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"How to Handle a Debt Collector"

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This article ran on MarketWatch, and I find it a sign of the times. Despite the supposedly sound state of the economy (if you call a tanking housing market and 1.3% GDP growth, which is negative in real terms, “sound”), MarketWatch nevertheless thought this story would appeal to its target audience, the investing class.

The article also features an interesting statistic: 19.9% of the complaints made to the FTC are about debt collectors, up from 17% in 2004. The FTC is also hosting a workshop later this year and is inviting the submission of papers and research.

I imagine the FTC in interested in learning how much of this increase in complaints is proportional to the number of deadbeats, and how much is due to increased debt collector aggressiveness. I wonder whether, due to the new tough bankruptcy laws, some consumers are deciding to hold their creditors at bay until the statue of limitations on their debt expires. By happenstance, I know a Washington-based tech entrepreneur who expanded his business right before the dot com bust, and successfully held off his creditors for six years (the Washington limit). It sounded truly miserable (and poverty is always miserable). Under the draconian new bankruptcy law, I suspect more people will go that route.

From MarketWatch:

Debt collectors are getting more aggressive. Don’t be surprised if a collector pressures you to immediately authorize an automatic debit from your checking account. You can do this by providing your checking account information over the telephone.

In some cases, according to the Federal Trade Commission, these debits have been more than the agreed-upon authorized amount.

Have you convinced a debt collector to stop calling? It likely won’t be the end. You may hear from several collectors down the road, thanks to “debt buyers,” which have been springing up since 1989, when creditors began selling debt.

The collection calls probably won’t stop if you move. Numerous data bases, including those available from government agencies and credit bureaus, can help track you down, which raises privacy concerns.

These are just some issues that have prompted the Federal Trade Commission to sponsor a debt collection workshop Oct. 10-11 at the FTC’s Satellite Building Conference Center, 601 New Jersey Ave., NW, Washington, D.C. The workshop could lead to recommendations in the FTC’s annual report to Congress.

The Federal Trade Commission pegs its 2006 debt collection complaints at 90,629, excluding identity theft and Do Not Call Registry complaints. Debt collection complaints against national banks have been dropping — to 2,560 in 2006 from 3,110 in 2004, says the Office of the Comptroller of the Currency. But some say numbers are skewed by the large number who filed bankruptcy prior to 2005 when bankruptcy reform took effect.

Third-party debt collection complaints were 19.9% of all FTC complaints in 2006. That’s up from 17% in 2004, says Thomas Kane, senior attorney in the FTC’s Division of Financial Practices. The rise comes as debt continues to soar — to $12.816 trillion in mortgage debt and consumer credit in 2006, based on the Nilson Report, Carpinteria, Calif.

Of particular concern: The large number of FTC complaints — 14,700 — that allege debt collectors are harassing consumers, often by calling them continuously. Also, some 8,000 debt collectors in 2006 were said to have used profane or abusive language.

Some have gone so far as to give consumers a false address to dispute a debt, so the creditor won’t receive that letter, Kane says.

“The easiest debt to collect is only a few months old,” explains Spencer Nilson, founder of the Nilson Report. “You know where they live.”

But every year, one-third of the population moves.

In the collector’s sights

Late with a credit-card payment? Expect a card issuer to contact you during the first six months via an in-house collection staff. If the original creditor can’t collect, the debt is outsourced to commission-based collection agencies and attorneys.

If still unsuccessful, the original issuer sells your debt, which leads to a third set of collectors. Some resell the debt again, so the chain continues. “It’s like traveling somewhere and going through six different airports,” Nilson says.

“Last year, the average amount paid for debt was 5.3 cents on the dollar,” according to Nilson. But the older the debt, the more it typically costs to collect. Databases may be needed or tracers hired. To make a profit with those mounting costs requires persistence.

What can you do if you’re in debt and wind up in this chain of events? Know your two most important rights with debt collectors, under the Fair Debt Collection Practices Act.

1. You may dispute a debt or portion of the debt in writing within 30 days of being notified. If you send a written dispute within 30 days, the debt collector must halt collection efforts until it provides written clarification of the debt. The debt collector also must notify you of this right.

2. You can stop a debt collector from contacting you by writing a letter to the collector telling him or her to stop. Once the collector receives your letter, he or she may not contact you again except to say there will be no further contact or to notify you of a specific action. This does not erase your debt.

Send all communications certified mail, return receipt requested. More debt and credit rights can be found at www.ftc.gov or by calling 1-877-FTC-HELP.
Also important:

* Check with your state’s attorney general at www.naag.org, for the limit on how long collectors legally can collect your debt. State limits generally range from four to 20 years, says Dennis Hammond, president of the Debt Marketplace Inc., Santa Fe Springs, Calif.
* Beware of accepting a new credit offer, no matter how attractive it looks, from a creditor you never repaid. Reason: Once that creditor renews your credit relationship, the clock starts ticking all over again on your state’s statute of limitations, Nilson warns.

Meanwhile, contrary to popular belief, interest on your old debt never stopped accruing. Plus, collection fees, attorney fees, and even tracing fees may be added. As more time passes, the price to buy your debt drops significantly, while the debt you owe quickly multiplies with accrued interest and fees. This provides even more incentive for debt buyers to collect successfully.

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