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Debt Collection Rules Tighten May 9, 2011

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By Russell Grantham

The Atlanta Journal-Constitution

Last month, Hattie McKinney sued a collection agency that she said had been calling her Powder Springs home for nearly a year over a $300-plus cellphone bill that she disputes.

“They kept calling me and calling me, about 20 times a day,” said McKinney. “It kept me a nervous wreck.”

Finally, the 69-year-old woman sued the Minnesota-based agency, alleging violations of a federal law that bars collection companies from using harassing calls and other bare-knuckled dunning practices.

If she wins in the federal district court in Atlanta, she could collect at least $1,000 in damages, plus legal costs.

Meanwhile, the calls have stopped. That was “the best thing,” said McKinney.

Thirty-three years after the Fair Debt Collection Practices Act was penned, skirmishes between debtors and collectors are being played out more than ever across the nation.

Consumer complaints about debt collectors rose 17 percent last year to 140,036, according to the Federal Trade Commission, the agency with primary responsibility for enforcing the law. The number of grievances have tripled since 2002, and are the most common gripe the agency hears, accounting for 27 percent of all complaints.

While the federal Fair Debt Collection law isn’t intended to block firms from collecting legitimate debts, it does aim to stop abusive practices, such as using harassment, lies or intimidation to bully people into paying.

This summer, debt collectors could come under even more scrutiny as a new agency joins the Federal Trade Commission in investigating complaints of violations.

Starting July 21, the Consumer Financial Protection Bureau will be looking into complaints about errant bill collectors. The federal watchdog agency was created by a law enacted last year.

“The agency will have all kinds of power to set rules,” said Emory Clark, managing partner at bankruptcy law firm Clark & Washington in Atlanta. The FTC can investigate complaints, but can’t write rules to address new technology, such as cellphones, e-mail and voice mail. Those conveniences allow collectors to communicate more easily with debtors and create more potential for abuses and violations.

The new bureau will have authority not only to write new rules on how debt collectors deal with consumers, but to hear and resolve complaints, said Valerie Hayes, general counsel for ACA International, a trade group representing about 5,000 debt collectors, attorneys and investors in the debt collection business.

“The collection industry is going to have two regulators,” she said.

Struggle on both sides

The new agency will be stepping in at a time when both debt collectors and their quarry have been facing some tough years recently.

Collection calls and complaints have soared for a variety of reasons, but that hasn’t necessarily translated into bigger collections, say consumer lawyers, the FTC and players in the collection industry.

Credit card companies, hospitals, cellphone companies and other creditors have increasingly sold their delinquent debts to outside firms rather than using their in-house staffs to collect old debts.

With that, debt-collection activity rose as more companies got into the collection business. Computer software made it easier for even small firms to pursue payment of old, charged-off bills that they often bought for pennies on the dollar.

At face value, collectors bought $110 billion worth of debt in 2005 — 90 percent from credit card companies, according to ACA International. In 2007, they recovered $6 billion on such debt.

But in the wake of the recession and financial crisis of three years ago, both debt collectors and consumers have struggled, and the debt market has stagnated.

The biggest factor driving growing complaints, say some, is increased desperation of both debtors and collectors.

“A lot more people are having to confront collectors,” said Kris Skaar, with Decatur law firm Skaar & Feagle. “Plus, people are much more aware of their rights because of the media and the Internet.”

Firms are chasing people who often have lost their jobs and have little money to repay old debts, said Clark. For now, he added, “the collection business is not all that good.”

The pressure on firms may, in turn, be driving some collectors and their employees to cross the line when calling debtors, he said.

Hayes, with ACA International, disagrees. Collectors need debtors’ cooperation, she said. “It isn’t in the debt collectors’ interest to bend those rules,” she said.

What’s at stake

Meanwhile, the stakes of the battle between debtors and collectors are rising.

In March, a Marietta collections firm reached a $2.8 million settlement with the Federal Trade Commission, one of the commission’s largest enforcement actions ever against a debt collection agency. The firm, West Asset Management, didn’t admit wrongdoing as part of the settlement, but agreed to extra monitoring and other measures for five years. A West Asset spokesman declined additional comment.

FTC said in court filings that the firm’s debt collection practices “generated thousands of complaints” with the FTC, Better Business Bureau, state regulators and the company.

The agency said the company, which employs about 1,500 debt collectors in 13 states and overseas, made repeated, harassing phone calls, often using obscene language; falsely claimed to be a law firm; and falsely threatened debtors with lawsuits, property seizure and arrest.

The company sometimes tapped debtors’ bank accounts and credit cards without their permission and ignored its own internal program that identified employees who were violating the law, the FTC said.

West Asset Management, which provides debt collection services for hospitals, telephone companies, consumer credit firms, government agencies and other clients, must send written notices to debtors, spelling out their rights under the federal law. It also will require its employees to sign notices acknowledging their duties and potential liabilities under the law.

The firm’s parent company, Omaha-based West Corp., reported a $34.6 million profit in the first quarter but also said its net worth is negative $2.5 billion.

In a filing earlier this month to the Securities and Exchange Commission about a planned initial public stock offering, West Corp. disclosed the FTC’s enforcement action, but not the $2.8 million civil penalty.

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The Role Of Debt April 25, 2011

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The final installment – Part VI in our “How to Manage Debt & Credit” posts: The Role Of Debt

Today, carrying installment debt is almost a fact of life. Mortgages, car loans, or small-business loans (to name a few) are part of almost everyone’s life. On the other hand, carrying credit card debt is usually not a good idea. At interest rates of 16% and up, it’s hard to justify keeping savings that could pay off that 18% department-store credit card in the bank at 2%.

Debt and credit play increasingly important roles in our lives. As the aging Baby Boomers get closer to their peak earning years, many are realizing the need to reduce debt and increase savings. Even though analyzing your spending habits and creating a budget to address your debt may seem a little overwhelming, the simplicity of the philosophy of the Depression era still stands: Never spend more than you earn. Once you have come to grips with this basic fact, managing your debt will become far easier and more rewarding.

Summary

  • Installment debt means the loan is paid off in a specified period of time by making predetermined payments periodically.
  • Revolving credit is a line of credit that is instantly available through use of a credit card (and sometimes a check).
  • As you pay down your debt in a revolving line of credit, the minimum payment is also reduced, thus extending your payoff period and, consequently, the interest you pay.
  • Spending more than you earn in any given period is a dangerous practice at best, but doing it over an extended period of time can be financial suicide.
Thanks to Yahoo! Finance

Eliminating Credit Card Debt April 19, 2011

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Part V in our “How to Manage Debt & Credit” posts: Eliminating Credit Card Debt

If you think you may have too much credit card debt, begin to address it by honestly evaluating your spending habits. Examine your existing expenses to analyze how your money is spent. You will most likely be able to identify the problem areas where you are more likely to spend too much or too readily with credit cards. Then, based on your current spending practices, create a realistic budget to pay off your credit card debt in the shortest time possible while not adding any more debt to it. For assistance, you may want to turn to your financial advisor, who can help you to allocate your resources wisely to address your credit card debt.

Here are a few simple steps to help you make a plan to eliminate credit card debt:

  1. First, list each of your credit cards. You’ll want to include the outstanding balance, interest rate, and minimum payment. This information can easily be found on your last monthly statement.
  2. Order the cards on the list so that the credit card with the highest interest rate is at the top, and the lowest is at the bottom.
  3. Total the minimum payments.
  4. The total monthly minimum is your absolute lowest monthly payment, but remember, we want to pay more than the minimum in order to repay the debt quickly. So, take a look at your budget and see how much extra you can come up with each month in addition to the minimum. Whether it’s an extra $20 a month or $100, every little bit helps.
  5. As your payments come due, pay the minimum on each card except for the one at the top of your list. Remember, that one has the highest interest rate and it costing you the most money by maintaining a balance. So whatever additional money you budgeted in the previous step, apply that to that card.
  6. Continue this process until the first card is paid off. When that card is paid off, continue with the minimum payments on the other cards, but now take the amount you were paying on the first card in addition to the minimum payment and apply it to the second card on your list.
  7. Repeat this process until all cards are paid off.

Using Credit Wisely April 14, 2011

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Part IV in our “How to Manage Debt & Credit” posts: Using Credit Wisely

To use credit intelligently, start by examining the terms of the card(s) you are currently using. Keeping track of your cards, their rates, and your current balances will help you to be aware of how you use credit cards. Increased competition in recent years has led some credit card companies to offer enticing features to attract new cardholders, including no annual fees and low interest rates for an introductory period. (And credit card companies sometimes will give their introductory rates to existing cardholders so that they won’t transfer their balances to another credit card company.)

CredZoo has written a lot on this subject, and has much to offer about credit, using credit wisely and – of course – repairing credit!

Revolving Credit April 13, 2011

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Part III in our “How to Manage Debt & Credit” posts: Revolving Credit (AKA – Credit Cards)

A revolving line of credit, also called “open-ended credit,” is made available to you for use at any time. Examples of revolving credit are credit cards such as Visa, Mastercard, and department store cards. When you apply for one of these cards, you receive a credit limit based on your credit payment history and income. When you use the credit line, you must make monthly minimum payments based on the total balance outstanding that month. Some lines of credit will also have an annual account fee.

 

While revolving credit is a convenient way to borrow, it can also become an endless pit of minimum payments that barely cover the interest due. Many cards charge annual rates of interest of 18% or higher. As you pay off your debt, the minimum payment is also reduced, thus extending your payoff period and, consequently, the interest you pay. Paying just the minimum due on a $2,000 credit card loan could mean making monthly interest payments for 10 or more years!

Revolving credit, in addition to being convenient, eliminates the need to carry a lot of cash and can help establish you as a creditworthy risk for future loans. The itemized monthly statements also can help you track your expenses. But some people can easily yield to the temptation that the convenience of credit cards offers. Impulse buying, failing to compare costs, and purchasing large items you can’t afford are all downfalls brought on by always available purchasing power. Spending more than you earn in any given period is a dangerous practice at best, but doing it over an extended period of time can be financial suicide.

Installment Debt vs. Revolving Debt
Lower interest rates and an amortizing repayment schedule can make installment debt a much cheaper alternative to revolving credit.
Installment Revolving
Beginning Balance $2,500 $2,500
Interest Rate 10% 18.5%
Years to Repay 4 30*
Interest Cost $544 $6,500
*Paying 2% minimum monthly payment.
Sources and Costs of Debt
Source Type of Debt Cost
Banks and Credit Unions Personal, secured Low
Personal, unsecured Moderate
Mortgage Low
Credit Card Low to High
Mortgage Companies Mortgage Low
Department Stores Revolving High
Insurance Companies Personal, unsecured High 

(Thanks To Yahoo Finance)

Managing Debt and Credit April 5, 2011

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Credit was once defined as “Man’s Confidence in Man.” But in fact, the definition of credit today is more like “Man’s Confidence in Himself.” Using credit today means you have confidence in your future ability to pay that debt. Forty years ago, your parents may have paid cash for their homes and their cars, a largely unheard-of event today. If they borrowed money at all, chances are it was from a relative or friend, and not a financial institution.

Today, debt and instant credit are part of our everyday lives. The convenience of instant credit, however, has taken its toll. Many individuals use credit cards to spend more than they earn, and a few of these people actually build themselves a debt prison from which some never emerge. On the other hand, those who never use credit can be denied a loan or credit when they have a justifiable need or use for it. Using credit establishes a history of financial responsibility: Until you establish a credit history, your chances of qualifying for an important loan, such as a mortgage, are greatly reduced.

What is the balance between using credit wisely and staying out of overwhelming debt? Our next posts will look at the facts and some pros and cons. Stay tuned! Subscribe to our blog to read the upcoming topics including:

  1. Managing Debt and Credit
  2. Installment Debt
  3. Revolving Credit
  4. Using Credit Wisely
  5. Eliminating Credit Card Debt
  6. The Role of Debt
(Thanks To Yahoo Finance)

How Much Does Bad Credit Cost? March 22, 2011

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The cost of credit repair is small compared to the cost of living with bad credit. Below are a few examples from CredZoo.org of the cost of bad credit:

Auto Loan

If you are making vehicle payments, you are, most likely, paying between $4,000 and $10,000 more over the course of the loan just for having credit score issues. This added interest shows up every month in a higher payment.

Example: Car Loan $23,000 Vehicle Financed for 5 Years

Credit Status Rate Payment Interest Paid
High Credit Score 3% $413 $1,796
Slightly Damaged 9% $477 $5,646
Damaged 18% $584 $12,042

Home Loan

Damaged credit on a vehicle is nothing compared to the effect of damaged credit on a home loan. A typical home can cost between $180,000 and $300,000 more in interest of the 30 year loan, if you are buying the home with damaged credit.

Example: $120,000 home paid over 30 years:

Credit Status Rate Payment Interest Paid
High Credit Score 7% $798 $167,410
Slightly Damaged 9% $966 $227,596
Damaged 13% $1,327 $357,878

$190,000 home paid over 30 years:

Credit Status Rate Payment Interest Paid
High Credit Score 7% $1,264 $265,066
Slightly Damaged 9% $1,529 $360,361
Damaged 13% $2,1202 $566,640

What Is The National Association of Credit Services Organizations? March 9, 2011

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First, you can call it NACSO for short. You may have heard of this organization recently in the news as NACSO officials recently met with members of the US House Financial Services Committee. It was reported that at the meeting representatives on both sides discussed the importance of accurate credit reports and how it relates to access to affordable consumer credit.  “Removing inaccuracies on credit reports and improving scores is critical to consumers often achieving the American Dream,” said NACSO Board Member Doug Parker and CEO of RMCN. “It was refreshing to hear from Congressmen and Senators who appreciate the role of the industry and how we benefit consumers.”

On it’s website, NACSO explains that the “National Association of Credit Services Organizations advocates industry standards and ethical business practices for the credit repair industry. Founded in 2007, NACSO services to streamline the industry through our Standards of Excellence seal. NACSO members promote compliance throughout the industry on national levels.

National Association of Credit Services Organizations’ members go through a certification enrollment process to aid in the prevention of fraudulent activity throughout the credit services industry. NACSO’s Standards of Excellence goes further than the Credit Repair Organizations Act and touches on items essential to the honest growth of this industry.”

CredZoo is proud to be a member of the National Association of Credit Services Organizations!

The NACSO Standards of Excellence is an honor – and not every company is eligible.  To read more about the Standards of Excellence requirements, click here. To learn more about how CredZoo applies these standards to helping our clients, click here.

What is Subprime? March 1, 2011

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Subprime loans. Subprime lending. Subprime mortgage crisis. Subprime credit category.

We hear it all the time. But what exactly is subprime? Technically, it is a classification of borrowers with a tarnished or limited credit history. Lenders will use a credit scoring system to determine which loans a borrower may qualify for. Subprime loans carry more credit risk, and as such, will carry higher interest rates as well. Approximately 25% of mortgage originations are classified as subprime.

If you have a FICO score below 660, you’re typically considered to be in the subprime category.

When you have a subprime credit score, you can probably still find an unsecured credit card. But the average “bad credit” APR is around 24.5 percent. That’s a pretty scary APR. Most experts agree the best way to reduce your APR, and help boost your credit score out of the subprime category is to check & repair your credit. You could try to go it alone, but as we discussed in our Responsibility Of Credit blog there is no manual, no help file and no teacher to show you how to take on the task of correcting or repairing your credit! Without knowing of the resources available to them, most Americans just live with whatever is on their credit report.

CredZoo can help you put an end to your subprime woes!  We are so confident in our ability to help you, that we challenge you to put us to work for you. Nothing is more important to CredZoo Inc than your credit goals. We are all about results! We offer an easy way to get the credit repair process started – Click here to get started today!

The Responsibility Of Credit February 9, 2011

Posted by Chance Daily in About CredZoo, New Credit Information.
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It’s a fact that many of the things we want to buy must be financed or purchased on credit: cars, homes and electronics are just a few examples! To earn the ability to finance these items at a reasonable rate it is essential to maintain a good credit rating in America today.

Unfortunately, once you have had a bad credit rating it feels almost impossible to reverse or repair the damage.

Our country’s highly networked society of financial institutions record and store every bit of information about us and our money. They share that information with the credit reporting agencies who keep track of every person who buys on credit, making it impossible to “hide” or avoid a bad credit rating! Each time someone applies for credit, the financial lender will check their credit with at least one of these agencies.

To make matters worse, now, both Employers and Insurance Companies are making determinations about us based on our credit. That means that you could be paying higher insurance rates, or be passed over for that job or promotion because your credit is unfavorable.

It’s estimated that the average person with below prime credit is penalized $12,000.00 or more each year for their low credit score. It just doesn’t seem fair, does it?

It’s easy to see why it’s important to stay on top of your credit rating; especially when the Fair Credit Reporting Act places the responsibility squarely on you to make sure your credit report is accurate. The only problem with this responsibility is that there is no manual, no help file and no teacher to show you how to take on the task of correcting or repairing your credit! Without knowing of the resources available to them, most Americans just live with whatever is on their credit report.

If you are one of the millions of Americans who have had credit problems, do not give up! You have the ability – and the responsibility – to correct and repair your credit. Even if you have negative items in your report, such as late payments, liens, or bankruptcies, there are things that you can do to rebuild your credit!

CredZoo works with people every day to help them address, repair and restore their credit. Speak to one of the CredZoo advisors to learn how to get started. Your CredZoo advisor will work closely with you and help you get the credit you deserve.

Chance Daily