LOSE THE DEBT, BABE! YOU KNOW IT CAN BE DONE. YOU DO THIS STUFF and you WILL BE FORGIVEN for at least HALF of WHAT YOU OWE! MAYBE MORE.
Emily B., ex real estate lady and ex banker, who BLOGS on LIVING ON A NICKLE at her very amazing, useful website, http://pennypincherpersonalfinance.blogspot.com/2010/08/living-without-utilities.html wrote me another of her HIGHLY instructional, street savvy emails today: "Anita, a good example of a website that sells an e-book where they give away the same REPAIR YOUR CREDIT info on their website for free is www.creditinfocenter.com. I love that site. I used to send people there when I was a loan officer, so they could learn how to repair their own credit for free. I think their e-book is just $12, similar to any book you'd find at a bookstore. It's called "Good Credit is Sexy". The incentive to buy it is you get all the info in one place instead of having to surf around to find it. So I go to the site, read:
"Since I first wrote about debt consolidation companies in early 1999, I have watched them grow into big business. They used to be the biggest advertiser on the internet back in 1999, now you can see TV commercials about these guys more often than you see Coca-Cola ads.
The days of Ameridebt are past...and so are debt consolidaiton companies. The title "debt consolidation company" itself received so much bad press that some of these companies have repackaged themselves as "debt negotiation" companies or "debt settlement" companies. Are they as bad as debt consolidation companies? They are worse, using tactics that are not legal. Stay away from these types of companies.
Many debt consolidation companies are in hot water these days: they are being sued by numerous attorney generals, the FTC and the IRS is investigating their supposed "non-profit" status. We recommend against doing business with any debt consolidation company, but if you really feel you want to risk your credit and money you don't have, check it out with your local consumer protection agency and the Better Business Bureau in the company's location. Several debt management companies are also touting the fact that they have A+ ratings with the better business bureau. (There is a lesson here, it's good to complain to me, but why not also complaint to the BBB, your state attorney general or the FTC?) Most people don't go the extra mile when they have been taken by any company, preferring just to grumble. Others are so new that there hasn't been time to lodge complaints. Should you look up their standings anyway? Sure.
We've identified the following companies as being debt management companies, and because of the fact that they are debt management companies, we advise against them. Want more info? Here's a great article by the Consumer Federation of America.
Please note: Several debt consolidation companies have told their customers that if their name does not appear on this list, that it is a stamp of approval. Don't believe them! These guys change names so fast it's hard to keep this list up to date! Want to see a list of all the companies about whom we've received positive comments? Here it is.
* 1st Federated Consolidation
* 1 Stop Debt Consolidation
* 4A Debt Consolidation
* 800CreditCardDebt.com (see the explanation above)
* A1 Debt Consolidation
* AIM Debt Consolidation
* Allied Debt Consolidation
* Amalgamated Credit Counselors
* Amansco Credit Services
* American Debt Consolidation - epinions rating
* Amerix - read the opinion of someone who worked there.
Oh and FYI, this company was started by the founder of Genus.
* Budget Planning Services
* Cambridge Credit (or nodebt.com)
* Consolidated Client Services
* Christian Debt Consolidation (Or any name with "Christian" in it. I mean really, - how scummy can you get to play the religion card?)
* Credit Advisors
* Credit Solutions of America (They have a good BBB rating.) We've also received a nasty-gram letter from them threatening legal action if we don't remove their name from this list.
* Credit Solutions Phoenix
* Debt Consolidation Alliance
* Debt Consolidation Online
* Debticated (AmeriDebt's for-profit company division)
* Debt Management Credit Counseling Corp - click on this link to see the info we have on them.
* Debt Management Enterprises
* Debt Management
* Debtscape (formerly Neway, which is also AmeriDebt)
* Debt Solutions USA - they weren't on this list until the owner contacted me and demanded to be taken off the list, and I did research on them. They are based in Florida (one of two unregulated states in this area - danger) and have had 3 complaints lodged against them with the BBB (according to the owner), though they were "resolved". Their BBB rating is good, though. See my note above about resolved BBB complaints. Also known as www.No2Debt.com (listed below)
* Debt Specialist Network
* Debt Zappers
* Delray Credit Counseling
* Financial Freedom Southwest
* Freedom Debt Relief - BBB reports satisfactory listing, but complaints about this company have been filed with them, though the BBB says they were resolved satisfactorily. Other notes: this is a new company and has an alias, (FREEDOM FINANCIAL NETWORK, LLC). We've also received a nasty-gram letter from them threatening legal action if we don't remove their name from this list.
* Fresh Start America
* Genus - Read about them in Business Week.
* Gibson Trust
* HomelandFinancial.net - we received a letter from a reader who was ripped off by HomelandFinancial and wanted to warn other about these guys. They also operate under: www.befinancialservices.com, and www.prosperfinancial.net
* Integrated Credit Solutions
* Jabez Financial Group Inc.
* Jubilee Financial Services Inc.
* Lighthouse Credit Foundation
* National Consumer Resource Center
* National Debt Network
* Neway - Actually, this is AmeriDebt masquerading under another name - even their websites are identical
* Norstar Consolidation
* No2Debt.com (aka Debt Solutions USA, see above)
* Paramount World Inc. Debt Consolidation Services
* Union Financial Services
I would avoid any of the companies listed above or any other company that resembles them. Why? Because, in my opinion, they are ALL bad. Run, don't walk from them. Some of the companies above advertise prominently that they are non-profit, but others don't even bother to do that. Why is non-profit a convenient masquerade? Business Week did a great article on debt management companies on October 29, 2001, and found all kinds of nasty details about how non-profits can be highly profitable. For instance, the CEO of Genus was found to be making a over $300,000/year salary. AmeriDebt directed $2.2 million dollars worth of business to for-profit operations owned by officers of AmeriDebt.
One final note, since the states of Florida and Maryland don't regulate this kind of consumer service, watch out for any company doing business out of these states.
I get so many letters asking me which of these companies I would recommend. My answer: Stay away from ALL of them. Whatever they can do, you can do yourself. However, if you still feel compelled to seek one out, here is our tipsheet. If you are already enrolled in one, then here are some tips to get out. Again, be very cautious. Before you do business with any company, check it out with your local consumer protection agency and the Better Business Bureau in the company's location.
Have we said not to use any of these debt consolidation/debt negotiation/debt settlement companies enough? I counted four times. Hopefully, you will take our meaning.
THAT IS JUST ONE PAGE out of MANY that are there.
ANOTHER PAGE: DEBT Validation: The ultimate weapon against the collection agencies
You could try to use debt settlement methods with a collection agency, but you might want to try debt validation first. Why? Because they may not even be legally entitled to collect the debt from you.
Think of it in these terms: Even if you suspected you might owe Joe (original creditor) some money, and Bob (collection agency) came up to you and asked for Joe's money - would you just hand over the cash? No. No one would. These might be some of the thoughts you would have:
1. How do you know that Bob is actually collecting for Joe? What legal documents does Bob have to prove that he is legally authorized to collect?
2. How much is the actual debt? What payments have already been made on the account? Where is the accounting of the debt, including all interest and fees? Are these fees and interest amounts legit?
3. Do you really owe Joe the money? Or was it actually a third party, Sam? Where is the contract showing that you made a deal with Joe and not Sam?
If you keep all the legalese out of it when thinking of legal proof, you'll have an easier time figuring out what to ask a collection agency (Bob) for to validate a debt.
(If you are wondering how a collection got on your credit report in the first place, read this).
Applicability of the FDCPA - It matters if the listing is from the original creditor or collection agency
The FDCPA does not cover collection tactics employed by original creditors (like credit card companies who issue credit cards). It only governs the actions of a debt collector (collection agency). Let's look at the definition of these two groups as defined by the FDCPA.
TITLE VIII - DEBT COLLECTION PRACTICES [Fair Debt Collection Practices Act]
§ 803. Definitions [15 USC 1692a]
As used in this title --
(4) The term "creditor" means any person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.
What does that mean? It means that, as far as the FDCPA is concerned, a creditor is the original entity which loaned money to a consumer. It is not a collection agency. The definition of a debt collector is as follows:
TITLE VIII - DEBT COLLECTION PRACTICES [Fair Debt Collection Practices Act]
§ 803. Definitions [15 USC 1692a]
As used in this title --
(6) The term "debt collector" means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.
So when a collection agency is assigned, or has purchased, your debt, they are NOT the creditor. They are the debt collector and the actions they take are all governed by the FDCPA.
What if "Bob" is a lawyer?
Under the FDCPA, even if Joe hires a lawyer or law firm to collect a debt from you, the lawyer or law firm is still considered a collector and must adhere to the FDCPA.
What does a debt collector need to provide as debt validation?
* Proof that the collection company owns the debt/or has been assigned the debt. (Bob is legally entitled to collect this particular debt from you.) This is basic contract law. It is very difficult to get a judgment without a direct contract between collection agency and the original creditor.
* At a minimum, some account statements from the original creditor. If you really want to get sticky, you can pin them down on the amount of the debt by requiring complete payment history, starting with the original creditor. (How the heck did Bob calculate this debt? What fees/interest Bob has tacked on to this debt and how he determined these fees?) This requirement was established by the case Fields v. Wilber Law Firm, Donald L. Wilber and Kenneth Wilber, USCA-02-C-0072, 7th Circuit Court, Sept 2004..
* Copy of the original signed loan agreement or credit card application. (Your contract with Joe establishing the debt between you.) However, account statements from the original can fulfill these requirements.
What Bob gets out of the deal
It use to be that in most cases, creditors assigned, not sold, its debts to a collection agency. But not any more.
Creditors hire collection companies (like Bob) to collect debts for them, because they simply don't have the time or resources to chase down all of their severely overdue accounts. Collection agencies have cheap labor and a streamlined system to pursue such accounts. When a creditor hires a collection agency, the debt has been assigned to the collection agency. If a collection agency is successful at collecting the money on the account, they usually keep a percentage of what is collected as payment for services.
Original creditors sometimes sell debts in large portfolios to collection agencies. This is starting to be the norm, and several of these companies, called Junk Debt Buyers (JDBs), are now being traded on Wall Street. The companies do not spend much money at all for these debts, sometimes paying less than 1 cent on the dollar. Even if the debt is not a large debt, they often hire attorney to send out mass form-letters to debtors in the hopes of collecting. As you can see, even if they get a small percentage of the debtor to pay, profits are enormous. For more on JDBs, you can read our article here.
Assigned or purchased debt (How do you know Bob is the right guy to pay?)
Why should you care if a debt is purchased or assigned? In an assignment, the collection agency does not own the debt, and therefore you do not technically owe them any money. There is no way for a collection agency to prove that you owe them money because there is only an assignment of the debt and not a contract between you and the creditor.
One loophole: Some contracts have the wording "debtor agrees to be responsible for payment of this debt to creditor OR ITS ASSIGNS." This IS a contract between you and the debt collector as well as the creditor and if they can provide you with a copy of a contract that states this (with your signature!), you are pretty much stuck and need to negotiate.
What if the collection agency (Bob) proves they purchased the debt? Is he now the original creditor and no longer subject to the FDCPA?
If they do purchase the debt, this does not make them the original creditor. They are still a debt collector and covered by the FDCPA.
Continue to treat any collection agency, junk debt buyer or law firm who says they own the debt as a collection agency subject to the FDCPA. You can still request validation and proof of the purchase, because if they can't validate it, the collection agency can't prove you owe the debt. Often a JDB will tell a consumer that since they purchased the debt, they are not subject the the FDCPA. It's simply not true
The Right to Validate Your Debt
Under the FDCPA, you are allowed to validate this debt, and the creditor (in this case, the collection agency) must show you proof that you owe the debt to the collection agency (not to the original creditor.)
The specific section of the FDCPA:
FDCPA Section 809. Validation of debts [15 USC 1692g]
(b) If the consumer notifies the debt collector in writing within the thirty-day period described in subsection (a) that the debt, or any portion thereof, is disputed, or that the consumer requests the name and address of the original creditor, the debt collector shall cease collection of the debt, or any disputed portion thereof, until the debt collector obtains verification of the debt or any copy of a judgment, or the name and address of the original creditor, and a copy of such verification or judgment, or name and address of the original creditor, is mailed to the consumer by the debt collector.
Plus, they must show proof positive that you owe them this debt. It's not enough to send you a computer-generated printout of the debt. There is an opinion letter from the FTC to back this up:
Nor can they ask you to pay for digging up records of your debt:
So, if a creditor can't verify a debt:
* They are not allowed to collect the debt,
* They are not allowed to contact you about the debt, and
* They are also not allowed to report it under the Fair Credit Reporting Act (FCRA). Doing so is a violation of the FCRA, and the FCRA states that you can sue for $1,000 in damages for any violation of the Act.
The opinion letter from the FTC which clearly spells out that a collection agency CANNOT report a debt to the credit bureaus which has not been validated:
It also states that you can sue in federal or state court. So if you have them on a violation, then you have damages of $1,000 for the incident plus damages. Small claims court, anyone?
When a collection agency responds to your request for validation with a summons to appear (meaning they are trying to get a judgment against you)
1/17/2002: These sneaky collection agencies are starting to catch on to the debt validation concept. (No doubt there is some kind of collection agency newsletter going around telling these folks about the whole process.) I've heard from my readers that some collection agencies are starting to respond to validation requests with summons to appear in court. There is precedent which says that a collection agency cannot even file suit against you if they haven't validated the debt within the initial 30 day period. If this happens to you, you may cite the case:
Spears vs. Brennan
The appeals court determined:
"Brennan (plaintiff collection agency attorney) violated 15 U.S.C. § 1692g(b) when he obtained a default judgment against Spears (defendant) after Spears had notified Brennan in writing that the debt was being disputed and before Brennan had mailed verification of the debt to Spears."
This means that you have an absolute defense in court to deny them judgment if they still have not validated the debt. Once you get your FDCPA dispute letter in, the collector cannot even get a judgment until they satisfy the FDCPA law. The appeals court overturned the default summary judgment in part because the collection agency lawyer did not meet the rules of the FDCPA.
This could be grounds for getting a default judgment vacated. It's also another violation of the FDCPA and you can collect $1,000 from them.
The Debt Validation Strategy
It might be helpful to look at our illustration of the process before you get started. You might also want to read this, sort of our own "validation" of the process given here.
1. Dispute the collection with the credit bureaus.
2. Look up the Statute of Limitations (SOL) on the debt. If the debt is past the statute of limitations, send them a letter informing that they are trying to collect "zombie debt". This is debt which is too old to have any legal liabilty for a consumer. Here is a sample letter for this.
3. If the collection agency does not remove the listing after you point out the SOL, sometimes your only remedy is to sue them.
4. If the debt is not past the statute of limitations, send a letter requesting validation to the collection agency (our buddy Bob in the preceding example). If you don't know the address of the collection agency, here is a tip to help you find it.
5. Wait 30 days to hear back from the collection agency. Most likely they will not respond or they will respond saying that they received your letter. Only a letter which includes one of the following:
* Proof that the collection company owns the debt/or has been assigned the debt,
* Copies of statements from the original creditor
* Copy of the original signed loan agreement or credit card application
6. If they haven't sent you satisfactory proof, and are still reporting this on your report, send a copy of your receipt for your registered mail, a copy of the first letter you sent and a statement that they have not complied with the FDCPA and are now in violation of the Act. Tell them they need to immediately remove the collection listing from your credit report or you are going to file a lawsuit because they are in violation of the FDCPA, section 809 (b).
7. Wait 15-20 days to hear back after this second letter to the collection agency. They will either remove it or not respond.
8. If they do provide a contract with a signature from the original creditor showing that you owe the debt, there is one more thing you can try: see if they are legally licensed to collect the debt in your state. Here is a good site to begin your search.
Not all states require licensing, however. Here's a little cheat sheet (Word Doc) to see what the collection licensing laws in your state are. It's got other handy dandy state law information as well.
If you believe that they are not licensed, and licensing is required in your state, write them another letter and tell them they are in violation of your state's collection laws and are subject to prosecution and fines. Cite your state's fines and procedures in the letter. This is a last ditch effort, but has worked in some cases.
9. Typically, your work will stop here, as most collection agencies will bow down to your demands and send you a letter agreeing to remove the listing. Now all you have to do is send a copy of the letter to the CRAs.
If the collection agency did not agree to remove the listing, then you need to continue to the next steps.
10. File a lawsuit in small claims court against the collection agency on the basis of violating the FDCPA.
11. Have the papers served to the collection agency. (You can find a paper server on the internet for about $25). Here is a good link. And here is another: http://www.1-800-serve-em.com/servicemap.html
12. In the meantime, in a parallel effort with your lawsuit against the collection agency:
13. If the collection comes back as "verified" from the credit bureaus, you now have proof of further collection activity from the collection agency. (The assumption is that the credit bureau contacted the collection agency to verify the debt.) Since the collection agency did not validate the debt, further collection activity is a violation of the FDCPA.
14. Contact the credit bureaus, and tell them that the creditors did not verify the debts under the FDCPA, and send copies of your proof. Request the method of verification, which is your right under the FCRA. It is crucial to contact the credit bureaus before filing a lawsuit. Make sure you state that the collection agency did not respond to your request for debt validation.
15. You can try sending them this letter to see if they will budge. They may tell you that the request needs to come from the creditor. This is baloney. If they can't give you reasonable information on how they verified the information and the collection agency has provided you none, you can conclude there was no reasonable investigation performed. Theyare teetering on the edge of "willful non-compliance" under the FCRA. Tell them so.
16. File a suit in either small claims, state or federal court. The basis of the lawsuit should be that the credit bureaus could not provide a satisfactory method of verification, or did not conduct a reasonable investigation.
17. Have the papers served. (You can find a paper server on the internet for about $25). Here is a great link where you can search for the local office of the credit bureau near you. http://www.llrx.com/columns/roundup14.htm
18. Notify the bureaus that you are suing them. You can use this letter. The credit bureaus will call the creditors and find out that there is a question about whether the debt is legitimate. They should delete it immediately. If you want more legal ammo, you might also try looking up similar cases to cite. We have a list of online resources here.
SO THIS IS AN EASY-TO-DO half hour boning-up project. YOU CAN dump debt all by your lonesome SELF sitting with a slab of pie and pot of coffee, AT HOME some night with Miles groovin in the background --when there's nothing on TV. Hey be inspired! LOSE the debt which is crunching your heart and soul. Start over without those pesky and insidious credit cards, spending only 'cash on hand'. It's a good thing.
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Our POSTER is ANITA SANDS HERNANDEZ, Los Angeles Writer, Futurist and Astrologer. Catch up with her websites TRUTHS GOV WILL HIDE & NEVER TELL YOU, also The FUTURE, WHAT'S COMIN' AT YA! FRUGAL LIFE STYLE TIPS, HOW TO SURVIVE the COMING GREAT DEPRESSION, and Secrets of Nature, HOLISTIC, AFFORDABLE HEALING. Also ARTISANRY FOR EXPORT, EARN EUROS....* Anita is at email@example.com ). Get a 15$ natal horoscope "my money/future life" reading now + copy horoscope as a Gif file graphic! No smarter, more accurate career reading out there!
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