Credit & Debit

Disputes often arise over the payment of debt or the collection of credits. These debts can arise from credit cards, loans, or other ways in which clients either owe money or are trying to actually recover debts that are owed to them.

Debt Collection

A debt arises when one party (the creditor) loans money to another party (the debtor) with an expectation of being paid back at a later date (usually with interest.) At times a person will find themself burdened with more debt than they can handle; however, all debts must be repaid according to the terms of the loan contract, even if economic hardships or other problems arise for the debtor. This means a debtor who finds themself in an economic tough time should immediately:

• Contact each of their creditors and explain the situation.
• Try to work out a payment plan that, while different from the one originally agreed upon, will be feasible for the debtor and satisfactory for the creditor.
• Stick to the plan you work out. Although creditors are usually eager to work with their debtors to solve problems, they may lose patience if a debtor often reneges on newly formed payment plans.
• Consider contacting a credit counseling service. This service works out a payment plan for the debtor, and distributes the actual payments to the creditors.

Other methods of dealing with debt include consolidating debt through loans or declaration of bankruptcy. These are steps with serious consequences and should be taken only after consulting with an attorney.

Although working toward a solution is advantageous for both sides, if a debtor fails to pay back the creditor, the creditor will likely take action to try to get their money back. Remember, if a client is the debtor, YOU OWE THE MONEY. Therefore, a debtor should do everything they can to pay back the money. There are no laws that allow you to simply "escape" debt.

Dunning (the practice of a creditor trying to encourage the payment of debts) is legal, but has a few restrictions. A creditor may not:

• Call the debtor at home more than two times in each 7-day period or at any other place in each 30-day period for each debt.
• Call the debtor and not identify themself as a person calling on behalf of a creditor
• Send collection notices to the debtor that openly implies that the person is in debt.
• Tell anyone about the debt in hopes of intimidating the debtor into paying.
• Contact the debtor outside of normal waking hours (8AM to 9PM).
• Contact the debtor directly when the creditor has been notified to communicate only with the debtor's attorney.
• Cause the debtor to be charged for long distance phone calls.
• Falsely threaten to take legal action.
• Threaten to use violence
• Use obscene language

For telephone, gas and electric utility companies, however, some exceptions are made.

If creditors engage in illegal dunning practices, they should be reported to the Office of the Attorney General (617) 727-8400.

The following are lawful methods of debt collecting for debts arising from a court order or adjudication:

• Set-Off: A bank where a debtor has funds deposited, and from which a creditor can withdraw money from the debtor's account(s) to pay off the overdue debt. The bank does not have to go to court to do this, but it must notify the debtor in writing when it has "set-off" the account.
• Lien: If agreed upon by both parties prior to a loan contract, a lien allows a creditor to take action against a debtor in the event of unpaid debt. This usually occurs by one of two methods:
  1. Foreclosure: A creditor takes ownership of a delinquent debtor's house. The creditor usually sells the house to pay off the balance of the debt, and the debtor is forced to move out.
  2. Repossession: A creditor (usually a bank) takes possession of whatever property the debtor has used as collateral for a loan in the event the debtor is delinquent. To do this, the creditor must take the following steps:
     1. Inform the debtor within 10 days of the missed payment that the debtor has 21 days to cure the default (bring the loan up to date) or repossession will occur.
     2. If the default is not cured, the creditor can take possession of the property. However, the creditor must notify the debtor that the debtor has a right to regain possession within 20 days and notify how this can occur.

If the debtor cannot meet the terms to regain possession, the creditor may resell the property.

Homestead Act

The only exception to this comes in the form of the Homestead Act. The Homestead Act allows homeowners to protect their principal place of residence from collection actions that might otherwise force the sale of the home to pay for an outstanding debt. In MA, the homestead exemption is $500,000. This is not applicable for debts accumulated prior to purchase of home, court ordered support payments to spouse or children, debts for taxes, or debits on 1st/2nd mortgages.

If the unpaid balance on a debt is less than $2,000, then the debtor is not responsible if the property is sold for less than the amount owed. If the balance owed is greater than $2,000, the debtor is financially responsible for any discrepancy between the amount owed and the resale value. If the property is resold for more money than is owed, the creditor MUST pay the surplus to the debtor without the debtor having to ask for the money. The creditor may always resort to a lawsuit to make the debtor pay the balance owed, even if this means taking possession of other assets.

Debt Collection Agencies

If you do not pay a bill, over time, your outstanding bill gets sold to debt collector agencies. Debt collection agencies buy outstanding bills in bulk at a very low price, and then bring people to court to collect their "debts".

If you are facing a debt collection agency in court, remember the following tips:

• Always show up to your trial
• Ask the lawyer to itemize each cost associated with the amount they claim you owe: By the time your debt gets to the debts collection agency, it has been passed along many hands, and often the debt collection agency cannot itemize the bill.
• Bring all documentation you have. Having your own documentation shows the court that you are organized and gives you the ability to know what you actually owe instead of simply accepting what the debt collection agency says you owe.

Credit Disputes

Congress passed the Fair Credit Billing Act in 1974 to help consumers resolve disputes with creditors and to ensure fair handling of credit accounts. The Act generally applies only to "open end" credit accounts, which include credit cards, revolving charge accounts (such as department store accounts), and overdraft checking. The Act covers the periodic bills received for such accounts, but does not apply to loans or credit sales that are paid according to a fixed schedule until the entire amount is paid back.

When a mistake appears on a bill, the customer must send a notice to the address provided on the bill for billing error notices (and not, for example, directly to the store, unless that's where the bill says it should be sent) within 60 days after the bill containing the error was mailed.

The letter must include:

1. The customer's name and account number.
2. A statement that the customer believes there has been a billing error and the dollar amount involved.
3. The reasons why the customer believes there is a mistake.

It is a good idea to send the letter by certified mail, with a return receipt requested. The letter claiming a billing error must be acknowledged by the creditor in writing within 30 days after it is received, unless the problem is resolved within that time. In any case, within two billing cycles (but not more than 90 days), the creditor must conduct a reasonable investigation and either correct the mistake or explain why they believe the bill to be correct.

A customer may withhold payment of the amount in dispute including the affected portions of minimum payments and finance charges until the dispute is resolved. The customer is required to pay any part of the bill that is not disputed.

Even after the dispute settlement procedure has ended, a customer may still feel the bill is wrong. If this happens, write the creditor within 10 days after receiving the explanation and state the reasons for refusing to pay the disputed amount. The creditor may begin collections procedure. If the creditor reports the individual to a credit bureau as a delinquent, the creditor must also report that the individual does not believe they owe the money.

Credit History

A credit history is a collection of data concerning a person's previous debts and whether or not these debts were paid satisfactorily. This history is usually compiled by specialized agencies and used by potential creditors as a collection of facts, not necessarily as an evaluation.

The agencies that gather and sell this information are called "Consumer Reporting Agencies" or CRAs. The most common type of CRA is the credit bureau. The information sold by CRA's to creditors, employers, insurers, and other businesses is called a "consumer report." This report generally contains information about where a person lives and their bill-paying habits.

If a person is denied credit, they have the right to be told by the creditor the specific reasons for the credit denial if they ask. If information in a credit report was used to deny credit, the person has the right to be told by the creditor which CRA prepared the report, and also has the right to obtain a free copy of their report from that CRA.

Massachusetts residents are also entitled to request one free copy of their credit report per CRA per calendar year, and may request an additional copy at any time for a reasonable free.

A person is protected from the circulation of inaccurate or obsolete information that may affect their credit standing, and they may dispute the accuracy of statement contained in their file. If the information in a person's file is inaccurate or incomplete, the person must notify the CRA in writing. The CRA must investigate and, if necessary, correct each disputed entry in a reasonable amount of time. If a person cannot resolve the dispute with the CRA, they are entitled to enter a statement (100 words maximum) in the file and have it included in all future reports.

Negative information that is more than seven years old cannot be included in the credit report. The main exceptions to this rule include bankruptcy, which may be reported for up to ten years; criminal convictions, which may be reported at any time; and lawsuits or unpaid judgments against the individual, which can be reported until the statute of limitations runs out.

Loans

The practice of lending is defined as money given in advance from one party to another with the expectation that the original creditor will be paid back. Typically, the practice of lending comes with interest, where the group that borrowed the money must pay back all that they borrowed with some additional gain (usually money).

There are two types of loans, secured and unsecure loans.

• Secured loans are backed by some sort of collateral. This collateral can be anything, including homes, cars, money, insurance policies with cash values, or even cattle. Anything of value can be used in this loan as long as you can prove you own it.
• Unsecured loans are not backed by collateral.

Secured loans use three basic instruments to create the loan. Secured loans will have the collateral (and proof of ownership) ready, along with a contract that has the terms of payment, interest and other agreements, and a security deposit. Federal law states that the Annual Percentage Rate (APR) be shown boldly. The APR is the interest rate you will pay on an annual basis, factoring in any long or short payment start dates, extra fees that are really interest, and how often payments are made.

The security deposit shows that the lender has a security interest in the collateral that is being offered in the loan. The document is usually a financing statement for autos and other movable and tangible collateral (called chattel property), a mortgage for real estate and a purchase money mortgage for revolving credit (department store credit cards). These all show legally that the lender has an interest in the collateral and can seize the collateral to repay the debt. This seizure is called repossession for chattel property and foreclosure for real property. This security document is often filed publicly in a county courthouse, where it is made public record. In the case of real estate, however, it must be filed publicly.

Although not always a requirement, most lenders will also make you show proof that you have sufficient insurance for the collateral so that they will be able to recover the loss in the event that the collateral is gone (i.e. a house is used as collateral in a secure loan).

Loans can also be close-ended or open ended. Close-ended loans are loans whose terms cannot be changed except through paying off the loan and taking a new loan. For example, if two people are on a loan and one of the individuals wants to be off of the loan, the loan must be paid off before a new loan can be taken and the changes take effect. Open-Ended loans, however, do not have such terms. The agreements can be changed. These types of loans are most common with credit cards operated through department stores, while close-ended loans are more common in real estate and autos.

Other Notes

In Massachusetts, loans less than $6,000 are prohibited from charging over 23% interest. However, this restriction only applies to banks, credit unions and lenders that are licensed through the state of Massachusetts. As a result, loans that are obtained over the internet are not subject to Massachusetts regulations.

Fraud

If fraud is present as part of a transaction, the deal can be canceled and your money refunded. Fraud can be:

• intentional misrepresentation (a deliberate, false statement about a product or service)
• negligent misrepresentation (a statement about a product or service made without investigating its truth)
• fraudulent concealment (suppression of the truth) or,
• a false promise (a promise with no intention to perform), or any other act designed to deceive.

In court, you'll need to convince the judge that the contract existed. If the contract is in writing, bring it to court. If it's oral, be prepared to prove its existence through witnesses and circumstantial evidence.

Bad Checks

A common case of fraud is the exchange of bad checks, which is both a civil and criminal offense. The first step for victims of fraudulent checks is to file a criminal complaint with the police at the station that covers the area where the check was written. Next, payees should write a 30-day demand letter requesting reimbursement for the amount of the check. If the demand is not met, the value of the check, plus a fine of no less than $100 and no more than $500, can be pursued in civil court (and, if eligible, specifically small claims).

Further Questions

Questions and complaints about credit or debt collection practices of collection agencies and banks should be directed to:

Massachusetts Division of Banks Consumer Assistance Office One South Station Boston, Massachusetts 02110

(617) 956-1400 ext. 501

References

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