You sue them.

Nothing gets a company’s attention like slapping them with a lawsuit. As the saying goes, it’s all fun and games until someone gets sued.

From here, you have two choices and both will take you to the courthouse:

• You can retain a lawyer to represent you, or,
• Do it yourself.

I’ll explain both.

Retaining A Lawyer

If you retain a lawyer, the standard agreement is for the lawyer to take the case on contingency. That means they only get paid if you win or settle. If they are unwilling to work on contingency, at worst you would have an agreement that you pay the $350 filing fee and then the attorney takes the rest of the case on contingency. The typical settlement is around $3,500, so you can expect to pocket an easy $1k with the lawyer taking the balance. Usually, you’ll file the case in Federal court, which means the case will get resolved in 2-3 months.

When selecting a lawyer, you can’t just go with any lawyer, you will want a lawyer experienced in consumer law. They could be great at drafting wills and personal injury cases, but they likely have never seen a consumer law case in their career. In fact, the better the lawyer is, the less likely they are to have any clue about consumer law. There are a few good lawyers out there who do have consumer law experience, and you just have to shop around and find them. Check out the National Association of Consumer Advocates (NACA) for a lawyer in your area.

Why Suing Works

Debt collectors are terrified of lawsuits because a single lawsuit can cost tens of thousands of dollars in legal fees. If they lose the case, not only do they lose their own costs for defending against the lawsuit, they have to pay the attorney’s fees for both the defense and plaintiff as well as the judgment. Many of the smart companies would rather pay you $5,000 once as a settlement and be done with it. Collectors are in a high volume, low margin business and will have to collect on a lot of accounts to recover a $3500 average cost of settlement. (Getting sued a lot tends to drive up a collector’s insurance premiums too!)

Consider the response to a Forbes article by a Joel Lackey, President of National Credit systems who wrote regarding FDCPA lawsuits:

“The number of these suits has increased dramatically over the past few years, and the merit of these suits are typically laughable with absolutely no damage suffered by the debtor. The primary reason for this is that attorneys have become aware of the fact that a third-party debt collector cannot win when sued. It is simply a matter of how bad you are going to lose. Even if you win in court, you have lost big-time in that it will likely cost you tens of thousands of dollars to prove your case.

Let’s see, settle for $4,000 even though you did nothing wrong and the charges against you were completely unreasonable or fabricated, or roll the dice to prove your innocence and spend $30,000 in the process. That is, $30,000 if you win, and by the way, you will have no meaningful chance of recovering any of your costs.”

You Must Have A Case

I am not suggesting you fabricate a lawsuit because, quite frankly, you won’t have to. If a collector is going to violate the FDCPA, they will do it early and often. If you have documented violations, particularly recorded phone calls, you have a very solid case and I wouldn’t be shy about running with it.

This is also defensive strategy. If you are sued by a debt collector who has violated the law, counter-sue and watch them offer to pay you to drop the entire matter.

Debt collectors are so scared of being sued that they are creating databases to track people who counter-sue and actively avoiding them. Take a look at WebRecon.com and National FDCPA Litigation Tracking Resource.

Do It Yourself Lawyering

If you can’t find a suitable lawyer or you don’t want to split the potential winnings, you may need to take the case on your own. I recommend Federal court vs. state or small claims, because the judges in the lower courts are generally not familiar with the laws and court rulings in question. Plus, you don’t want it to be a first time for both of you.

Each federal court has a free pro-se litigant manual that includes sample forms, flowcharts, and explanations of the legal terms you may hear. If you have the time to invest in it, give it a shot, you may find it is worth your time in the endeavor. It will be a time investment to become familiar with everything so take that into account. Also, many of the lawyers representing the debt collectors do not respect pro-se litigants and may try to talk down to you. Take advantage of forums like Debtorboards for advice, that’s where other litigious consumers hang out and are more than willing to provide some assistance.

In reality, going without representation can be a blessing and advantage, since you don’t have to worry about legal bills, caseloads, and you don’t have to settle for a quick settlement. You can wait for a bigger payday, as the side faces a growing mountain of legal bills. Lawyers tend to want to go for the quick buck and the low hanging fruit and tend to overlook suing the individual employees and such.

Do you have any experience with or read stories about people successfully suing debt collectors?

(Photo: umjanedoan)

How to Sue Debt Collectors from personal finance blog Bargaineering.com.

During that time, I learned a lot about debt, people, and collection law. I did some things that may have been considered shady but I never broke the law. The reason is in the distinction between 1^st party and 3^rd party collections.

1^st Party Collections

Lets say my mortgage is with The Bank of Suburban Dollar. Suburban Dollar is reviewing their books and discover that I’m a month behind on my mortgage. They pick up the phone and call me to see what’s happening. The bank representative making the phone call is a direct employee of the bank and therefore a 1^st party collector. When asked, they should say they work “with” rather than “on behalf of.” They are not a proxy of the bank, they are the bank.

3^rd Party Collections

Same scenario, slightly different circumstances. I am still a month behind but the bank decides they don’t have the funds or the resources to pursue me. Instead, they opt to hire the Bargaineering Busters Collection Agency to do their dirty work. Jim calls me up one day and says “Hey Kyle, this is Jim with Bargaineering Busters Collection Agency calling on behalf of a debt you owe to the Bank of Suburban Dollar.” Jim is acting “on behalf of” the bank but does not work for the bank. Jim is a 3^rd party in this debt saga, that makes him a 3^rd party collector.

Why It Matters

Whenever you see discussion about debt collection, the Fair Debt Collections Practices Act (FDCPA) is almost always mentioned. The FDCPA is intended to protect the consumer but it only protects the consumer against 3^rd party collectors.

Before the law was enacted it wasn’t uncommon for someone from a collection agency to call you up and fill your ear with empty threats until you pay up. The intent of the law was to protect you from this harassing behavior from a party you don’t owe money to. It was not intended to limit the ability of creditors, like the mortgage company, from being able to collect on dbets.

FTC comments define a “debt collector” as:

Employees of a debt collection business, including a corporation, partnership, or other entity whose business is the collection of debts owed another.

As well as,

A firm that regularly collects overdue rent on behalf of real estate owners, or periodic assessments on behalf of condominium associations, because it “regularly collects . . . debts owed or due another.”

In reference to the Creditor (1^st party):

Creditors are generally excluded from the definition of “debt collector” to the extent that they collect their own debts in their own name. However, the term specifically applies to “any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is” involved in the collection.

Even more specifically the FTC directly excludes credit card companies trying to collect card holder accounts. The FDCPA does not apply to the 1^st party employees of the company you owe money to and they know it. Fortunately most in house collection shops, like the one I worked for, do make a concerted effort to abide by the FDCPA.

Where 1^st Party Collectors Blur the Line

After three years in a 1^st party collections environment, you start to learn where you are silently encouraged to blur the lines. There are certain spots where a 1^st party collector may take additional liberties where a 3^rd party collector dare not go for fear of retribution.

1. Your Neighbors – Any collector, 1^st or 3^rd party, can contact your acquaintances and neighbors in an attempt to locate your contact information. They can only contact each of them once and only until they get that information. 1^st party collectors will call more than once and in some cases leave messages.
2. Hours of Calling –  The FDCPA defines the hours of contact to be from 8:00 AM to 9:00 PM. If you are a particularly difficult person to reach, a 1^st party collector may stretch those hours out in either direction.
3. At Work – Collectors may not contact you at your place of employment if they know you are not allowed to receive calls there. When you go off the grid and are otherwise unreachable 1^st party collectors will typically contact you anyway they can, this includes your work.

The law was enacted to stop collectors from harassing consumers. Most 1^st party shops still want your business, so it isn’t in their best interest to violate the law even if it doesn’t apply to them. Another thing to consider is your local state specific laws on debt collection. There are a number of laws which further limit the types of things collectors can do. California has some of the most strict. Several sites maintain lists of the specific laws, you can find one such list at BCSAlliance.com.

One a final note, collectors are contacting you because you didn’t pay something you owe. Don’t lose sight of the fact that you still owe them money and it is your responsibility to pay. This doesn’t give them free reign to treat you like dirt so don’t let them, a good collector will work with you to pay your debt in a manner that will help you get back to where you can pay as agreed in your contract.

This is a guest post by Kyle, who writes at suburbandollar.com where he brings finance and the real world together.

Understanding 1st Party and 3rd Party Collectors from personal finance blog Bargaineering.com.

Some may try to produce affidavits from JDB employees who state that a certain amount is due. These may look all fancy, but they are about as valuable in court as toilet paper!

Unless they have an affidavit from an employee of the entity that lent the money, they are going to be out of luck.

Consider the alternative: Suppose I check my records and discover that I actually overpaid the account by $50,000. The company remit the balance due immediately, right? If I can’t produce any records to support that fact, I have no proof. Unless I can produce a company employee to testify to that fact, my claims are baseless.

If you find yourself up against a junk debt buyer, force them to validate and more often than not, they won’t be able to.

(Photo: sercasey)

What are Junk Debt Buyers? from personal finance blog Bargaineering.com.

Want an example? Let’s say you call a collector to check on the status of your dispute. They decide to solicit payment from you… that collector has just violated the FDCPA and they now owe you at least $1,000.

Oh… it gets better.

They Keep Calling After Dispute Letter

Let’s bring this all together. You receive a call from a debt collector and you send them a debt dispute letter. If they continue to call, the debt collector has just the Fair Debt Collection Practices Act (FDCPA) and they owe you not less than $1,000 per person that called.

An Invalid Validation

Ok, say you send off a dispute letter, and they respond with a generic “Yeah, we checked and you owe the money” response as their validation of the debt. The collector has just violated the FDCPA and they owe you at least $1,000.

1-2 Punch: Reporting an Invalid Debt

Ok, this is now the 1-2 punch as it is called. Say a collector receives your dispute letter, reports to your credit, then you dispute the credit reporting and they verify with the credit bureaus before sending you validation. The collector just violated the FDCPA and the FCRA (Fair Credit Reporting Act), and they owe you at least $2,000.

Why? Well, verifying an account is considered collection activity, which cannot take place before they provide validation.

Now, say a collector just reports your account to the credit bureaus and doesn’t call or write, but the reporting is inaccurate, you dispute it, and they verify. The collector now owes you at least $2,000 in statutory damages for violating the FCRA by reporting inaccurate information and the FDCPA for taking action they legally can’t do.

Calculating Damages Under FDCPA

The FDCPA allows for $1,000 per action of statutory damages which has been deemed to be per defendant. If you have multiple defendants calling you dispute and before any validation is received, each person owes you $1,000.

The company that employs them is liable under “respondeat superior,” which is latin for “let the master answer.” It’s a legal doctrine that states the employer is responsible for the actions of its employees within the course of their employment. You can just tally up the violations and lay it at the debt collectors door.

According to debt collectors, it costs about $3,500 to settle a lawsuit. $1,000 for the consumer and $2500 for the lawyer. This is on top of forgiving the debt and all negative credit reporting. In the past it was possible for many companies and collectors to hold your credit hostage if you didn’t pay, but you don’t have to be afraid any longer.

If some company reports you to a collector for a disputed debt or they are trying to extract some unfair or unearned fee, let them. Dispute, and as the collector violates the FDCPA, beat them into submission in court.

How About Mega Damages?

Here’s the fun part: Let’s say a collector finds out that you’re applying for a car loan or home mortgage (just so you know, some of the credit bureaus have notification products that inform collectors if you apply for a car or house). The collector slaps puts a collection on your report in the hopes that the mortgage company will require you to pay it before closing.

If that collector reports anything inaccurate or violates the FDCPA in their attempt to collect and it costs you a house… they owe you a new house. That is how you see some of the mega damages (6, 7, and 8 figure awards) for FDCPA and FCRA cases.

Next, we’ll talk about collecting from the collectors and how to make them pay you when they’ve violated federal law.

(Photo: jaytamboli)

When Debt Collectors Violate the FDCPA from personal finance blog Bargaineering.com.

I read about stories of people paying off debts but through some clerical error, the debt was incorrectly sold to a collector. I read stories about legitimate debts that suddenly went to a collector and stories of people who simply didn’t pay up.

If you thought debt collectors only went after “deadbeats,” you’re wrong. There are as many stories of people current on their debts as there are those who are behind.

Here’s one story and Craig’s advice on what he would’ve done differently:

I have had a bad experience with a debt collection agency. I was behind in my payments to [a credit card company]. I worked with a debt management company to get my interest rates reduced on other cards and make payments through the debt management company, but [this credit card company] was the only company who refused to participate in the program. They would not reduce the interest and would not accept payment through the management company.

They set their loan collection agency on me, and these people were horrible. I was told I had to pay immediately or they would take me to court. After initially being really shaken up, I reviewed the “credit card bill of rights” that I found online, and the next time I spoke to the guy, I told him I was familiar with my rights. He backed off somewhat after that.

Then there were the daily phone calls to my home and work, until I finally told him to stop calling because I was working on pulling together the money to pay it.

He stopped, but then on the day I had promised to FedEx it, he called me to make sure I was going to do it. I wrote them a check and FedEx’d it, just like I said I would. Then I found out that rather than cash the one large check (for approximately $10,000), the company made two unauthorized withdrawals from my checking account and then charged me for doing so.

When I called to complain, they told me that they couldn’t accept a check that large (although no one had told me ahead of time), so they had to take it from my account. I pointed out that I had never authorized them to remove money from my account and that they had broken the law.

The person I spoke to said fine, do you want us to put it back? At that point, I was feeling so harassed and tired of the whole process that I just wanted to get it over with and so I said no. But to this day I regret not saying yes, and then filing a police report against them.

What would Craig, our anti-debt collector, have done?

Yes, you have not had a good experience with debt collectors, and I wanted to impart a few things you could have done differently and some things that you may be able to do now.

First of all, if a company won’t take your payments, I would not push the issue. At some point, they will come around and play ball if they want to get paid.

As far as the collection agency, if this happened less than a year ago, you need to sue them. If not, then the statute of limitations has passed, but you will be wiser next time.

As far as things you can do differently, if you ever get a call from a collector or anyone you might need to reference again, record the call! Many Nokia cell phones have recorders built in to them. You can get recorder attachments from Radio shack for around $100 including the recorder and connections for a typical phone. There are cell phone connection devices as well. For smart phones there are also recording apps and software that you can download. Lastly, you can record from skype as well. I don’t care how you do it, but you need to have the capability to record the call! Trust me, you can thank me later.

Secondly if you are in a one party state, which most states are, you do not have to tell them you are recording and you should not tell them you are recording. Resist the temptation. Let them violate away and sue their butts off.

Third, kudos for looking up the credit card bill of rights, but you should become more familiar with the FDCPA and your state law equivalents. Google consumer protection laws and your state and see what requirements and penalties are in place. Does your state require bonding? A license? Does this company have one? If they are not compliant, the money they took from you was illegally gained and you have every right to get it back.

Now, as far as what you can do now:

• When you told them to stop calling and they called you back, that was a violation of your rights under the FDCPA, and they owe you at least 1,000 in statutory damages, plus arguably whatever you paid them. State law may impose enhanced damages under deceptive trade practice laws doubling or tripling your damages.
• If they called with an auto dialer or pre-recorded voice, that likely violated the TCPA as well. They owe you $500-1500 per call.
• The unauthorized withdrawals are fraud/theft, and you again have a legitimate claim against them for that. To add insult to injury, they charged you for the unauthorized transactions. I would sue them on principal just for that. Unless you agreed to the charge, it is an unauthorized fee, and I believe they are just trying to pad their profits.
• I wouldn’t entertain any of this business about not being able to take a large check. I would call them back and demand every penny to be repaid. Like today.

You can probably see why I asked Craig to author a series on how to deal with debt collectors, right?

A Classic Debt Collection Story from personal finance blog Bargaineering.com.

Well, now you wait.

In most states, the collector has 2 options:

• They can cease all collection efforts and drop the issue completely, or,
• They can get validation and try to collect again.

Unless they validate the debt, including all the fees the collection agency has added on, you don’t have to do anything. It’s in this phase that most debt collectors trip up and make mistakes, which will be to your advantage.

What is Debt Validation?

What does a proper debt validation look like? A proper validation should explain how an account balance got from zero to the amount that is being claimed including all debits, credits, and fees explained. While there is no hard and fast definition of “Validation/Verification” of a debt because it’s always on a case by case basis. It’s like obscenity: You know it when you see it.

Special Case: Texas

Earlier, I emphasized “most” because in the great state of Texas, a debt collector is required conduct an investigation into the debt and provide the results to a consumer within 30 days or less. Debt collectors don’t have the option of ceasing collection efforts and sending the account back to the original creditor. If a collector only ceases their collection efforts and fails to respond in 30 days, they will have just violated the Texas Finance Code 392. It is a violation of the Fair Debt Collection Practices Act and the collector now owes you money! Time to file a lawsuit. (Most collectors don’t know this, and most collectors will violate this statue)

Debt Validation Court Rulings

Spears vs. Brennan

Spears v. Brennan looked at the issue where a creditor provided a signed contract and ruled:

The loan agreement contains no accounting of any payments made by Spears, the dates on which those payments were made, the interest which had accrued, or any late fees which had been assessed once Spears stopped making the required payments. Indeed, the existing unpaid contract balance at the time Brennan sent the debt collection notice was at least $350.00 more than the original loan amount.

To legally be able to collect again, a collector must provide some explanation of how whatever amount they are asking for came to be. Few collectors will do this properly, which is your chance to educate them on how to do so in court.

Clark v. Capital Credit & Collection Servs., Inc.

Here’s a case, Clark v. Capital Credit & Collection Servs., Inc., where a consumer disputed a medical bill. The collection attorney, hired by the doctor, collected eight pages of itemized charges that included the nature of the charges and balance of the bill. The 9th Circuit of Appeals agreed and stated: “verification of a debt involves nothing more than the debt collector confirming in writing that the amount being demanded is what the creditor is claiming is owed; the debt collector is not required to keep detailed files of the alleged debt.”

Chaudhry v. Gallerizzo

Chaudhry v. Gallerizzo is the finding that is most often used by debt collectors. In that case, which was a special situation where pages and pages of detailed validation from the original creditor were already sent to the consumer as validation, the court ruled:

“Verification of a debt involves nothing more than the debt collector confirming in writing that the amount being demanded is what the creditor is claiming is owed; the debt collector is not required to keep detailed files of the alleged debt.”

If a debt collector sends you eight pages of detailed bills complete with procedures and explanations, barring fraud, they probably have validated the debt. If they haven’t violated any other laws, they have successfully navigated the FDCPA obstacle course and you might want make other arrangements with them. The simple fact of the matter is that these cases are the exception, not the rule.

Debt Validation Is Expensive

A collection agency must spend a lot of time and money to validate a debt. It’s a labor intensive, difficult to automate, and simply unprofitable. Debt collectors make the most money through volume, by quickly liquidating accounts and scaring people into paying them immediately. It isn’t profitable to properly document the debt and review for accuracy.

When a collector receives a file, they receive a name, amount, social security number (sometimes), phone number, and address. That is it. To properly respond to a dispute requires them circle back with original creditor, ask for proof, hope that the creditor has them, tabulate some numbers and send that to the consumer.

You may be surprised to find out that many creditors keep terrible records. Many debt collectors make something up so they can continue to collect or ignore your disputes and use the brute force method of continued calls, letters, and harassment until you give up. In most cases, the collectors are right, people don’t know their rights, and they get away with violating the law.

The proper response to some sort of weak or non-existent validation attempt is a follow up letter stating that what they sent is not validation and you consider the matter to be disputed followed by a lawsuit.Properly validating an account is often an arena for mistakes and is where collectors commonly violate the law.

But they keep calling, refused to get validation, or sent me some bogus validation… what do I do now?

This leads to the next article segment: so a debt collector violated the law… once you get to this point, the tables have effectively been turned, and the collector owes you money and we’ll go over how to collect from the collectors. Stay tuned for the update.

This is the third guest post in a special How to Fight Debt Collectors series on Bargaineering.com.

(Photo: jaytamboli)

What Constitutes Debt Validation? from personal finance blog Bargaineering.com.

Writing a debt collection dispute letter is the first line of defense against a debt collector. Make them prove that the debt is legitimate before you do anything. Just because they have your name doesn’t mean the debt is legitimate. If you don’t remember it or you remember paying it off, a dispute letter can help you resolve it quickly.

Once you know who is calling you and what they are likely to do, it’s time to push back with a properly worded dispute letter.

Why? First, it’s fully within your rights to have the debt validated.

Second, many collectors try to add on fees, inflate the amount owed through interest, or otherwise get a little extra for their trouble. For folks terrified of your credit score, immediately paying a collector can earn you a big fat “paid collection” on your credit reports, which will tank your credit score just like an “unpaid collection” will.

If collectors can allege that you owe money, they should be able to prove it. Most people would laugh at the concept of paying a random stranger who asks for money, but somehow paying a random voice on the phone demanding money or letter makes sense. Instead of buying into such insanity, demand to see a bill or documentation of the debt.

Under Federal law, a dispute and validation request requires the collector to cease calling and obtain and send validation from the original creditor to you the consumer. Ceasing collection efforts properly would require putting all efforts on hold: phone calls, letters, credit reporting, etc. This doesn’t always happen, and when the collector fails to do so, they owe you money for each violation.

There are a lot of bad debt validation letters floating around on the internet. They are bad because ask for things a debt collector isn’t required to provide. They usually start with “This is not a refusal to pay but notice that your claim is disputed.” I can’t go into go into the many, many things that are wrong with these letters in this article and keep this article under 30 pages, but just remember the KISS principle and apply it here.

What does a debt validation letter need? No need to get fancy:

• Name
• Date
• I dispute, please Validate
• Do not sign the letter
• Send it via certified mail

Pretty simple, right? Some may wonder why you don’t sign the letter. Some debt collectors might be tempted to do some Xerox magic and transfer your signature onto some other documentation where it previously was not. Furthermore, the Fair Debt Collection Practices Act (FDCPA) doesn’t require a signature, so why bother?

If you don’t want the collectors to call your place of employment add: “My employer does not permit calls at work or just tell them not to call you at work.”

Alternatively, if you don’t want them to call your house or at all, just add that “all phone calls are inconvenient.” Why inconvenient? The FDCPA prohibits calls to places or times that the consumer deems inconvenient. Just state that calls to your cell phone or house or all calls are inconvenient, unless you like getting debt collection calls.

Once you write the letter and send it out, you just wait. Most collectors will respond in a week or two. I will pick up what to do next if the collectors just won’t leave you alone in the next article.

(Photo: jaytamboli)

Writing Your Debt Collection Dispute Letter from personal finance blog Bargaineering.com.

So you’ve received a debt collection call or letter…

In this day and age where you have rampant foreclosures, layoffs and job losses, it is simply inevitable that an individual may come across a debt collector, and frankly even without these external factors, it may just happen by a chance wrong number or even being related to someone going through a hard time financially. Many people have questions and are unprepared to deal with this, but after reading this series of articles, you will be. I will detail the key steps you should take to secure your rights, aggressively defend yourself, and ultimately make the debt collectors pay YOU to go away. This is not your typical “just pay your bills and get a second job” column, so please read on.

The War for Your Money

There is a battle out there folks, and like it or not, you have been drafted. This is the war for your money. Banks, credit card companies, credit bureaus, and debt collectors are all in it together on one side, and on the other is you and me, the American consumer on the other. I wish I could describe it as a fair and free negotiation for goods or services, but it simply is not. Consumers need to understand that there are smart, well heeled interests seeking to exploit them and take advantage of them every chance they get.

Don’t believe me; just look at what these parties have done over the years: Two cycle billing, mandatory binding arbitration, the latest bankruptcy reform, below market mortgage deals for legislators, and the list goes on and on. These are all coordinated efforts to take away your rights and to turn you into a financial slave.

Consumers need to adopt an aggressive, litigious mindset and understand that Angelo Mozillo (former CEO of Countrywide) is not your friend. In fact, if you are trying to do a loan modification, he thinks you are disgusting. When these morons have a problem and make a bad decision, it is a national emergency requiring lots of our money, but woe to thee if one of us mere mortals has a financial problem or makes a mistake. They’ll have no mercy on us and respond with bad credit reporting, inflated demands for money, baseless lawsuits, etc… Well, I say enough is enough.

More to the point, debt collectors routinely violate the law in various ways, at which point the collectors most likely owe the consumers money. Consumer up to now have not made at the collectors pay. This is how the primary law, the Fair Debt Collection Practices Act was designed to work by congress: private attorney generals (that’s’ you) suing debt collectors into compliance. The basic strategy is to document violations of the law, file suit, and usually the smart collectors will hand you some money and beg you to leave them alone. Once a collector violates the law that is your opportunity to make them pay, literally.

The terminal purpose should be you facing your creditors in a court of law with their name under the Defendant column. Notice, I didn’t say draft Intent to sue letter, threaten to file suit, get an attorney to write a letter, or any of that crap. File a lawsuit. It isn’t hard, it isn’t scary, and it isn’t prohibitively expensive. I will show you the way, lock and load and follow me!

Know Your Enemy & The Battlefield

The very first thing I would do is punch their name into Google and check out www.budhibbs.com. Google will give you some idea of the agency’s tactics and reputation, and Bud Hibbs will give you more detailed information from a consumer viewpoint. Budd has a good database of the major players in the debt collection industry and their tendencies, so you can know what to expect going forward.

• Does the collection agency have a tendency to violate the law?
• Are they complete fraudsters?
• Are they operating under a consent agreement from the FTC?

These are key questions you can get an early indication of by doing some basic research. Additionally, check some of the consumer message boards: creditnet.com, creditboards.com, and debtorboards.com are all good places to start. It’s not uncommon to find someone currently dealing with or someone that has dealt with that company in the past. Start a thread and enlist your fellow consumers for help, they are more than likely willing because we’re all in this war together.

Second, find out the company to see if they are bonded or licensed as required by state law. You need to understand the requirements your state imposes on debt collectors. I have found that this LawDog center resource page is one of the best places out there to learn the requirements debt collectors have to satisfy. Some states require only a license, some require only bonding, and others require both. I list the requirements for each and every state in this article, but do yourself a favor and at least become familiar with what your state requires. This is important because if they aren’t compliant, each of their collection attempts is illegal and you can drag their butts into court.

Finally, and this should go without saying, but you need to be very familiar with the debt collection laws in your state and the Federal laws that cover this. Do you know what the maximum penalty for debt collector violations under state law is in North Carolina? (It’s $2,500 per violation) Can a debt collector call your relatives (yes if they do not have your location information, otherwise no) Is that a violation for a debt collector to call at 7:30 AM? (yes) Say you received an initial call from a collector, is there anything else they have to do? (yes, send you a summary of your rights under the FDCPA within 5 days). I wouldn’t expect everyone to be able to spout off the laws on command, but certainly know what laws apply and where to find them.

Next, we’ll take a look at your first line of defense – the debt collection dispute letter.

(Photo: jaytamboli)

How to Research Debt Collectors & Understand the Law from personal finance blog Bargaineering.com.

This guy is a real deal.

I’ve written about how to fight debt collectors in the past, but I wanted to put together a dedicated series authored by a true expert. For that, I tapped the most experienced, knowledgeable, battle-tested person I knew. We were strangers before the process started but I’m glad to have made his acquaintance and had the benefit of learning from his experience.

In this series, Codename47 will be discussing the advice on how to fight back against debt collectors. This is the same advice he uses when helping folks on Fatwallet, just distilled into article form, and it’ll cover tactics such as how to conduct background research on the collector, how to confirm they are following state and local laws, how to craft a good dispute letter (keep it simple stupid), how you should document violations so you can take them to court, and other parts of the process only a seasoned veteran can know.

This won’t be a guide for people looking to get out of legitimate debts. It’s going to advise you of your rights under the law and protect you from being harassed. I feel personal accountability is always important and that one should fulfill their financial obligations, but not at the expense of your liberties (or sanity).

As the articles are published I will link to them here so bookmark this page, or subscribe to the RSS feed, if you want to ensure you don’t miss an article.

Debt Collection Articles

1. How to Research Debt Collectors & Understand the Law If you have a debt collector calling you, it’s important that you conduct background research on them and familiarize yourself with the debt collection laws in your state.
2. Writing Your Debt Collection Dispute Letter – Is the debt legitimate? Are they the ones who would be collecting? Make them prove it to you with a dispute letter.
3. What Constitutes Debt Validation? – You sent your debt dispute letter and they responded, but was the response a legitimate and adequate validation of your debt?
4. Case Study: Classic Debt Collection Story – A reader shares with us her experience with a debt collector and Craig gives his post-mortem debriefing on how he would’ve handled it differently.
5. When Debt Collectors Violate the FDCPA – So you sent a letter, told them that calling was “inconvenient,” but the collectors still call… what do you do when debt collectors violate the FDCPA? Read and find out.
6. What are Junk Debt Buyers? – Many of the debt collectors that operate today bought the debt, sometimes known as junk debt, from another party. Find out how it all works and how you might benefit from knowing if the collector is a junk debt buyer.
7. Understanding 1st Party and 3rd Party Collectors – Not all debt collectors are created equal, find out the difference between a 1st party and 3rd party debt collector.

(Photo: pumpkinjuice)

How to Fight Debt Collectors Series from personal finance blog Bargaineering.com.

A debt management program is similar to debt settlement in that you pay a third party who will, after taking their fee, pay your creditors. You are still responsible for your debts but the third party will help you stay disciplined in keeping your obligations. However, that’s where the similarities between the two differ.

A debt management programs or plans may be able to help you negotiate for lower interest rates on your debts, get your late fees waived or reduced, work out a payment schedule, and potentially consolidate your various monthly payments into one payment. Like debt settlement, these programs are not cheap and some places will charge you a lot in fees. The goal with a debt management program

How Debt Management Programs/Plans Work

Usually you contact a credit counseling organization and, after a thorough financial review, they may recommend that you begin a debt management program to help you repay your debts. I recommending reading this Federal Trade Commission article on credit counselors before you make any decisions.

The DMP is a fairly simple program. You deposit money each month with the credit counseling organization and they use those funds to repay your unsecured debt. They will contact your creditors on your behalf and try to get your interest rates lowered and some fees waived. You will have to double check that the counseling organization is actually doing this, otherwise you’re paying them for nothing. Call your creditors and confirm that they have accepted the plan as outlined by the counseling organization. The key in all this is that there is a plan in place, based on your financial situation, and that you know you’ll be free of those debts after the program is complete.

The FTC has a must-do list for people on DMPs, if you are considering it then I would read that article and make sure you can do everything on that list before you sign up. It doesn’t help you to sign up for any debt solution if you can’t meet the solution’s requirements!

You Can Do It Yourself

There is nothing about debt management that you can’t do yourself, if you have the discipline. Unlike debt settlement, where you negotiate with creditors and convince them to take a lower settlement, debt management requires very little negotiation. One of the most important things you should take away from this article is that you can do this yourself.

In addition to being able to do it yourself, it requires a lot of discipline whether you work with credit counselors or not. You still need to make payments. If that’s a problem today and a little interest rate help isn’t enough, it makes no sense to pay counselors to setup a plan or enroll you in a program that won’t help. In the end, you still need to make payments and these programs are not panaceas.

Do It Yourself Debt Management

Have I convinced you that it’s something you might be able to do yourself? If so, here’s the DIY version:

• Set up a budget: Budgeting may seem like a pain and you may not know how to budget, but it’s an integral part of any plan to pay off your debt. With a budget, you’ll be able to cut unnecessary expenses and find extra money to put towards your debts.
• Call creditors: This is the only “scary” part of the process because you’ll need to ask your creditors for some help. Ask them if they can waive your late fees, reduce your interest rates, or work with you to setup a payment schedule that you can meet. Be honest and tell them that you’re in debt and trying to get out, you just need a little help. They don’t want you to go bankrupt, miss payments, or otherwise default, so they should work with you.

Sounds easy right? The plan is straightforward, it’s the execution that’s tricky.

There are a ton of people who have repaid their debts without the help of debt settlement or debt management programs, but if you’ve used a DMP (even if it’s a homegrown one), please share your experiences.

How Debt Management Programs Work from personal finance blog Bargaineering.com.

A friend of mine recently got into the debt settlement business since he was working with a lot of individuals in weak financial situations. We spent the better part of three hours discussing how debt settlement worked, why debt settlement made sense to some people, and why the business had such a bad reputation. My friend is a stand-up guy, I trust him, and so it was refreshing to hear about the business, warts and all.

In this Foundation series article, I hope to pass on some of that knowledge to you.

How Debt Settlement Works

Here, in a nutshell, is how debt settlement typically works.

Who It’s For

You are behind on your debts and you are seriously considering bankruptcy as a way of getting yourself back on track. Bankruptcy itself is generally considered the nuclear option because it’s a mark that stays on your credit history for 7-10 years, depending on which one you declare. As you can see, debt settlement is not for someone who is a little behind on a debt they can otherwise manage. It’s for people in a difficult spot and looking for an option other than bankruptcy.

It’s generally believed that the debt settlement process can help you save 40-60% on your debts and the costs are approximately 15% your total debts. These are just ballpark figures I’ve pulled from across the web, some of which are offered by debt settlement companies, so your personal experience may differ.

Debt Settlement Process:

• The Setup: When you work with a debt settlement company, you stop paying your creditors and start paying into a trust account set up by the debt settlement company. Part of your payments goes towards fees and part of it goes towards an account that will then be used to pay off your creditors after negotiation.
• The Dark Waiting Period: The missed payments begin appearing on your credit history, your credit score drops, and creditors start calling you. Creditors typically write off debts that are over 180 days late, so as that date nears they become more and more anxious.
  In addition to waiting for the creditors to get anxious, you have to wait for your trust fund’s balance to get high enough to pay down negotiated debts.
• Collections/Negotiation: At some point, the creditor will sell the debt to collections agencies for less than the debt itself. It’s somewhere at this point that the negotiation begins and it can start to get a little complicated so I’ll use an example:
  

  Let’s say you owe $1,000. The creditor knows they can sell a debt to a collections company for $200, taking a $800 loss on the debt. If a negotiator says they would be willing to pay $500 to “settle” it, the creditor will probably take it. They get $500, rather than $200 for selling it to collections.

  If it does go to collections, the collections agency bought it for $200 so they would gladly take an amount above $200 because it means they generated a profit off the bad debt.

Why The Bad Reputation?

Like with everything dealing with money, there are always scams. Debt settlement companies want to be the interface between you and the creditors, so they can negotiate down the debts. The problem with this process is that once communication stops, you can never be sure the debt settlement company is doing what they are promising. If they are simply collecting your money and not doing a thing, it’s very difficult for you to know. The best option for you is to review ratings with the Better Business Bureau, but even that is not guarantee.

Another reason they get a bad reputation is because debt settlement companies are expensive. They have to pay for the trust account, lawyers, and other administrative staff to manage the entire process, and we all know lawyers are not cheap! You’ll have to pay setup costs, monthly fees, and lots of other fees. This is where you really need to be diligent in reviewing what goes towards fees.

Risks of Debt Settlement

Beyond the risk that you’ll be ripped off, there’s always the risk that creditors won’t negotiate with a negotiator. As you stop making payments, the late fees and the interest and everything else piles up. It may get to the point where it will make sense for the creditor to sue you and demand that your wages be garnished.

Your credit score will fall. There’s no way around it. You will miss, by design, payments to creditors and they’ll report those missed payments to the credit bureaus. You’ll get 180+ day late marks, records indicating your debts went into collections will appear, and your score will plummet. If your score was already low because you were missing payments already, then the impact of this will be much lower. The reason why debt settlement is so appealing is because if you’re seriously considering it, chances are your credit is already lowered.

You Can Do This Yourself

In theory, you can negotiate and settle your debts yourself. With the recession, creditors know that people are in tough spots and you may be able to call up your creditors and negotiate down your debts. If you’ve missed a few payments to your credit card, the company might be anxious to salvage whatever they can from your account. Just know that if you succeed, your account will be closed.

In practice, it’s very difficult because you aren’t a lawyer. As much research as you may do, as much as I have personally read, it’s still a cat and mouse game to be played and neither one of us has experience in that arena. Also, creditors may not be interested in negotiating with individuals. However, it never hurts to call and try it for yourself, right?

Alternatives to Debt Settlement

Seek credit counseling. Credit counseling is something that people must attend if they want to declare bankruptcy and it’s something you may want to consider to help get you back on track. Credit counselors can help you repay your debts, rather than seek bankruptcy or debt settlement.

Bankruptcy. It’s an ugly word but it’s an alternative to debt settlement. The downside of bankruptcy is that it stays on your credit report for 7-10 years but generally it’s a more structured process with less fraudulent behavior involved. You will still have to pay fees, this time to credit counseling and bankruptcy lawyers, so it’s not a no-cost option.

Finding A Reputable Debt Settlement Company

I don’t know the answer to this but Todd Ossenfort, the Credit Guy at CreditCards.com advises that you choose a company that:

• Is accredited by The Association of Settlement Companies (TASC)
• Has certified debt arbitrators
• Has reasonable fees (shop around)
• Has a service guarantee
• Discloses what is included in your debt settlement program, including fees
• Is a member of the Better Business Bureau or area Chamber of Commerce
• Is licensed and bonded in your state, if so required

Do you have any personal experiences with debt settlement companies? If so, I would love to hear your feedback about the process. If you have any words of advice, things to watch for, or see errors in this post, please let me know!

(Photo: pumpkinjuice)

How Debt Settlement Works from personal finance blog Bargaineering.com.

If you are currently struggling with debt and have fallen behind, there is a large chance you are dealing with collectors on a regular basis. In this situation, it is vitally important that you have a firm grasp on your rights. Violations of these rights occur on a daily basis, fueled by the lack of knowledge from the average consumer.

I’m Current On My Debt. Why Should I Care?

Even if you aren’t struggling with debt, I’d be willing to bet there is someone in your life who is. Nothing gets my blood boiling more than stories about debt collectors taking advantage of people in desperate financial situations. If someone you care about finds themselves in this situation, you will be glad you have the information to help them!

Don’t get me wrong, I know for a fact that not all debt collectors are bad people. But like many groups, a few “bad apples” are causing the entire industry to spiral out of control. Ultimately, consumers should take responsibility in fulfilling obligations they knowingly enter into and receive benefit from. However, they should be able to do this without being subject to harassment or abuse.

Disclaimer: The information provided below is a general summary and should not be mistaken for a definitive list. If you feel like you have been the victim of harassment of any kind, please contact a local professional who can review the specifics of your situation. Any quoted text references this full-length PDF, which is publicly provided by the FTC.

To start, let’s take a look at Congress’ own reasons for addressing this issue.

They’ve outlined it remarkably well in the early parts of the act:

§ 802. Congressional findings and declaration of purpose

1. There is abundant evidence of the use of abusive, deceptive, and unfair debt collection practices by many debt collectors. Abusive debt collection practices contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy.
2. Existing laws and procedures for redressing these injuries are inadequate to protect consumers.
3. Means other than misrepresentation or other abusive debt collection practices are available for the effective collection of debts.

I couldn’t agree more!

Now, onto some of the specifics…

How a collector should act when talking to anyone other than the person that actually owes the debt.

A collector should:

• Identify themselves, but not their employer unless specifically asked.
• Reasonably attempt to speak only with an attorney, once they are informed that the consumer is represented by an attorney.

A collector should NOT:

• Ever state that the consumer owes any debt.
• Contact a person more than once after receiving complete and accurate information.
• Communicate by post card.
• Send mail which indicates, on the outside of the envelope, that it is about the collection of a debt.

How a collector should act when talking to anyone other than the person that actually owes the debt.

A collector should:

• Cease contact upon being informed that the consumer refuses to pay the debt or wishes to not be contacted further. Afterwords, the collector should only contact the consumer to:
  • Acknowledge that further collection efforts will be terminated.
  • Inform the consumer of all potential remedies.
  • Notify the consumer that a specific remedy has been initiated (pending lawsuit, etc…).

A collector should NOT:

• Contact a consumer at a time which is a known (or should be a known) inconvenience. By default they should not contact the consumer before 8 a.m. or after 9 p.m. local time (of consumer).
• Contact consumers at their place of employment, after being informed that it is not permitted by the employer.

List of prohibited practices that are considered harassment and/or abuse.

A collector should NOT:

• Use or threaten violence or any other criminal activity.
• Use obscene language with the intent to abuse the consumer.
• Publish a private list of consumers who refuse to pay debts.
• Leverage the sale of a debt in order to coerce payment.
• Repeatedly or continuously call, regardless of whether the consumer answers, with the intent to annoy.
• Engage in a telephone call without disclosing their identity.

List of prohibited practices that are considered false, deceptive, or misleading.

A collector should:

• Properly disclose that the collector is attempting to collect a debt.
• Immediately classify and continue to report a disputed debt as actually “disputed.”

A collector should NOT:

• Falsely claim to be “vouched for, bonded by, or affiliated with the United States or any State.”
• Falsely represent the “character, amount, or legal status of any debt.”
• Falsely represent any compensation for the collection of a debt.
• Falsely claim to be an attorney or that any communication is from an attorney.
• Claim that nonpayment will lead to arrest or that any property will be seized unless the collector:
  • Can lawfully claim seizure of said property.
  • Intends to actually take that action.
• Threaten any action that is not legal or that they do not intend to actually do.
• Falsely claim that an impending sale of the debt could cause future harassment from another entity.
• Disgrace the consumer by claiming that the debt was a result of a crime.
• Threaten to communicate false credit information to a third party.
• Falsely representing a document as approved by any court or government entity.
• Use any fake business or company name.
• Falsely claim to be associated with a consumer reporting agency.

List of additional prohibited practices that are considered unfair.

A collector should NOT:

• Increase the amount of the original debt by adding their own interest, fees, or expenses, unless the original debt agreement authorizes said fees.
• Accept a postdated check with the intent of instituting criminal prosecution.
• Threaten to or actually deposit a postdated check before the date on the payment.
• Cause a consumer to incur additional charges from communication, such as collect calls or telegram fees, by concealing the purpose of the communication.

Outline of “30 day” notices and initial obligations of the collector.

Within five days after the initial communication, a debt collector should provide the following information:

• Total amount of the debt.
• Name of the original creditor.
• A statement that informs the consumer they have 30 days to dispute the validity of any portion of the debt.
• A statement that if the consumer disputes within 30 days, the collector will be responsible for providing written verification of the original debt.
• A statement that that the consumer may request, also within 30 days, the original creditor’s name and address.

If a consumer (a) disputes the validity of any portion of the debt or (b) requests the original creditor’s name and address, the collector should cease collection of the debt until all the information requested is provided.

How collectors should handle single payments by consumers with multiple debts.

A collector should:

• Attempt to “apply such payments in accordance with consumer’s directions.”
  

A collector should NOT:

• Apply any amount to a debt which is being disputed.

In the event of a lawsuit, discusses where a collector should file suit.

A collector should:

• In the event they wish to enforce interest in real property, bring action in the judicial district where the actual property is located.
• If no interest in real property, only bring action in the judicial district where:
  • The consumer signed the original debt obligation.
  • The consumer currently resides.

Last, but not least…

No one plans to be in a situation where they are dealing daily with creditors. However, a large number of families find themselves in this situation. By familiarizing ourselves with our rights under the Fair Debt Collection Practices Act, we can minimize the financial hardship exacerbated by irresponsible and abusive collection techniques.

How the Fair Debt Collection Practices Act Protects Debtors from personal finance blog Bargaineering.com.

Yep, even if you don’t have any money left and want to file for bankruptcy, there are costs involved! There are costs involved because bankruptcy involves the courts and the employees of the court have to get paid! The cost of filing for bankruptcy breaks down into three types – required credit counseling, bankruptcy filing fees and attorney fees.

Let’s quickly recap the two different types of individual bankruptcy. Chapter 7 bankruptcy is where you liquidate almost everything and your eligible debts are discharged. Chapter 13 is a reorganization bankruptcy where you renegotiate your debts so that you can pay them off in 3-5 years. For completeness sake, Chapter 12 is the Chapter 13 version for family farmers or fishermen.

Required Credit Counseling

Before you can declare bankruptcy, the court generally requires that you get credit counseling from an approved counseling organization (there are exceptions and you can file request a waiver). You can find a list of approved credit counseling agencies at the U.S. Trustee Program website. The title of that page, “List of Credit Counseling Agencies Approved Pursuant to 11 U.S.C. § 111,” references the section of the U.S. Code that requires pre-bankruptcy counseling. The FTC offers some advice on how to choose a credit counselor.

The cost of these programs varies from area to area so you’ll have to do some legwork to find the actual cost of these.

Bankruptcy Filing Fees

• Chapter 7 – $299
• Chapter 13 – $273
• Chapter 12 – $239

Fairly straight forward right? Those are the total fees according to the Administrative Office of the U.S. Courts.

Attorney Fees

Here’s where the numbers aren’t so clear because you’re paying an attorney to help you properly file the paperwork. This can run anywhere from several hundred to several thousand dollars but it’s generally recommended that you hire an attorney for the process. You are permitted to represent yourself in bankruptcy court but mistakes can be very costly. Fortunately, you may qualify for pro bono/free legal services, contact your state or local bar.

Long Term Cost

None of the listed “costs” considers the the long-term financial impact of filing for bankruptcy. When you file for Chapter 7 bankruptcy, it’s reported on your credit report for ten years. A Chapter 13 appears for seven years. If you decide to go down this road, you have ot be sure it’s the only answer.

The Cost of Filing for Bankruptcy from personal finance blog Bargaineering.com.

Does that mean it’s on the horizon? Or is it simply not news when you can talk about an domestic auto manufacturer calling it quits? Either way, I think it’s important to understand the different types of bankruptcy, even if it is a dirty word, because it could one day help you if you’re in trouble.

U.S. Code, Title 11 – Bankruptcy

When you hear people talk about bankruptcy, they often say things like “Chapter 7″ or “Chapter 13″ bankruptcy. What do the chapters refer to? They refer to the U.S. Code, specifically Title 11 which covers bankruptcy law. You can read Title 11 at Cornell’s Legal Information Institute. You may recall, from my post on the law that requires us to pay income tax, that the U.S. Code is the codification of the laws of the United States. Each of the chapters covers a different aspect of bankruptcy law with Chapters 7, 12, and 13 being the most pertinent to individuals.

Types of Bankruptcy

Chapter 7 bankruptcy is a liquidation bankrupcy where you are forced to liquidate almost everything. It’s the most common type of personal bankruptcy. You turn over all non-exempt property to a bankruptcy trustee. The trustee liquidates it and distributes it to your creditors and you receive a discharge of all discharge-able debts. A Chapter 7 bankruptcy will remain on your credit report for 10 years from the filing date.

Chapter 13 bankruptcy is called a reorganization bankruptcy and used when you feel as if you can repay your debts over three to five years if you can get slightly more favorable terms. It’s possible to file for Chapter 13 if you can prove you have the income after your expenses to pay back your debts if you can get better terms. This option is available only if you have less than $336,900 in unsecured debt and less than $1,010,650 in secured debt.

Chapter 13 is better than Chapter 7 because you’re usually able to keep your home and car and Chapter 13 bankruptcies remain on your credit report for 7 years from the filing date.

Chapter 12 bankruptcy, which is lesser known, covers bankruptcy law if you’re a family farmer or fisherman. It’s very similar to Chapter 11, which is the business version of Chapter 13, and Chapter 13 except it’s more streamlined and designed to work better for family farmer/fishermen businesses. I won’t go into any more detail because it’s unlikely to affect you. If it does, I recommend reading this article on Chapter 12.

Those are the main types of individual bankruptcy. I like to think of Chapter 7 as the “fresh start” type of bankruptcy, where your assets are liquidated and your debts are discharged, and Chapter 13 as the “battle back” type of bankruptcy, because you get debt assistance from the courts but you still repay your obligations.

Finally, remember bankruptcy isn’t a good thing but it’s not a bad thing either. It doesn’t mean you’re a bad person. A few years ago Harvard Law School and Harvard Medical School teamed up to study bankruptcies in 2001 and saw that half of the personal bankruptcies were caused by illness and/or medical bills and it still remains one of the top three reasons people file for bankruptcy.

(Photo: thetruthabout)

Types of Individual Bankruptcy from personal finance blog Bargaineering.com.

Some see it as a tool to be used to help them improve their financial situation. Some see it as a temptation to get more than you should be allowed to. And some see it was an insidious monster lurking around the corner, waiting for you to slip and make a mistake. Some see it as something the never want to touch.

Today we’re not going to talk about any of that stuff. Today I want to share with you some “fun facts” about debt that you might find useful at your next trivia night!

Origin of Debt & Usury

1. The origin of the word debt is dete, in Old French. Dete has its origins from the Latin word debitam, meaning “thing owed.”
2. If you go the other way, it gets to be interesting. The Latin word debere, “to owe,” is also from which debt is derived and is also the source of the following English words – debenture, debit, due, duty, and endeavor. Some look at debt as a way to start new endeavors.
3. The origin of the word usury is the Latin word usuria, meaning “interest.”
4. Today, usury has two definitions according to Merriam-Webster:
   

   1 archaic : interest
   2: the lending of money with an interest charge for its use ; especially : the lending of money at exorbitant interest rates
   3: an unconscionable or exorbitant rate or amount of interest ; specifically : interest in excess of a legal rate charged to a borrower for the use of money

5. The second definition, “an unconscionable or exorbitant rate or amount of interest,” didn’t come into use until countries imposed limits on interest. Today, the term is usually applied to this definition.




History Frowns on Usury

6. The Code of Hammurabi regulated interest rates on loans and many loans were made below that legal limit.
7. The third table in the Roman Twelve Tables of Law governs debts and the repayment of debts:
   

   1. One who has confessed a debt, or against whom judgment has been pronounced, shall have thirty days to pay it in. After that forcible seizure of his person is allowed. The creditor shall bring him before the magistrate. Unless he pays the amount of the judgment or some one in the presence of the magistrate interferes in his behalf as protector the creditor so shall take him home and fasten him in stocks or fetters. He shall fasten him with not less than fifteen pounds of weight or, if he choose, with more. If the prisoner choose, he may furnish his own food. If he does not, the creditor must give him a pound of meal daily; if he choose he may give him more.

   2. On the third market day let them divide his body among them. If they cut more or less than each one’s share it shall be no crime

8. In Dante’s Divine Comedy’s first canticas, “The Inferno,” usurers go to the “outer ring” in the seventh circle of hell, which houses the violent. In this case, they go to the outer ring because they are violent against people and properly.
9. The First Council of Nicaea, believed to be the First Ecumenical council of the Christian Church, in 325 AD forbade clergy from lending money with interest above one percent per month.
10. Third Council of the Lateran, 11th ecumenical council that met in 1179, decreed that anyone who accepted interest on loans could receive neither the sacraments nor Christian burial.
11. Sharia, the body of Islamic religious law, forbids the charging of Riba, which is usury/interest in Sharia.
12. Did you know that in the Middle Ages, debtors were locked up in debtor’s prison until their families paid their debt? Men and women were locked up until their families paid up and many of them ended up dying.
13. The Debtors Act 1869 in the United Kingdom abolished debtor’s prison with one exception. If the debtor was able to pay their debt and simply refused, they could be put in prison for up to six weeks.
14. In 1833, the United States stopped imprisoning people for debts at the federal level.
15. Only two states in the United States forbid imprisonment for debts: Tennessee and Oklahoma.
16. Today, you can still be incarcerated for debt such as fraud, child support, alimony, or taxes.
17. There are three famous debtor’s prisons in the United States, all of which are located in the Great State of Virginia: Accomac, Worsham, and Tappahannock. All are registered as historic places and landmarks.




Laws of the United States

18. After the Revolutionary War, the states adopt general usury laws and many states set the limit at 6%.
19. Deregulation in the early 1900s results in eleven states eliminated usury laws and nine raising the cap to double digits.
20. The Uniform Small Loan Law, passed in 1916, lets specially-licensed lenders to charge higher interest rates if they follow strict standards.
21. States legislate the maximum legal interest rate that lenders can charge on loans, though Congress may have the power according to the interstate commerce clause of Article I of the Constitution (they simply choose not to make an issue of it).
22. Wondering why most credit card companies are incorporated in Delaware or South Dakota? It’s because they abolished usury laws, lenders there can charge whatever interest rate they want!
23. Wondering why the usury laws are applied based on the state residence of the customer? You can thank a 1978 Supreme Court case, Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp. Until then, interest rates were capped according to the state of the borrower.
24. So why are payday loans allowed to exist if they charge such a high rate of interest? It’s because they don’t, the actual interest rate is low, they simply hide the payments as “fees;” though many states have begun to outlaw payday lending.
25. In 2006, Congress passed the Talent Amendment which caps interest rates at 36% on loans made to active military and their families.
26. When the first modern federal income tax was created in 1894, all forms of interest was deductible. That income tax was ruled unconstitutional and so the Constitution was amended in 1913 and a new tax was enacted (interest was again deductible).
27. The Tax Reform Act of 1986, after people started taking advantage of credit cards and other consumer debt, simplified the tax code and removed the deductibility of consumer loans.
28. Today, two consumer types of interest can still be deducted from your income for tax purposes (if you qualify): student loan interest and mortgage loan interest.
29. The Taxpayer Relief Act of 1997 allows for the deduction of interest paid on qualified student loans.




National Debt



30. The clock above is a little old… it only shows $10.3 trillion!
31. As of May 6th, 2009, the outstanding national debt of the United States stands at a little over $11.2 trillion dollars. (and by a little over, I mean $26 billion over $11.2 trillion)
32. If there are 306 million citizens in the United States, each person’s share is $36,673.61.
33. The national debt is the largest of any nation in absolute terms.
34. As of the end of January 2009, the debt was 73% of GDP, which is high but similar to France and German (less than Canada, Italy, and Japan).
35. The national debt is estimated to have been a mere $2.1 billion at the start of the 20th century.
36. When the 20th century ended, it was over $3.2 trillion.
37. The interest payment on the debt as of September 30th, 2008, was $451,154,049,950.63. (Treasury Direct’s stats)
38. Interest Expense Fiscal Year 2009? A mere $19,829,502,464.91.
39. In terms of the greatest increase in debt relative to GDP, the largest increases occurred in the two terms of Ronald Reagan (+11.3%, +9.2%) and George H.W. Bush (+13.1%). It’s important to note that Congress is responsible for the budget. (source)
40. The lowest, which were negatives, was the Roosevelt/Truman term (-24.3%), Truman (-21.9%), and the first Eisenhower term (-10.8%).
41. Did you know that you can send money to the Treasury to pay down the debt? Yep, make a check payable to the Bureau of the Public Debt and write in the memo section that it’s a Gift to reduce the Debt Held by the Public. Mail it to:
    

    Attn Dept G
    Bureau of the Public Debt
    P. O. Box 2188
    Parkersburg, WV 26106-2188

42. If you want take advantage of the United States’ insatiable appetite for debt, you can always buy one of any number of debt securities offered by the government. here is our Foundation post on US Treasury debt.
43. Interest earned from Federal bonds is typically exempt from state and local taxes. It may also be exempt from federal taxes if used for educational purposes.
44. Here’s what a trillion dollars in $100 bills looks like (scroll down). That’s just one trillion, the US national debt looks way more impressive/scary.
45. While state governments can’t run a deficit and thus cannot rack up debt, the federal government can up to a debt ceiling. In September 1987, the ceiling was $2.8 trillion. In February 2009, the debt ceiling was raised to $12.104 trillion.
46. Oddly enough, it’s estimated that nearly 50% of US Treasury Securities, as of June 2008, are held in the Federal Reserve and Intra-governmental Holdings. In other words, of the outstanding debt, the government actually owns half of its own debt.
47. As much as the press would like you to believe otherwise, it’s estimated that 28% of the debt is owned by foreign and international agents. 28% is still pretty high but with the news you’d think China owned everything.
48. While we’re on the topic of foreign holders of US debt, as of January 2009 the Chinese government owns 24.07% of the debt. Japan is in the #2 slot with 20.66%.
49. The National Debt Clock in Times Square was created by real estate investor Seymour Durst. When the debt crossed the $10 trillion mark, the clock’s $ sign had to be replaced with an extra digit!
50. The national debt was $2.7 trillion dollars when the clock was first erected.
51. In 2000, the clock started to run backwards as the government ran with a surplus!

And there we go, fifty (and one!) fun facts about debt – the history of debt, the laws governing debt, and even some fun trivia about the national debt. I hope you enjoyed it!

(Photo: wallyg, anabadili, andrewbain, kevinkrejci)

50 Fun Facts About Debt from personal finance blog Bargaineering.com.