter from an attorney and automatically assumes he is in danger of a lawsuit, even if the letter does not say anything to that effect. As a rule, a debtor is more likely to pay off his debt after receiving a collection letter from an attorney rather than from a collection agency.

The unspoken threat that a collection letter from an attorney poses is clear: Pay the debt or we'll take you to court. After the April 2011 ruling in  Lesher v. The Law Offices of Mitchell N. Kay by the U.S. Third Circuit Court of Appeals, that loophole is no longer an option for collectors.

The Case

The situation behind  Lesher v. The Law Offices of Mitchell N. Kay is a common one. A collection agency enlisted a third-party attorney to collect an unpaid debt from the plaintiff, Mr. Lesher. The collection letters from the attorney's office arrived on the lawyer's letterhead. Of the two letters Mr. Lesher recieved, neither posed an outright threat to sue. According to Lesher, however, that threat did not need to be made directly. The very fact that the collection letters arrived on company letterhead implied that the collection agency could and would sue him.

You don't want to end up here

Lesher filed a lawsuit based on violations of Section 807 of the FDCPA. The violation was a simple one: a letter from a collection attorney strongly implies that a lawsuit may follow in the event the debtor does not pay.  The collection attorney created this implied threat yet did not so much as review Mr. Lester's file. Although attorneys can act as debt collectors, many simply draft individual letters for collection agencies to add weight to payment demands.  Lester won his lawsuit and, by doing so, put case law on the books that goes a long way toward closing the loophole of collection attorney letters that collectors previously enjoyed.

The Pending Brief from NARCA

By establishing a precedent dictating how a collection agency can use a third-party attorney's services when collecting a debt, the U.S. Third District Court of Appeals sliced into the collection industry's profit pie with a wide blade. This prompted a quick response from the National Association of Retail Collection Attorneys, which filed an amicus brief with the court.

I'm not sure if its funny, infuriating or just plain sad. The collection industry isn't immune to the economic problems that plague our country. Aside from a back-door judgment, using collection letters from attorneys was the collection industry's "ace in the hole."

I have no seen or reviewed NARCA's court brief, but I've got a pretty good idea of what it says. Personally, I'm not a big fan of amicus briefs but, in some cases, I can see the necessity of them. An amicus brief is merely a brief filed with the court by a third-party not directly involved in a lawsuit but who will be impacted by the outcome of the case. The amicus brief provides the court with additional information on the case, along with the potential consequences for those not directly involved and the third-party's legal opinions.

Right now everything is pending, so we'll just have to wait and see how the case turns out. All I can suggest is that you keep your fingers crossed that the court tosses NARCA's brief in the trash before moving on to more pressing business. The more protections debtors receive under the FDCPA, the less leeway debt collectors and collection attorneys alike will have when using scare tactics to elicit payment.

Sunday, November 13, 2011

Capital One Charge Off During Credit Counseling

Reader Question: Capital One Charge Off


I became unemployed and fell behind on bills. The last priority was credit cards.I talked and worked with these companies the whole time. Luckily, I became employed once again. I joined a legitimate credit counseling service to setup payments. Capital One accepted the counseling services agreement. I have been making payments for a number of months on time and without issue. I recently checked a copy of my credit report, one of the free ones we are entitled to each year. I noticed that Capital One had reported my account as charged off. I called them to confirm this and the representative I spoke with said that was indeed the case. I inquired why it was charged off when I was on an agreement repayment plan. She really had no answer for that but said that there was nothing she could do about it.  

I am in a repayment plan for an account I have already been charged off on. Should I stop the payment agreement? Is there any mechanism or circumstance in which the credit card company can recall my debt? Is there anything I can do to urge them to do this? Why and under what authority are they still accepting my payments if indeed my account has been charged off? Should I not be entitled to a full refund of these payments?

What I would like to happen is for the credit card company to recall the debt so that I can pay it off and for it not to appear as a charge off on my credit report. Any thoughts, ideas or suggestions would be greatly appreciated. 



I think most of your questions will be answered by me explaining how a charge off works. When a credit card company charges off your account, it generally sends the account to the company's collection department or sells it to a third party agency. Charge offs occur without fail once you go 180 days without making a payment. A charge off does not mean that the company has discharged the debt and you no longer owe it. Capital One still owns your debt and you still owe it. It just appears in a different place on the company's profit and loss statement this year.

Capital One is still accepting payments because they still own the account. They don't owe you a refund because you still owe the debt, regardless of how the debt appears in the company paperwork or on your credit report. Sounds harsh, I know, and I don't mean to be. Just trying to explain how the system works.

The company can't "recall" the debt in the sense that they can retrieve it from a third party because it never went to a third party. They can remove the charge off from your credit report, no matter what they say. Any company with a contract to report information to the credit bureaus has the right to modify or delete that information. It's unlikely, however, that Capital One would modify your credit report and remove the charge off. Not only is it accurate, but they're receiving regular payments from you. What incentive do they have to modify the account? None.

That's not to say that you should stop paying the credit card company. Your regular payments are the only thing preventing that charged off account from being turned over to a collection agency. If your account were to get turned over to a collection agency, the collection agency would make yet another note of the debt on your credit report and your credit would suffer further.

Original creditors like Capital One typically only modify credit information in the event they made a mistake. Even if you were to stop paying and offer to resume payments in exchange for a removal of the charge off, the company is more likely to sue you than to remove the charge off from your credit report.

Per federal law, the charge off will disappear on its own 7 years from the date it was charged off. Unfortunately, the charge off doesn't disappear after you pay off the debt in its entirety. The credit card company is required by law to update your credit report to reflect the debt was paid once you pay it off. A paid charge off, however, is just as bad for your credit score as an unpaid charge off.

It's a shame that responsible people such as yourself who try to do the right thing and pay their bills have to suffer the same consequences they would have suffered had they simply left the debt alone. You have a small advantage in the sense that you don't have to deal with a collection agency damaging your credit report and harassing you all day and night.

So grit your teeth and keep making those payments until the debt is paid off. The older it gets, the less negative impact it will have on your credit scores.

Now, if you never stopped making payments on the account, it should not have been charged off – regardless of the fact that you were enrolled in credit counseling. If that were the case, the charge off is a legitimate error that Capital One has to address. In that case, I recommend you get the name and contact information for a senior account manager and send a polished, professional business letter explaining that your account was charged off in error and ask that he remedy the situation. Letters always seem to work much better than telephone calls. Best of luck to you.


Collection Agency's Early Bank Withdrawal

Reader Question


I have an issue with a collection agency (FAST) who has called me a criminal, a baby, and a bunch of other things while on the phone with me, as I was setting up a payment plan.  in that payment plan, I made arrangements to pay $100 then, then $230 each 18th in Nov, Dec, and Jan to pay it off.  These were for checks.  Even after paying almost half, they are threatening to have me charged with a felony.  The agent who did the agreement made a mistake and put the payments in for the 4th of each month (which I would never do since that is rent time) instead of the 18th, and refused to fix it when the first payment came out.  I asked to have a copy of the conversation pulled since they announce that they record the calls, and was told that they wouldn't and they "would trust their rep over a criminal."

There is much more to what was going on with their abuse, but I was wanting to find out if they were doing anything illegal by taking money out of my account 2 weeks before they were supposed to.



You aren't the first person to learn the hard way that giving a collection agency your banking information and permission to withdraw payments directly from your account is a very bad idea.  First of all, this was a purposeful "mistake." The most likely scenario is that the debt collector you spoke with scheduled your payment before his monthly cutoff so that he would be sure to get his commission from your payment a month early. It's particularly heinous when you consider that now you are enduring extreme financial stress as a result of the measly $10 or so extra the rep wanted in his pocket this month. 

Lets get one thing straight: You are not committing a felony by not paying. You aren't even committing a crime. They can't have you charged with a felony. The ironic part of that is that just threatening to charge you with a felony is against federal consumer protection laws. 

Let's see what Section 807 of the Fair Debt Collection Practices Act has to say about this, shall we?

FDCPA: Section 807 (4) (7)

A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section...

(4) The representation or implication that nonpayment of 
any debt will result in the arrest or imprisonment of 
any person or the seizure, garnishment, attachment, 
or sale of any property or wages of any person unless 
such action is lawful and the debt collector or creditor 
intends to take such action...

(7) The false representation or implication that the consumer committed any crime or other conduct in order to disgrace the consumer. 

Barring all the legalese, that basically states that it is illegal for a collection agency to tell you that you are committing a crime if you aren't. It's also illegal for a collection agency to threaten to take any action against you that it does not have the rock-solid legal right to take. 

Thus, the collection agency could sue you if your debt was still within the statute of limitations (which it is now that you've made a payment) but they can't tell you that you are committing a crime or threaten to "have you charged" with a crime. The only real crime here is the clear disregard this company has for federal law. 

Unfortunately, unless you wrote down the date and time of the call and who you spoke with, your odds of proving that this FDCPA violation occurred are slim. Unless, of course, it happens on a regular basis in which case I highly recommend "collector baiting." But you'll get your chance to do that (hopefully) after you remedy the current situation.

The first step you need to take is to make an appointment to speak with someone at your bank in a power position. Basically, anyone who isn't a teller. Explain that a company is withdrawing payments from your account without your permission. You have done all you can to get this problem remedied through the company with no results.  Tell the bank that these withdrawals are unauthorized and ask that it block all automatic withdrawals without your prior approval. Don't be surprised if your bank won't do this. It's much easier for a bank to just pay out whatever merchants ask and then pursue you for payment. Some banks, however, will try to help you – especially if you are a long-standing, good customer. 

The bigger the bank, the less likely they are to help. For this reason I sincerely hope that you're not banking with Bank of America or Wells Fargo or some place like that. 

If the bank won't block all automatic withdrawals, you want to close your bank account and open a new one. Now, and this is important, make sure that if you close your account the bank will block the payments and not withdraw them from your new account, pay them and then send you a bill,  or re-open your old account, charge them to your account, and then charge you an NSF fee for the "service." Get this in writing if you can do so without looking like a jerk. 

If you really want to be on the safe side and your credit's okay, open your new account at a completely different bank. In the event the company ever tries to gutter-sue you and garnish your bank accounts, having an account at a totally different bank makes you that much harder to find. Closing your bank account and opening up a new one is a big hassle, but its something that's often necessary when you've got collectors who have your banking information. 

Here comes the bad news: some banks won't play ball. They'll let you close your account, sure, but they're still going to pay out the collection agency's early claim and then pursue you for each claim they had to pay (plus fees). According to these banks, its the customer's responsibility to notify creditors of a change in banking information. In reality, its just another excuse to charge fees. 

Collection agencies cannot legally withdraw money from your bank account without your permission unless they have a judgment against you or have your permission.  Once they have your permission, watch out! Personally, I'm surprised that a company unscrupulous enough to call you a criminal didn't just withdraw the entire balance you owed right then and there. 

Start documenting debt collectors' behavior immediately. After you navigate the piles of red tape at your bank to prevent this early withdrawal from happening again, file a lawsuit against the company for its oh-so-stunning FDCPA violations and get your money back  :)


How to Document Debt Collector Harassment: Keeping an Evidence Folder

If you're hiding from the telephone or cringing every time you pick up the line, you might be a victim of debt collector harassment. I'm not going to outline exactly what constitutes abuse from collectors because I've talked it half to death in the past, but I am going to point out some good ways to document debt collector harassment and create an evidence folder of the abuse. Not only does creating a paper trail help you defend yourself, it can be essential in making the abuse stop.

Documenting Debt Collector Harassment

Many, many people I talk to fail to properly document debt collector harassment because they feel that doing so would be both pointless and difficult. If you're skirting collection calls, you've already got a lot on your plate. I know that. But keeping a log of the abuse helps you prove it in court.

Now your eyes have gotten big and you're thinking, "But Lee, I don't want to go to court!" I know that too. Keep in mind, however, that you may have grounds to sue the very collectors that are harassing you. If you win, you may be entitled to monetary compensation and the collection agency may just think twice before inflicting the same torment on another debtor. Documenting your communications with collectors also helps you defend yourself in court if the collection agency sues based on something you supposedly did or said that you can subsequently prove never occurred.

Documenting Telephone Harassment 

The vast majority of debt collector harassment takes place over the telephone. This is because the majority of a collection agency's business occurs over the phone and because its much harder for debtors to prove that a debt collector violated the FDCPA during a phone call.

Here's what I want you to do: If you're old school and you're receiving collection calls over your landline phone, put a pad of paper and a pen next to the phone. Don't move it. Tell your family not to move it. You'd be surprised how often debtors actually try to pull this off only to discover that their paper and pen is gone when they need it most. Glue it to the counter if you have to, just make sure its there. If you're taking the calls over a cell phone, grab paper and a pen as soon as you answer the phone or see the call coming in. Note the following:

  • The date
  • The exact time of the call
  • The name or employee reference number of the debt collector you spoke with
  • What the debt collector said to you. Be as specific as possible.
  • What you said to the collector
  • If you have the ability to record the call, record as many collection calls as you can and keep written notes on the rest.

After the call, take the time to put your notes into a manila envelope or folder meant for housing nothing but your documentation of the harassment harassment.

Tip: If you don't want to answer the telephone when debt collectors call, you can still document the frequency of their calls as part of a harassment claim. Make sure you note the date and time of each call and the number the call came in from.

Documenting Mail Harassment

A collection agency is going to take great care not to openly harass you via mail. The company knows better than to provide you with clear lawsuit fodder. That does not mean, however, that collection agencies never violate the FDCPA in their written communications with debtors; they do. Because of this, its important that you save each and every letter you receive from a collection agency. Make a photocopy of each collection letter and put the collection letters in the same envelope as your phone harassment logs.

Organizing the Evidence Folder 

Keeping a thorough record of debt collector harassment isn't always enough. You need to create a paper trail of events that demonstrate the collection agency's action, your reaction, the collection agency's response, etc. Thus, its important that you date each piece of evidence you create and keep your files in order.

If you send the collection agency a cease and desist letter, for example, include a copy of the cease and desist letter in your evidence folder. If you're smart and send all communication CRRR, keep copies of the green cards in your folder. You can also include any communication you may have had with the original creditor about the debt in your evidence folder as well.

How Documenting Harassment Benefits You

I know what you're thinking: "If I show up in court with a bunch of written notes, its just my word against theirs! The judge will never believe me!" Here's how keeping good track of your evidence, even handwritten evidence benefits you:

  • The judge will see that you took the time to keep track of and organize records. This is far more than most debtors bother to do. That effort alone speaks volumes. 
  • Collection agencies record all of their calls. The judge can look at your records and request that the company locate and turn over recordings of each call you cited. 
  • The judge will take into consideration your evidence record as a whole and the story it tells. If your documentation of the harassment includes your own efforts to communicate and solve the problem, this speaks strongly in your favor. 

and here comes what is, for some, the best reason to keep good documentation of harassment by debt collectors:

  • If you already have a thorough record of debt collector abuse, your attorney or consumer advocate has to do less work to help you. You've already done the work for them. The end result? Your defense costs less. A LOT less. 

The moral of the story? Start creating an evidence folder documenting debt collector harassment as soon as possible. You never know what the future may hold, and keeping good records and creating a paper trail can never hurt.