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© January 23, 2013 Cities for Financial Empowerment Fund All rights reserved.

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Presentation on theme: "© January 23, 2013 Cities for Financial Empowerment Fund All rights reserved."— Presentation transcript:

1 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved.

2 Financial Empowerment Center Counselor Training Curriculum Topic 5: Consumer Protection and Debt Collection- The Regulatory and Legal Environment

3 I 3 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. AGENDA I. Overview of Regulatory Environment II. Overview of Debt Collection Process III. Original Creditors A. Laws Governing Collection Practices B. Suggested Debtor Action Steps IV.Third Party Collectors A. Buyers of Debt or Agents (Including Attorney Pre-litigation) B. Laws Governing Third Party Collector Practices C. Suggested Debtor Action Steps V.Litigation VI.Post-Litigation VII.Suggested Debtor Action Steps VIII.Fair Credit Reporting Act

4 I 4 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. Learning Objectives Understand the differences among original creditor, third party collector and buyers of debt. Understand what debtor should do with different types of creditors. Understand how federal, state and city laws interface. Understand the pre-litigation, litigation and post litigation process.

5 I 5 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. Overview of Regulatory Environment Consumer protection laws exist on federal, state and local levels. Enforcement may take place through several different agencies at each of the federal, state and local levels, e.g. Federal Trade Commission and the Consumer Financial Protection Board may both have jurisdiction over same institution or activity.

6 Overview of Debt Collection Process Generally follows this path, but not always 6 Original Creditor Third Party Collector Debtor back on track

7 I 7 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. Original Creditor Relationship Contractual relationship – governs creditor/debtor rights. Direct privity of contract gives the parties rights and obligations between them. Original creditor (assignor) can transfer (assign) its/his interest to a third party (assignee). Buyer may be treated as the original creditor, e.g. Company X buys Company Y and now owns the account. Buyer of defaulted debt becomes a third party collector for purposes of collections laws. Buyer is subject to the obligations and any defenses available against original creditor, e.g. Statute of Limitations.

8 I 8 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. Original Creditor Federal Laws Governing Collection Practices A. Credit card debt 1. Federal Fair Credit Billing Act (FCBA) Applies to “open end” accounts, i.e. credit cards and revolving charge accounts (not installment loans). a.Consumers have right to contest bill: notify “billing inquiries” within 60 days after receipt of incorrect invoice. i. Include copies of documentation with letter b. Creditor must respond within 30 days after receiving dispute (i.e. acknowledge receipt).

9 I 9 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. Fair Credit Billing Act (credit cards & revolving loans) cont’d c. Creditor must resolve within two billing cycles and notify consumer (within 90 days of receiving consumer’s letter) – the investigation period. i. Consumer may withhold payment on the disputed amount (and related charges) and pay any part of the bill not in question. ii. creditor may not take legal or other action to collect the disputed amount and related charges (including finance charges). iii. account can't be closed or restricted, the disputed amount can be applied against credit limit. Original Creditor

10 I 10 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. Fair Credit Billing Act (credit cards & revolving loans) cont’d Original Creditor iv. creditor may not threaten credit rating, report delinquency, accelerate debt, or restrict or close but may report that consumer is challenging. v. If bill has error creditor must explain — in writing — the corrections to be made to account, crediting account, remove all finance charges, late fees, or other charges related to the error.

11 I 11 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. Fair Credit Billing Act cont’d vi. If creditor determines portion of the disputed amount is owed– must send consumer written explanation. Consumer may request copies of documents proving debt is owed. vii. If creditor determines bill is correct, must notify consumer promptly—in writing—amount owed and why. Consumer may ask for copies of relevant documents. At this point, consumer will owe the disputed amount, plus any finance charges while the amount was in dispute. Consumer may have to pay the minimum amount that was missed because of dispute. Original Creditor

12 I 12 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. Fair Credit Billing Act cont’d viii. If consumer disagrees with results of investigation, must write to the creditor within 10 days after receiving explanation. Consumer may indicate refusal to pay disputed amount. Creditor may begin collection procedures. If creditor reports to credit reporting company as delinquent, must also state consumer is disputing. Creditor must inform consumer who gets these reports. If issue resolved creditor must promptly report, to everyone who got a report. Original Creditor

13 I 13 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. Fair Credit Billing Act cont’d ix. Any creditor failing to follow settlement procedure may not collect disputed amount or any related finance charges, up to $50, even if the bill turns out to be correct. For example, if a creditor acknowledges your complaint in 45 days — 15 days too late — or takes more than two billing cycles to resolve a dispute, the penalty applies. The penalty also applies if a creditor threatens to report — or improperly reports — your failure to pay during the dispute period. d. Consumers’ rights where creditor violates FCBA-damages, 2x finance charges ($100 to $1k), attorneys fee at court’s discretion. e. Liability limited to $50 in case of unauthorized use. Original Creditor

14 I 14 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. B.Other Federal Laws Governing Original Creditors 1. Truth-in-Lending Act (TILA) requires lenders to provide certain information so consumers can compare terms of various loans. a. Information to be disclosed is detailed and highly regulated. b. Regulates how a lender can advertise consumer credit. c. Does not directly govern collection practices, but violation may be defense in a collection action. d. Fair Credit Billing Act is part of TILA. 2.Fair Credit Reporting Act requires providers of information to reporting agencies to be accurate. Original Creditor

15 I 15 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. Suggested Actions for Debtor 1.Do not ignore debt collection call or letter. 2.If debt is incorrect or not yours, dispute immediately—best in writing (w/in 60 days if credit card or revolving credit – FCBA). 3.If debt is owed: a. establish how much is owed – ask for break down of principal, interest, late payment charges and other fees and when the default occurred. i.Make a record of call, time, date, and name of caller by taking notes or recording the call. Original Creditor

16 I 16 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. b. Negotiate with creditors to make payments manageable (waive late fees, payment plan). c. Do not reveal financial information except for inability to pay – collector may be fishing for assets or payment ability. d. Prioritize debts, pay more on high rate debt first. e. Know and assert rights during negotiation as leverage. f. Consider use of “cease and desist” carefully – ask instead that all contact be in writing– a complete cease and desist may result in debtor not knowing what steps taken by creditors. Suggested Actions for Debtor Original Creditor

17 I 17 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. 4.If statute of limitations has passed ( time in which creditor must bring a lawsuit on debt). a. Check to see what the statutes of limitations are for: i.Written Contracts ii.Oral Contracts iii.Promissory Notes iv.Open Accounts (credit card or other revolving loans) Suggested Actions for Debtor Original Creditor

18 I 18 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. b. Do not acknowledge debt or make partial payment – will re-start the statute of limitations clock. i.“ I do not acknowledge the debt, but if it were owed, the statute of limitations has expired.” c. Creditor not required to disclose expiration of statute, but cannot lie if asked. Suggested Actions for Debtor Original Creditor

19 I 19 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. Third Party Collectors Laws Governing Collection Practices Third party collectors include: 1. Collection agencies hired by original creditor 2. Collection lawyers hired by original creditor 3. Buyers of defaulted debt (and collectors on their behalf )

20 I 20 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. Federal Fair Credit Billing Act (FCBA) applies to: a.Collection agent (not in-house) or attorney representing an original creditor b.Buyer of defaulted debt c.All are bound by (subject to) defenses that apply to original creditor Third Party Collectors Laws Governing Collection Practices

21 I 21 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. Fair Debt Collection Practices Act – enforced by FTC (Many states have laws that mirror FDCPA) a. Prohibits debt collectors from using abusive, unfair, or deceptive practices to collect. b. Creditor must provide written validation within 5 days of initial contact stating following: i.Amount of debt ii.Name of creditor (current) iii.Amount of the debt iv.Must provide statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector Third Party Collectors Laws Governing Collection Practices

22 I 22 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. iv.Must provide statement that if the consumer notifies the debt collector in writing within the 30 period that the debt is disputed, the debt collector will provide verification of the debt or copy of judgment, and if requested, name and address of original creditor. c. Creditor cannot contact while verification letter being sent. Third Party Collectors Laws Governing Collection Practices

23 I 23 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. d. verification letter should include: i.document from original creditor showing consumer made purchase and owes debt. ii.Copy of final account statement from original creditor iii.Document listing: total principal amount owed (either original amount borrowed or part of amount borrowed that remains unpaid minus any charges or fees) AND Each additional charge or fee owed that separately lists total for each and date incurred and description of why consumer owes it. Third Party Collectors Laws Governing Collection Practices

24 I 24 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. Third Party Collectors Suggested Debtor Action Steps 1.Request information. 2.Do not ignore debt collection call or letter. a. If a call: ask callers for name, address, contact telephone number, license number or registration number where applicable. i.How much is owed – ask for break down of principal, interest, late payment charges and other fees and when the default occurred. ii.Make a record of call, time, date, and name of caller by taking notes or recording the call (check whether your state allows you to do so without other party’s permission, or advise them you are recording). iii.Ask for validation letter (although supposed to send automatically), including name of original and current creditor.

25 I 25 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. b. If contact in writing – request validation letter if required information not included in the first letter. i.Validation letter should be sent within 5 days of initial contact with consumer (unless all information contained in initial letter). ii.Must contain information on consumer’s right to dispute debt. iii.All communication must include collector’s identity, name of original creditor, amount of debt, call back number, name of person to call back. Third Party Collectors Suggested Debtor Action Steps

26 I 26 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. 3.Upon receipt of validation letter, immediately request verification of debt in writing even if you recognize debt. a. Don’t be pressured into making payments before receiving verification. 4.What if no validation letter is issued? a. If after validation requested the creditor refuses to cooperate, then creditor may not legally collect the debt. If the collector does, then the law is violated and debtor can sue for damages may be brought. Third Party Collectors Suggested Debtor Action Steps

27 I 27 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. 5.If debt is owed: a.Negotiate with creditors to make payments manageable. b.Do not reveal financial information except for inability to pay – collector may be fishing for assets or payment ability. c.If many late bills, consider enrolling in debt consolidation program (look at credit unions). d.Prioritize debts, pay more on high rate debt first. e.Know and assert rights during negotiation as leverage. Third Party Collectors Suggested Debtor Action Steps

28 I 28 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. 6.Consider use of “cease and desist” carefully – ask instead that all contact be in writing – a complete cease and desist may result in debtor not knowing what steps taken by creditors; if consumer asks creditor to cease and desist in contacting him – creditor can send one more notice to advise on actions to be taken 7.Keep a copy – front and back – of every letter received from or sent to the debt collection agency. Third Party Collectors Suggested Debtor Action Steps

29 I 29 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. 8.If statute of limitations has passed (time in which creditor must bring a lawsuit on debt ): a.Do not acknowledge debt or make part payment – will re- start the statute of limitations clock. i.“ I do not acknowledge the debt, but if it were owed, the statute of limitations has expired.” b. Creditor not required to disclose expiration of statute, but cannot lie if asked. 9.Confirm in writing any payment plan/settlement agreement reached by consumer within 5 business days. Third Party Collectors Suggested Debtor Action Steps

30 Exempt from Levy Pursuant to Judgments 30 Earned Income – Washington State The exempt part of your net wages is the greater of 35 times the current federal minimum wage or 75% of your net wages. ("Net wages" means gross pay minus taxes, Social Security, and other mandatory deductions.) Call the Department of Labor to find out the current federal minimum wage, or check this website: Then multiply that amount by 35. To learn more, go to -debt/debt-collection.

31 I 31 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. Overview of Collection and Legal Process Pre-litigation: 1.Demand for payment. 2.Collection process – Assertion of consumer rights 3.Creditors can start a lawsuit at anytime when a cause of action accrues, i.e. upon default.

32 I 32 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. Litigation (lawsuit commenced) 1. Service of summons and complaint by creditor (plaintiff). 2. Answer by debtor (defendant) a. Debtor’s defenses i.Statute of limitations – calculated from the date of default ii.Payment or settlement iii. Lack of jurisdiction- failure to serve properly, plaintiff does not have standing iv.Failure to comply with FDCPA or other statutes or regulations b. Debtor can also counterclaim Overview of Collection and Legal Process

33 I 33 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. 3.Pre-trial actions such as motions, discovery 4.Jury or judge trial 5.Trial 6.Judgment –period of enforceability for Washington – RCW Title 6 Overview of Collection and Legal Process

34 I 34 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. Litigation - Suggestions for Debtor Action Upon receipt of summons and complaint: 1.Seek legal help immediately – from attorney or court clerk. 2.Gather all documents supporting disputed debt, e.g. canceled checks for debts paid. 3.Review budget and consider settlement. 4.Make list of property exempt from garnishment or levy.

35 I 35 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. Post Litigation Judgment - Decision by judge that creditor is entitled to collect debt, and the amount due 1.Principal 2.Interest 3.Late charges 4.Court and attorneys’ fees 5. Enforceable for applicable years from date of entry, continues to accrue interest at statutory rate 6.Recorded in county in which judgment was rendered 7.Other states will honor the judgment

36 I 36 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. Enforcement of judgments 1. Wage garnishments 2. Levy against property and auction 3. Liens 4. Know which assets are exempt from levy or garnishment Post Litigation

37 I 37 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. Post Litigation Suggestions for Debtor Action Vacating a judgment (generally will need to seek attorney’s assistance; refer to WashingtonLawHelp.org judgmentorder-cr-60 ). judgmentorder-cr Order to show cause (OSC) 2. Grounds: a) excusable default and a “meritorious defense,” and b) OSC brought within specified time (in most states -one year) after service of a copy of judgment, or c) lack of jurisdiction (i.e. never served), then no limit on when to vacate, and do not have to cite “meritorious defense”

38 I 38 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. Federal Fair Credit Reporting Act (FCRA) 1.Governs accuracy, fairness, and privacy of information in files of consumer reporting agencies including credit bureaus that gather and sell information about your creditworthiness to creditors, employers, landlords, and other businesses. 2.Consumers must be informed if information in file has been used against them to: a. To deny your application for credit, insurance, or employment – or take another adverse action against you – must provide the name, address, and phone number of agency that providing the information.

39 I 39 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. 3.Right to review file – Consumers may request and obtain report from a consumer reporting agency a. Free : i. Once every twelve months ii. If adverse action based information in a report iii. If victim of identity theft iv. If victim of fraud v. If on public assistance vi. If unemployed but expect to apply for employment within 60 days 4. Right to credit score- at any time for a fee Federal Fair Credit Reporting Act (FCRA)

40 I 40 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. 5.Access to file is limited to consumer only or to people with a valid need as determined by the FCRA – usually to consider an application with a creditor, insurer, employer, landlord, or other business. 6.Consumer consent is required for reports provided to employers. Reporting agency may not give out information about consumer to employer, or potential employer, without written consent. Blanket consent may be given at the time of employment or later. 7.May request removal of name from consumer reporting agency lists for unsolicited credit and insurance offers. Federal Fair Credit Reporting Act (FCRA)

41 I 41 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. 8.Dispute inaccurate information - If report inaccuracy to agency take certain steps to investigate : a. Inaccurate information must be corrected or deleted. After verification, must remove or correct information verified as inaccurate, usually within 30 days after you dispute it. Can continue to report negative data that it verifies as being accurate. b. Outdated negative information may not be reported. In most cases, a consumer reporting may not report negative information that is more than seven years old or bankruptcies that are more than ten years old (seven years for Chapter 13). Federal Fair Credit Reporting Act (FCRA)

42 I 42 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. 9.Consumer may seek damages from violators. If a consumer reporting agency, a user of consumer reports, or, in some cases, a furnisher of information to a consumer reporting agency violates the FCRA, consumer may sue them in state or federal court. 10.Active duty military personnel have additional rights. Active-duty military personnel who are away from their regular duty station may file “active duty” alerts to help prevent identity theft. Federal Fair Credit Reporting Act (FCRA)

43 I 43 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. Debt Settlement Services Debt settlement companies promise “debt relief” by negotiating lump-sum payments for less than you owe. May tell you to stop making payments to your creditors and instead pay into a special “settlement” or escrow account Creditors keep charging late fees and interest Debt may double or triple Can still face legal actions by creditors In majority of cases, debt settlement does not work and costs you thousands of dollars in fees, leaving you further in debt.

44 I 44 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. Beware of Debt Settlement Services As of October 27, 2010, FTC prohibits debt settlement companies that sell their services over the phone from charging upfront fees until: 1.The debt relief service successfully settles or changes the terms of at least one of the consumer’s debts; 2.There is a settlement agreement, debt management plan, or other agreement between the consumer and the creditor that the consumer has agreed to; and 3.The consumer has made at least one payment to the creditor as a result of the agreement negotiated by the debt relief provider.

45 I 45 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. As of October 27, 2010 FTC rules makes clear that funds deposited by consumer for settlement of debts, remains the money of the consumer and requires that: 1.The account be maintained at an insured financial institution; 2.Consumer owns the funds (including any interest accrued); 3.Consumer can withdraw from the debt relief service at any time without penalty and receive all unearned provider fees and savings within seven business days; 4.The provider does not own or control or have any affiliation with the company administering the account; and 5.The provider does not exchange any referral fees with the company administering the account. Beware of Debt Settlement Services

46 I 46 © January 23, 2013 Cities for Financial Empowerment Fund All rights reserved. All of the credit cards are jointly held. Bobby has a 712 credit score, and Marta has a 690 score. They recently missed the monthly payment on one of the cards by 45 days, and were charged a $25 late fee, on two invoices plus the interest. The credit card company for which his payment was late, called Bobby at work, and left a message with a co-worker asking him to call their 800 number and leaving the name of the caller. Bobby didn’t get the message, and the card company called again the next morning. This time, the caller left a message with his co-worker saying that Bobby’s payment was overdue. Marta has a savings account with $500 that pays 1.50% interest per year. Bobby’s mother and brothers sent him $1,500 for his birthday last week. Topic 5 Exercise #1


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