Dealing with Creditors and Collection Agencies

There are ways to get creditors and collection agencies to stop harassing you.

Dealing with collection agencies

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A collection agency is hired by the original creditor to try and collect on your bad debt, and it is given a percentage of whatever money it gets out of you. The normal method of squeezing money out of people who do not have much is to make various threats. Consider the following example:

Kim received a $500 loan while she attended her local business college. She never paid the loan back, and eventually the school sold the loan to ABC Collection Bureau. Thereafter, Kim started to receive daily calls from Jerry at ABC. One day, Jerry told Kim that if she did not pay at least $100 by the end of the day, he would garnish her wages. When Kim failed to pay the ransom, nothing happened.

Collection agencies just love to make hollow threats and create artificial deadlines. They tell people that if ten postdated checks are not received the next day, suit will be filed, or that if $500 is not in hand by Friday, bank accounts will be seized. But the truth is, most of their threats are empty, and there is no deadline. They make it all up. If the deadline passes, nothing happens. The threats and deadlines are nothing more than tactics used to try to pry some money out of you. Do not be intimidated.

One threat that is often made is to garnish your wages or levy your bank account. What is important to know is that a collection agency cannot garnish your wages or otherwise seize your money until after it has sued you and won the suit. Normally, it takes several months to sue someone in small claims court and win, and few creditors ever even bother to do this. Prior to getting a favorable court judgment, they cannot get any money from you unless you voluntarily send it to them.

If the threats fail to get the money, the last option available to the collection agency is in fact to sue you. This happens in surprisingly few cases. Depending upon the size of your debt, it is normally too expensive for the original creditor or the collection agency to file suit. In the case of Kim, it would likely cost ABC much more than the $500 she owes to sue. And even if it did win a judgment, what is the likelihood that ABC will ever collect? These lawsuits are usually just not cost-effective. Threats are cheaper.

Knowing that a lawsuit is unlikely, it is possible to turn the tables and demand that the debate be held on your terms.

The next time Jerry called, Kim said: "I have two things to say to you. One, I demand that you treat me with respect and speak to me like an adult. Two, I can pay you $50 a month and that is it. I will write no postdated checks. Take my $50, or sue me. That is all I can do." Jerry begrudgingly took the $50.

The key thing to remember when dealing with a collection agency is that, believe it or not, you have all of the power. You control the checkbook. If you decide not to pay, they don't get paid. If you tell them to leave you alone, they have to leave you alone. Collection agencies are nothing more than bluffing bullies of bluster.

What actions a creditor can legally take

Collection agency harassment got so bad that it took congressional action to rein it in. The Fair Debt Collections Practices Act (FDCPA) regulates what creditors may and may not do when trying to collect a debt. The essence of the FDCPA is that debt collectors must behave in a reasonable manner and are forbidden from harassing the debtor. Impermissible actions may include the following:

  • Calling at the wrong place or the wrong time. A bill collector cannot call before 8:00 a.m. or after 9:00 p.m. If so desired by the debtor, the collector cannot call the debtor at work.
  • Making impermissible threats. The collection agency representative cannot use foul language, or threaten the debtor with violence, seizure of assets, or imprisonment. A threat to sue you is fine, but a threat to jail you is not--since there is no such thing as debtor's prison.
  • Using other forms of harassment. The debt collector cannot fraudulently misrepresent who he is or what he is calling about, cannot repeatedly call the debtor, and is forbidden from publishing the debtor's name and the nature of the debt--except to a credit bureau.

Knowing what is acceptable creditor behavior can pay tremendous dividends. Should a creditor persist in calling you at work, tell him to stop. Should he threaten to have your car sold to pay the debt, tell him such threats are illegal. When you speak with an annoying creditor, make sure that you use the actual words "Pursuant to the Fair Debt Collections Practices Act, you cannot . . ." This lets the culprit know that you know what you are talking about.

If a collection agency continues to violate the law after being told to stop, you have two options. The first is to contact the proper authorities. The FDCPA is policed by the Federal Trade Commission. Contact the office closest to you and explain the nature of the problem. State authorities, such as your attorney general, state's attorney, or department of consumer affairs, also may investigate a serious violation of the law.

Second, the FDCPA itself permits lawsuits for violations of the Act. If violations are proven, the violator could be liable for any out-of-pocket expenses you incurred as a result of the violation, penalties up to $1,000, and possible attorneys' fees and costs. Such a suit would normally be brought in your local small claims court.

Before you undertake either action, you should first have some proof of the alleged violation. You need a tape recording of the improper threat, a copy of the illegal letter, a statement by your supervisor of an unauthorized phone call, that sort of thing. Without some evidence of the improper conduct, nothing you do will make much difference. If you cannot prove your case, you are wasting your time.

One final note about the FDCPA: while the law is a powerful tool to protect consumers, it does nothing to protect business debtors. Its application is limited solely to debts incurred for personal or family purposes.

How to stop all creditor harassment

Maybe the best part of the FDCPA is that it allows a debtor to completely stop all creditor phone calls. If you have ever been subject to a pit-bull creditor who simply will not leave you alone, you do not have to be told what a relief that is. This is especially true when the creditor is slippery enough to stay within the confines of fair debt collection law, but annoying enough to make your life quite unpleasant.

Here is what you do: Write the creditor a "cease and desist" letter. This is a letter provided for in the FDCPA which tells the creditor that he is to cease and desist all further communication with you regarding this debt. The law requires that this demand be in writing; a phone call will not do. Once received, the creditor can legally contact you only one more time, and even then, the call can only be for the purpose of telling you how he plans to proceed (will the debt be written off, or will they file suit, that sort of thing). While a creditor retains the right to sue you, what he cannot do is write or call anymore.

Here is what your letter should look like:

ABC Collections
1800 Mariposa Ln.
Fullerton, CA
Re: Acct. 2727

Dear ABC Collections:

Pursuant to the Fair Debt Collections Practices Act, 15 U.S.C. 1592 et. seq., [this is the specific law you are using; make sure it is in your letter just like it is written here] you are hereby notified to cease and desist all further communication with me, and anyone associated with me, regarding the above-referenced debt. Failure to abide by this law will result in a complaint being filed against you with the Federal Trade Commission and the attorney general of my state. I also reserve the right to file suit against you for any future violations of the law.

Very truly yours,
Kim Bodian

The Important Legal Concept to Remember: The Fair Debt Collections Practices Act evened out the playing field. A debtor need not ever again accept collection agency abuse.

Excerpted with permission from Ask a Lawyer: Debt and Bankruptcy. Copyright 1998 Steven D. Strauss. All rights reserved.
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