Debt Collection From the Debtor s Perspective. A Few Facts About the Debt Burden of American Households. Debt Facts 8/14/2013

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1 Debt Collection From the Debtor s Perspective Linda Cook Senior Staff Attorney Ohio Poverty Law Center lcook@ohiopovertylaw.org 2013 Ohio Poverty Law Center A Few Facts About the Debt Burden of American Households Percentage of population with more credit card debt than savings by income: $75K+ $50K- $74.9K $30K - $49.9K Under $30K % 27% 29% 23% % 31% 27% 30% % 25% 30% 23% Debt Facts 1

2 Debt Facts People seeking credit counseling in 2012: Average of seven credit cards Average unsecured debt of $24,000 Unsecured debt = 60% of income 37,000,000 in all age categories have outstanding student loans 60% of students borrow; average undergrad debt $24,301 Medical debt the leading cause of bankruptcy in 62% of filings What Kind of Debt is It? Secured Home loans Purchase money Second mortgages Home equity line of credit Auto loans Purchase money Title loans Unsecured Credit cards Payday loans Medical debt Student loans Original Creditors Who is Collecting the Debt? Federal or state government Collection agency Debt Buyer 2

3 Laws Protecting Debtors from Abusive Collection and Abusive Collectors Fair Debt Collection Practices Act (FDCPA) Federal law controlling the behavior of third party collectors Ohio Consumer Sales Practices Act State law prohibiting unfair, deceptive and unconscionable acts in consumer transactions Common law General law as decided by courts over the years Fair Debt Collection Practices Act Who is covered? Debt collector: someone who regularly collects debts owed to others, including collection agencies, lawyers who collect debts on a regular basis, and companies that buy delinquent debts and then try to collect them What debts are covered? Personal, family, and household debts, including money you owe on a personal credit card account, an auto loan, a medical bill, and your mortgage Fair Debt Collection Permitted Activities What debt collectors can do: Call a consumer and attempt collection Send a consumer a written notice identifying the debt and the amount Make third party contacts to locate a consumer Sue to collect the debt in the county where the consumer lives 3

4 Fair Debt Collection Prohibited Activities What third party collectors CANNOT do: Communicate with a consumer at unusual or inconvenient times Communicate with third parties without permission Contact a consumer at work if the employer prohibits personal calls Contact a consumer represented by a lawyer Prohibited Activities Telephone without disclosing identity Telephone repeatedly and frequently Use obscene, derogatory or insulting remarks Make false, misleading or deceptive representations Publish a consumer s name as a debtor Intimidate, harass or abuse a consumer Falsely represent the character, amount or legal status of a debt Prohibited Activities Threaten arrest, garnishment or seizure of property or wages unless actions are legal and collector intends to do so Threaten self-help repossession without the legal right and present intent Falsely state or imply a lawyer s involvement Use symbols or language on written communications that indicate the sender is a collector 4

5 Prohibited Activities Create a false impression that the collector is an affiliate or agent of the government Deposit post-dated checks before their date Collect fees or charges unless expressly authorized by the agreement creating the debt Fail to disclose in communications that the collector is attempting to collect a debt Use deception, false representations or unfair or unconscionable means to collect a debt Stopping Third Party Collection Activities 1. Validation notice collector must send within five days of initial communication consumer has 30 days to respond in writing, disputing debt or requesting identity of original creditor once collector receives dispute notice, collector must cease collection until the collector verifies the debt and/or identifies the original creditor Stopping Collection Activities Cease Contact Letter Notice in writing to the collector to cease contact and/or that the consumer refuses to pay the debt Collector must stop communications except To advise that efforts are being terminated To notify that collector may, or intends to, invoke specific remedies 5

6 Dealing with Identity Theft Dispute the debt/cease contact with collector Contact the business where the fraudulent account was opened Contact the nationwide credit reporting agencies and have information blocked KEEP GOOD RECORDS Get an identity theft information packet from the FTC: taking-charge.pdf Dealing With Original Creditors Ohio Consumer Sales Practices Act protections Prohibits unfair, deceptive and unconscionable acts before, during and after a consumer transaction Many violations parallel FDCPA violations Common law fraud Telephone harassment Consumer Remedies Fair Debt Collection Practices Act $1,000 in statutory damages + actual damages+ attorney fees and costs Must sue within one year of the violation Consumer Sales Practices Act $200 statutory damages per violation, or actual damages (can be trebled), whichever is greater + up to $5,000 noneconomic damages + attorney fees and costs 6

7 REMEMBER In Ohio, it is not illegal to be in debt, or to not pay debts THERE IS NO DEBTOR S PRISON The worst things that can happen are: The creditor stops doing business with you The creditor reports nonpayment on your credit history The creditor sues you and/or repossess the collateral What To Do if You Get Sued DO NOT IGNORE COURT PAPERS Consumers have 28 days to respond to a complaint once served Read the complaint and any attachments carefully Consult an attorney about how to respond IF YOU IGNORE THE COURT PAPERS, THE CREDITOR WILL GET A JUDGMENT Tips About Collection Lawsuits Frequently debt buyers do not have all the information they need to prove the consumer actually owes the debt, or that the amount sued for is accurate Debt buyers and their lawyers do a volume business and count on consumers not filing answers or otherwise challenging the lawsuit Some consumers may be judgment proof 7

8 Wage garnishment Post Judgment Collections Bank attachments Foreclosure and personal property seizures Wage Garnishment Maximum garnishment = 25% of disposable earnings (after taxes) Consumer gets a pre-garnishment notice May avoid garnishment by making the required payment Employer does the calculation and withholding Ohio has continuous garnishment Once filed, continues until debt paid Workers may be fired for more than one garnishment in a 12 month period Bank Attachments Exempt income: Social security and SSI Disability payments Unemployment compensation Child and spousal support Veteran s benefits Certain pensions Banks must verify source of income before attachment Consumers have right to a hearing to contest attachment 8

9 Foreclosure and Repossession or Personal Property Seizures Secured creditors have the right to foreclosure or repossess collateral Cars can be repossessed prior to filing suit Judgment creditors may place judgment liens on real property and force foreclosure Judgment creditors may also ask for writs to seize and sell personal property Avoiding Post Judgment Collection Income below 30x federal minimum wage (weekly): 30 x $7.25/hr = $ Source of income is exempt Value of money/property is below the exempt amount allowed under Ohio law Homestead exemption = $132,900 Automobile exemption = $3,675 Cash on deposit = $450 Discharge debts in bankruptcy Notes about Special Types of Debt Student loan debt cannot be discharged in bankruptcy (as a general rule) Child and spousal support cannot be discharged For federally guaranteed student loans, and other debts owed to federal or state government, judgment not necessary to begin collection Federal benefits are not exempt from garnishment for debts owed to the government Federal and state can use tax intercepts 9

10 Where to Find Help Federal Trade Commission consumer rights information and complaints Consumer Financial Protection Bureau consumer rights information and complaints Legal Assistance: legal aid and private attorneys Ohio Attorney General consumer complaints Ohio Department of Commerce 10