When Debt Collectors Disrupt Dinner
What to Say, and Not Say, When They Call About the Credit Card
By Mark Henricks
Special to the Washington Post
Sunday, February 1, 2009; F01
If the phone rings at dinnertime, the odds are greater now that a credit card debt collector will be on the other end.
With card delinquencies rising, debt collectors are jangling more Americans' phones. Some 4.79 percent of credit card accounts, approaching one in 20, were delinquent toward the end of 2008, according to the Federal Reserve. As recently as 2006, the rate was 3.95 percent, or about one in 25. And when card accounts go delinquent, defined as being 30 days past due, that's one of the primary triggers for a call from the credit card company.
The calls can be disconcerting. Even when the caller only wants to politely notify you that your payment has not been received, the questions can swirl inside a strapped consumer's head. Will I be sued? What if I lose a judgment? How will I cover attorneys' fees? Will my wages get garnished? In these difficult times, it's important to know your rights.
Borrowers need to remember that it may not be their fault that they've gotten a call. Some issuers may call for reasons unrelated to late payment. They may want to discuss why a borrower has exceeded a credit limit, suffered a sudden deterioration in a credit score or is late on a payment on another account. The credit card issuer may have taken some action leading to the call. For instance, many card issuers are raising interest rates, which can cause payments to increase, perhaps beyond a borrower's ability to pay.
"People are struggling under their debts, and debt payments are being missed and sent in late," said Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, a Washington-based industry group. "The calls are a natural part of that contract. Secondly, the industry is tightening up credit. That might kick you into missing a payment or having an overage fee."
Several large banks that issue credit cards declined to comment on reasons they call borrowers or the volume of calls they make. But there is little doubt, based on the higher delinquency rates, that the number of calls has increased. "When an account becomes past due or delinquent, a consumer will be contacted," said Robert Markoff, a Chicago attorney and president of the Chicago-based National Association of Retail Collection Attorneys. "It's always been that way. The only change is that more consumers are delinquent."
By the time the phone rings with a call about a credit card problem, it may already be too late to take the smartest first step. That is, to call the company first. "When you start to get in trouble, call your lender and say, 'I'm in trouble; let's talk about options,' " Talbott said. "They're very willing to talk with you." It may be easier to successfully request a lower interest rate, have late or over-limit fees waived or otherwise improve your situation if the borrower makes the first move.
If that opportunity is past, do not simply ignore the calls.
After an account goes more than 90 days past due, the lender may have the debt collected by a third-party debt collection agency. That's not all bad, because consumers have greater legal protections when dealing with third-party debt collectors. The federal Fair Debt Collection Practices Act provides a host of restrictions on collectors. The act doesn't apply, however, to the original lender. And if the original creditor sells the debt to another company, Talbott said, the law treats the new owner the same as the original lender. In either of these cases, collectors have wide latitude in how and when they contact borrowers.
Although burdened by fewer restrictions, credit card companies are less likely than third-party agencies to be unreasonable or unpleasant. For the most part, the original lender will want to keep the borrower as a customer. "If you've missed three or four payments and your account has been turned over to a debt collector, it's going to be much more difficult to work something out," said Sally Hurme, who works on consumer protection efforts as senior project manager of financial security for AARP in Washington.
When talking with a caller about a debt, caution is the watchword. While it's essential to be completely truthful, a consumer cannot be forced to answer any questions. Some experts advise avoiding even acknowledging owing the debt. And there are some things that should never be said.
For instance, do not agree to a payment plan you cannot handle. "If you tell a collector of any sort that you're going to pay $1,000 tomorrow and you can't do that, you're only asking for more phone calls," said Markoff.
Also be careful about providing personal financial information. Some collectors will ask for your bank account number and bank routing number, warned Gail Cunningham of the National Foundation for Credit Counseling. But that is not a request borrowers should cooperate with.
"If bad goes to worse, and the collector gets a judgment against you, they'll have all the information they need to start dipping into your account to pull funds," she said.
While being careful about information released, consumers should be obsessive about collecting information about the caller, especially when they know or suspect they are dealing with a third-party debt collector. Start by trying to identify the caller's company. Credit card issuers will usually be forthright; collection agencies may try to hide their identity. It is best to get the name and mailing address of the company. The reason: A written request to stop calling must, under the federal debt collection act, be honored by a third-party collector.
Another request that must be honored by a third-party collector is a demand for verification that the borrower actually owes the amount. "You have the right by law to request documentation of this debt," Cunningham said. Often older debts may have been sold and resold several times. It's not unusual for a collector to be unable to document that a borrower has actually borrowed the money, in which case collection will be difficult.
Borrowers should always remember that they talk to collectors only on their own volition. No one can be forced to talk. If court action is mentioned or appears likely, borrowers should consult with their attorney, Markoff said. Once an attorney has been retained, collectors can no longer contact the borrower, only the attorney. And if a borrower files for bankruptcy, then all collection efforts must cease.
Simply refusing to talk, however, probably won't end the matter. "The consumer will still owe the debt," Cunningham said, "so failure to work out a repayment plan may result in legal actions such as wage garnishment or a judgment being filed." In addition to filing a lawsuit against the borrower, collectors may try to collect from any co-guarantors.
Consumers willing to talk usually get more favorable repayment terms and, most of the time, end up paying less than the original balance, Talbott said. The card issuer may restructure the debt, or refer the borrower to a consumer credit counseling company to set up a debt management plan. Lenders may forgive interest and lower interest rates. However, federal regulations say lenders cannot forgive principal unless it is paid in full within 3 months. "This is very onerous," observes Talbott, who said his group is lobbying to relax these restrictions.
While consumers currently have significant protections, especially against third-party collectors, they are likely to receive more before long. "There is going to be a consumer protection wave, which we support, that will sweep through Congress," predicted Talbott.
And, already, any time a call about a credit card problem occurs, no matter the time or place or caller, ending the call is always an option. "A consumer has a right to terminate a phone call," Markoff said. "If a collector demands something you can't do, you have a right to say, 'No, thank you. Goodbye.' "
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