FAIR DEBT COLLECTION PRACTICES ACT I. What is the Fair Debt Collection Practices Act? To whom does it apply? The Federal Fair Debt Collections Practices Act is a law passed by the United States Congress to eliminate abusive, harassing, and unfair practices in the collection of debts. This law applies only to credit collection agencies and lawyers attempting to collect debts for another person or company. It is important to note that this law does not apply to creditors attempting to collect debts owed to themselves. In an effort to collect debts, credit collection agencies and the attorneys who represent creditors and collections agencies, may make demands on debtors (people who owe money) in order to collect delinquent debts. Some demands are legal and others are not. Some agencies and their counsel may play on peoples guilt feelings and may attempt to persuade people who are struggling to pay their bills, to pay bills that creditors have little or no chance to collect in any other way. They may attempt to get debtors to forget their good judgment and to pay bills out of the order of their importance or in a manner not in the debtor's best interest. (For example creditors may try talking a debtor into making credit card payments when the debtor is more importantly attempting to avoid a possible utility shut off, eviction from their residence, or land contract or mortgage foreclosure.) II. What is an Unsecured Debt? An unsecured debt is a debt that is not supported by an express agreement that the creditor can ask for the return of the goods purchased if a debtor does not pay. Examples of unsecured debts are medical bills, small consumer loans and virtually all credit card debt. Secured debt involves an agreement regarding the return or "attachment" of a "secured" item, such as the repossession of a car because of money owed on the car or foreclosure on a home. III. What Can Unsecured Creditors Legally Do In Attempting to Collect A Debt? Credit collection agencies and their attorneys are legally allowed to do only the following three things in an effort to collect an unsecured debt: 1. Tell the debtor that the creditor will stop doing business with the debtor if the bill is not paid. For example, if you don’t make regular payments on your credit card, the credit card company can cancel the credit card. Someone who provides personal services to you (like a doctor/dentist/lawyer) may refuse to provide future service if you currently owe money to them and if they appropriately follow the ethical rules guiding their profession in withdrawing from current service (if the debt is part of an ongoing service).1 2. If the debtor disagrees with the debt, the attorney/collection agency may still report the default on the debt to a credit reporting agency. The attorney/collection agency must tell you that if you do not pay the bill, they will report your debt to a credit reporting agency, and that the debt may affect whether you receive credit in the future. In many ways, however, this threat is a hollow threat because most credit reporting agencies already know whether you have paid your bills on time. Most credit card companies and businesses automatically and regularly report whether you pay your bills on time to credit reporting agencies. The primary creditors (those who are owed the money) do not have to contact you before they report your payment history but are legally obligated to report correct information. The credit reporting information threatened by the attorney or collection agency is therefore often already on your credit report before you are threatened with reporting. The only way to stop the reporting of any delinquencies is to become current on your bills. Therefore, if you have too many bills to pay, you should not 1 There may be exceptions to this rule -such as a utility company who is the only service provider in town. See the Utility Rights Section of this manual and/or legal counsel if faced with this dilemma. bow to threats and pay a particular bill solely because someone says it will "save your credit." You should consider your most basic bills first – for example your rent or house payment, heat and utilities. You may then want look at any “secured debts”, such as your car. If you are not sure what bills to pay, talk to a credit counseling agency or other organization that can help you figure out the best way to work your way out of debt. 3. Collection agencies and attorneys can file a lawsuit to collect the debt. It is difficult to predict when someone will actually file a lawsuit on any unsecured debt. Lawsuits are expensive and many creditors will not sue on a small debt. If a lawsuit is filed, however, you do have the right to respond - to explain why the debt has not been paid, to raise defenses, if you have any defenses, and to negotiate a settlement. If a lawsuit is filed, it is important to respond. Your choice to do nothing cannot and will not stop a creditor or their agents from taking a judgment against you. You do not have to have an attorney to respond. You may wish to hire an attorney but you are also allowed to represent yourself. Worst case scenario - even if a judgment is taken against you, you still have rights. You may appeal the judgment if you think it was wrongfully entered. Alternatively, you may, in a writing called a motion, ask a Court to enter an installment payment order. You may still work out a payment plan with the person to whom you owe money. If you work out a payment plan that differs from a Court Order, it is important to get the same in writing and to let the Court know of the alternate agreement. Once a judgment is paid it is important to have the creditor file a "satisfaction" of judgment with the Court and to report that paid status to credit reporting agencies. Under Michigan law, a judgment is "good" - can be collected upon- for ten years. This is true if the judgment is granted by a Court " of record." In Michigan, for purposes of judgments, Courts "of Record," are the State of Michigan District and Circuit Courts, the Probate Courts (although they rarely issue monetary judgments) and the U.S. District Court. There are certain ways in which a judgment can be "revived" - that is, the ten year time period can be made longer. If a judgment taken against you is over ten years old, and there is an attempt to collect that debt, it is important to see an attorney to make sure the debt has not been "revived." If you are dealing with a "foreign" judgment - a judgment taken out of the State of Michigan, you should contact an attorney to see if any other debt collection law applies. IV. Your Right To Dispute Your Debt A collection agency or collection attorney, must notify you that you can dispute your debt and that you have a certain time period (30 days by law) to do so before the agency/attorney can report the past due debt to any collection agency. Collection agencies and collection attorneys are required by law to investigate disputed debt and to report back to you concerning the validity of any disputed debt. If you do dispute the debt, for example, you think you do not owe all or part of the money demanded, do not ignore the deadline for telling the attorney/collection agency about your dispute. The agency/attorney cannot legally report the debt if the law is not followed. III. What Collection Practices are Illegal Under the Fair Debt Collection Practices Act? A collection agency or a collection lawyer on behalf of a collection agency or creditor is prohibited from doing certain things under the Fair Debt Collection Practices Act. The following is a list of some of the more common yet prohibited practices. 1. Talking to Other People about Your Debt -- A credit collection agency or collection attorney cannot talk or write to your friends, your family, your employer, your neighbors, or anyone else (for example, landlord, FIA case worker) about a debt you owe, unless you or a Court have given them permission to do so. There are a few exceptions to this rule. A collection agency or attorney may legally contact a credit reporting agency, other known creditors, your spouse or a co-signer on the debt, or your parents, if you are a minor. Your friends, family, neighbors, employer or others listed above may be contacted only if the agency is attempting to find you. The agency or attorney cannot identify themselves as a debt collector nor may they say you owe money. 2. Contacting You At Odd Hours -- A collection agency or collection attorney or their staffs cannot contact you at odd or inconvenient hours. The hours between eight a.m. and nine p.m. are considered normal. However if you work a night shift, and that is known by the creditor, even the hours between eight and nine maybe considered inconvenient if they are meant to deprive you of sleep. 3. Contacting You at Inconvenient Places -- A collection agency or collection attorney cannot contact you at inconvenient places such as a friends' house or a hospital. 4. Contacting You at Work Is Against Work Rules -- A collection agency or collection attorney may not call you at work if they know an employer prohibits personal calls. 5. Contacting You Instead of Your Lawyer -- A collection agency or collection attorney cannot contact you if you are represented by an attorney with regard to the debt, unless you and the attorney agree to that communication or if the attorney fails to respond to the collection agency. 6. Making Repeated Phone Calls -- A collection agent or collection attorney may not make repeated telephone calls within the same day or week as a way of harassment. 7. Making False Threats -- A collection agency or collection attorney may not make false threats such as criminal prosecution (these are civil matters - there is no debtor's prison) or threats to call the FIA with regards to your rights to your children, reporting you can't provide for them because of your debts. 8. Using Foul Language -- A credit collection agency or collection attorney cannot use foul, abusive or obscene language in the collection of a debt. 9. Hiding Their Identity -- A credit collection agent or collection attorney must identify themselves to you, the debtor, and the creditor they represent to you. 10. Making their papers look like Court papers -- A credit collection agency or collection attorney cannot simulate legal process. This means they cannot make their letters and notices look like Court papers if that is not the true status of the debt. 11. Using a Lawyer’s Letterhead -- A credit collection agency cannot use a lawyers letter head if a lawyer is not signing or reviewing the letters. 12. Contacting You After You Send a “Cease Letter” -- A credit collection agency or collection attorney cannot contact you after you send them a “cease letter” which tells them not to contact you any more unless a case is filed in Court. (See attachments and sample letters.) While not required to do so, creditors collecting their own debts will often stop contacting you after such a letter. 13. Misrepresenting Something About the Debt -- A credit collection agency or collection attorney cannot misrepresent the character, amount owed, services rendered, or status of a debt. For example a collection agency cannot make reference to a judgment that has never been taken. 14. Publishing Debts -- A credit collection agency or collection attorney cannot publish a list of debtors or debts owed nor may they threaten to do so. 15. Threatening That You Will Lose Your Children Or Welfare Benefits -- A credit collection agency or collection attorney cannot threaten loss of child custody or welfare benefits if a debt is not repaid. 16. Idle or Inaccurate Threats of Garnishment or Arrest -- A credit collection agency or collection attorney cannot threaten garnishment or arrest for consumer credit fraud if the collection agency cannot lawfully do so, or if lawful, if they have no intent to follow through on this action. For example, garnishment is almost always prohibited as a pre-judgment remedy and is allowed only after a judgment and then only when using procedures prescribed by court rule and statute. 17. Threats of repossession without the legal right -- A credit collection agency or collection attorney cannot threaten self help repossession of goods if the right does not exist, by virtue of a security agreement, and debtors cannot be threatened with the same if there is no intent to follow through with this action. 18. Depositing Post-dated Checks -- A credit collection agency or collection attorney cannot deposit postdated checks before the dates allowed on the face of the check. 19. Not telling you that they are trying to collect a debt - A credit collection agency or collection attorney cannot fail to notify you that their call, visit or letter is an attempt to collect a debt. 20. Creating or Threatening additional expenses -- A credit collection agency cannot create additional expenses (such as collect calls) nor threaten additional expenses (attorneys fees) as part of the collection process and unless they are legally entitled to those fees and expenses. They must be authorized by their client to collect them. For example, many collection attorneys represent various creditors in exchange for a percentage of the debt collected. They generally cannot charge an hourly fee to you if they are not entitled to collect one or do not intend to sue for the equivalent of hourly fees. A judge may however award a statutory attorneys fee (a set amount allowed by law) if that is appropriate to the judgment taken. (Actual costs for collection may be allowed if the costs were necessary to the collection of the debt.) 21. Writing You in a Way That Tells Others You Owe a Debt –- A credit collection agency or attorney cannot use symbols or words on a post card or envelope in a way that the general public would know that the correspondence is for the purpose of collecting a debt owed. IV. What Can You Do if an Attorney/Debt Collector Violates this Law? If a collection agency or collection attorney violates the Fair Debt Collection Practices Act, you can bring a lawsuit in state court or federal district court. Class action (groups of similarly situated individuals) lawsuits are also available. If you win, you can receive an award of $1,000.00 for each violation of the act. If you suffer a loss of money that is greater than the $1,000 , you can ask for your actual loss, along with reasonable attorney fees and the costs of suit. Law suits for violations of the act must be brought within one year of the alleged violation of the act. You can also add other claims you may have such as consumer protection act claims. In addition, written complaints about a Credit Collection Agency can be filed with the Federal Trade Commission and the State Attorney Generals Office. The State Bar Association may also be able to discipline a collection attorney who has violated the act. If you are being sued for a debt by the collection agency or attorney, you may be able to raise violations of the Fair Debt Collection Practices Act as a defense or offset against your debt. Many legal services programs provide legal counsel for low income individuals for either direct representation or referrals to private pro-bono counsel with regard to debt collection matters. Some pre-paid legal services programs made available to employees or union members, like the UAW-GM Legal Services, have developed an expertise in consumer law and also provide advice and representation to qualified individuals. Private attorneys may take these types of cases based on the availability of legal fees. Attorneys, in deciding whether to take these cases, look to the merit of the case and the relative proof problems they must overcome in order to prove violations of the law. In an FDCPA violation case, an attorney must be able to demonstrate in open Court that the violations did occur and any damages that were suffered by the debtor as a direct result of a violation of the act. It is important, therefore, that all documents, notices and correspondence sent to the debtor from the collection agency and/or attorney be kept. Copies of any responses from the debtor should also be available. If the source of the problem is telephone communications, phone logs should be maintained detailing the time the calls were made (including time of day), and what was said. Names of witnesses to violations should be kept. Evidence of damages resulting from the violation should be kept. For example, if a person loses a job or is disciplined as the result of repeated dunning telephone calls, the damage should be noted. If a person's reputation is harmed, how that occurred and its possible economic effect should be noted. If a potential client can bring concrete information concerning an FDCPA violation to a lawyer, it may greatly increase the chances of acceptance of such a case by a lawyer. V. Strategies for Dealing With Creditors Collecting Debts Over extended debtors often are honest everyday people who find themselves dealing with financial or personal circumstances they are unable to resolve or are uncertain about resolving. Rarely are "debtors" the stereotypical intentional "deadbeats" or criminals waiting to defraud their creditors. Many people have accrued debts, having every good intention of paying back their creditors - and then have found themselves faced with the loss of a job, a divorce, the death/disability of a primary income provider or a medical or other emergency that has wreaked financial havoc in their lives. Some people have limited skills in financial planning and handling money and do not use good judgment in acquiring things and accruing debt. The ideal solution or preventive advice for these problems is to tell the debtor to budget his/her money and to never accrue debt that cannot be paid off in case of an emergency. We, however, do not always live or act in an ideal world. This article does not advocate not paying your bills nor is its purpose to teach people how to avoid creditors and debt payment. The following strategies are suggested to help the client/consumer to deal with and to prioritize debt, as a temporary measure, when someone finds themselves unable to pay some or most of their bills. 1. Prioritize bills/ debt. Stick to your priorities. If you have too little money to pay your bills- determine which bills you must pay - which bills are essential to your everyday living - and pay them. Bills falling into this category are allowances for food, utilities, shelter (including delinquent property taxes and health care -especially medically required prescriptions. Whenever possible, pay rent or mortgage payments, buy groceries, decide if a car is a necessity if you own one, pay all or enough of your utilities to avoid shut off, always pay for necessary medical care and prescriptions. You should seek help if you cannot stay current with necessities by contacting private and public agencies designed to help with those problems. A rule of thumb, with the exceptions already noted, is to pay secured debt first. Next determine which other secured debt (car loans or equipment loans) and special remedy debt (income taxes, student loans which cannot be deferred, child support) is owed and to the best of your ability pay them. Congress has given the IRS and other Government insured lenders, like student lenders, some extraordinary remedies in the form of liens and tax intercepts which should cause you to view these debts as medium to high priorities. Finally if there is money left over - pay the unsecured debt. Use your head - do not pay the creditor or collection agency screaming the loudest. For example, do not let a credit card creditor or an agent talk you into paying off your credit card debt if you are facing a utility shut off or if your mortgage is about to be foreclosed or if you are diabetic and you are running low on insulin. If you own a home, DO NOT use it as collateral to pay off unsecured debt if there is even the slightest chance you will be unable to keep up with the payments. An attempt at maintaining your credit rating is insignificant if you risk homelessness or yours' or your families' health. A classic nightmare case for a debtor and a debtor's attorney is demonstrated by the following example of action on skewed priorities. A disabled man comes into an attorney's office. His only source of income is SSI. Before his disability, he bought a home and had accrued approximately two thousand dollars worth of consumer card debt. He felt very guilty about the credit card debt and that guilt was fired by the regular phone calls and dunning letters he received from collection agencies. He is a very proud guy and the debts he couldn't pay made him feel ashamed. He decides a home equity loan (which amounts to a new mortgage with no home equity) is just the solution to his problems. After all didn't that ad on TV suggest that your home could be your best friend - the young guy in the ad looked pretty sharp. He does not review the paperwork with anyone other than the lender. He doesn't want anyone to know he can't pay his bills. He borrows against equity in his home and pays off his credit cards and his old mortgage. He is issued a brand new mortgage - with larger monthly payments at a higher interest rate. He is debt free except for the mortgage. A month later he is hospitalized as the result of the disability. While hospitalized he does not make the monthly mortgage payment on time. He immediately falls behind and after two months of default he is notified the mortgage company has shipped the matter to legal counsel for foreclosure by advertisement. Now not only does he have to pay the arrearage but the mortgage company is demanding an attorneys fee of almost a thousand dollars. He thinks he can make up the arrearage - but he cannot pay the attorney’s fee. The Sheriff's sale is in a month. He paid on the old mortgage for ten years. Is this legal? Yes. What can I do now to save my home? Not much if the paperwork is in order and meets all technical requirements of the law. The only hope here for the debtor is that payments can be negotiated with the mortgage company or its counsel -knowing all the while the mortgage company is not legally required to allow for lower/lesser payments. In this case bankruptcy is not an option to save the home because there was no debt other than a mortgage - a mortgage with no equity. Because of the sympathetic nature of some cases and to avoid the need to resell the home, many lenders will renegotiate such a loan. If they don't - absent some type of hardship deferment- the client will lose his home. The tragedy is the "home equity" loan was unnecessary because the credit card debt was not collectible. His income- SSI- would not have been attachable even if the credit card company had sued him and gotten a judgment. He risked a priority in order to pay a non-priority debt and is now at substantial risk of becoming homeless. (Cross Reference to Manual Section ____; Attachability of welfare benefits.) 2. Call your creditors. Be Honest. Work out repayment plans only if and when you can pay for necessary living expenses. Stopping calls -especially at inconvenient times -or stopping dunning letters may be as easy as calling your unsecured creditors as soon as it becomes evident you cannot pay bills. Be honest in explaining the circumstance. If you are laid off or ill and know when you will return to work-give the creditor basic information concerning that. Explain that you will pay the debt back when it is possible. Explain where the debt falls on your list of priorities. Do not enter into a repayment plan, no matter how tempting, unless you are certain to be able to follow through with it. Never be talked out of your debt priorities. Collection agents, no matter how sympathetic they are, do the work they do as a way of making a living. Their priority is to get you to pay that bill. This call will only buy time - it will not waive your debts and it will not save secured items like cars from being repossessed. 3. Find out what social service agencies, public and private, are available to help you pay priority debts. Contact them. There are public and private social service agencies available for emergency relief assistance and help with income maintenance. Through the State of Michigan, local county Family Independence Agencies accept applications for State Emergency Relief (SER) to help with emergency living expenses such as housing. There are limitations on the availability and use of State Emergency Relief Funds. Find out from your FIA case worker or contact the FIA to arrange for a necessary case worker who can help you with these funds. Funds are generally available for example for emergency housing (mortgage, rent monies) and household (utilities and food) needs. Your local FIA office should also provide information to you with regard to your eligibility for those public benefits programs available to you such as food stamps, Medicaid, State Disability Assistance, child care, etc. (If you feel you have been unfairly denied a form of public assistance, contact your local services provider to review that determination). The Social Security Administration should be contacted if you are no longer working due to a disability to review your eligibility for Social Security Disability and Supplemental Security Income. If you are unemployed the Michigan Employment Security Administration (MESA) should provide information on unemployment eligibility and can explain their remaining job search aids to you. Private emergency providers should also be contacted. The services they provide may extend from food vouchers to emergency shelter to grants or vouchers for the payment of rent, utility bills, prescription needs, meals, clothing and personal hygiene. Churches, food pantries, soup kitchens, homeless shelters, domestic violence shelters, and the Salvation Army are the best known providers of these services. It is important to know what restrictions they place on their services. Often emergency providers are networked so they are able to make referrals for other needs. Community Mental Health providers are available for counseling and can also help to make referrals to programs that provider. If you are laid off and belonged to a union while employed, you should contact your union representative also to see if the union provides some year round and/or seasonal assistance to its membership. 4.Be informed with regard to the nature of the debt owed and any possible deferments or waivers for which you may be eligible. It is important to know whether the debt you owe is secured or unsecured. Secured debt may provide for the placement of liens or the attachment of certain property or goods or real property. This may help you to determine debt priorities. Car loans and mortgages are classic examples of secured debt. Mechanics liens can be placed on vehicles and contracts liens can be place on homes for repair until those debts are paid. Unsecured debt requires that the debt be reduced to judgment before many of these remedies are available to creditors. Certain other debts such as student loans may provide for hardship waivers or loan deferments. Because these debts often require repayment before any further education maybe undertaken and give the creditor certain extraordinary collection possibilities, tax refund intercept among them, it is important to know what rights you have available to receive temporary or permanent relief with regard to these debts. Contacting your lender and/or the legal services agency in your area will be to your benefit. 5. Send a Cease Letter. In order to avoid harassing telephone calls and contacts you may contact the collection agency or attorney and demand that they cease contacting you. Federal law requires that creditior collection agencies and collection attorneys cease contacting you if you make a written request that they cease contacting you. You need not state the reason for the request. Note this will not prevent the collection agency/attorney/ or creditor from suing you. It demands they either establish their case in court or stop contacting you. Please see Exhibit ___ for an example of a cease letter. 6. An Attorney Letter A letter to the credit collection agency or the collection attorney from an attorney may have the effect of a cease letter and sometimes add credibility to that effort. Note that an attorney is not necessary to the sending of a cease letter. If you wish to pursue an action against the credit collection agency or collection attorney for violations of the Federal Debt Collection Practices Act a demand letter of this sort may be appropriate. 7. Work Out Agreement A debt collection agency or collection attorney is likely to cease contacting you once a payment plan is worked out with your creditors. As discussed previously, a work out agreement should always take into consideration whether the debt is a priority, and whether you are truly financially able to abide by its terms. Never work out a payment plan with a creditor while you are in bankruptcy or if you are contemplating bankruptcy without the knowledge or advice of counsel. There are specific rules regarding preferential treatment of creditors that may be violated by working out such independent agreements without specific advice from your counsel to do so. 8. Contact Government Agencies if the Collection Agency or Collection Attorney Are using Abusive Practices. Contact the Federal Trade Commission, Bureau of Consumer Protection, Washington D.C. if you are being harassed in violation of the Federal Collection Practices Act. Copies of the letter noting the violations should also be sent to the Consumer Protection and Charitable Trusts Division of the State Attorney General's Office at P.O. Box 30213 Lansing, Michigan, 48909, and to any local consumer protection division of the County Prosecutor's Office and/or the County Chamber of Commerce and Better Business Bureau. 9. Contact Legal Counsel and Discuss the Possibility and Appropriateness of filing a Chapter 7 or Chapter 13 Bankruptcy. As a last resort, a debt may wish to consider filing bankruptcy to provide for the elimination or repayment of debt. There are two types of personal bankruptcies - a Chapter 7 ( complete discharge of debt) and Chapter 13 (repayment plan of debt ). Both types of bankruptcies provide specific debtor relief and benefits. Not all debt is dischargeable in bankruptcy and bankruptcy is not a cure for all types of debt problems. An attorney should be able to discuss the effects of the bankruptcies on your credit and to discuss which debts can be eliminated through a bankruptcy filing and advise you accordingly. Additional details regarding consumer rights and the limitations of bankruptcy in eliminating debt are available in this manual under the Bankruptcy heading. Acknowledgements and Bibliography: The drafter of this section gratefully acknowledges, in addition to the statutory materials themselves, the use of the following in the preparation of this section: Surviving Debt: A Guide for Consumers Published and edited by the National Consumer Law Center, Inc. New (2nd) Revised Edition, Boston, Massachusetts (1996) Available through the National Consumer Law Center, Publications, NCLC, 18 Tremont Street, Boston MA 02108 (617) 523-8089 and You and the Law: Your Legal Guide to Consumer Credit Published by the American Bar Association, Publication Division, 1988; Available as part of the You and the Law series through the Public Education Division, American Bar Association, Order Fullfillment, 750 North Lake Shore Drive, Chicago, Illinois, 60611. Note product code number: 235-0010.
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