By now you might think that you've heard about all of the dirty and underhanded tricks that debt collectors pull to try and make money off of those who've fallen behind on their bills. Well, you probably haven't. And this news may nauseate you. That's because without any rules spelled out in your card account contract or state laws in place to prevent those charges, debt collectors are free to charge interest on closed accounts.
.
That's why it's a good idea not to ever underestimate the depths to which some debt collection agencies will sink --when it comes to finding new ways to squeeze a few extra dollars out of those who are already struggling to get by --stretched to their limits.
In addition to collecting on the full amount of the debt they purchased -after late fees, interest and other charges that were piled on before the account was closed -some debt buyers and collection agencies have decided to begin tacking on even more interest to the debt. To make matters worse, this interest typically begins well after interest stopped accumulating on the original debt because the account was already closed by the original creditor. This is in addition to any interest or other charges that may have been added by the original creditor, meaning that the interest is charged on the entire amount of the debt and not just the original amount owed.
The amount of interest that a debt collector can charge is set by state law and varies from as low as six percent in Texas to as high as 15 percent in New Mexico. Unfortunately, the rates used by most debt collectors who charge interest tend to be significantly higher than the state maximums. To make matters worse, it's perfectly legal for them to use higher interest rates because of a loophole in the law that the debt collectors are more than happy to take advantage of.
Even though the original account was closed and turned over to collection, the law allows the terms of the account to remain binding after the debt is purchased by a debt buyer or debt collection agency. Because the terms are still binding, debt collectors can use the highest agreed upon interest rate when charging interest on a collection account. Generally this is the "penalty rate" charged by credit card companies and lenders on those who are delinquent and may be as high as 20 to 30 percent or higher. Since the account holder agreed to this rate when opening the account, the use of this rate by a debt collection agency is considered fair game despite being two to three times higher than the maximum set by the state.
The fact that debt collection agencies and debt buyers can charge interest on a closed account at all is bad enough, but using the terms of an agreement that consumers have with another company to drive that rate up as high as possible is just shameful. I suppose it's to be expected though from an industry that is well known for lying to consumers, falsifying paperwork, pursuing collections against those who don't owe a debt and outright ignoring laws designed to protect us from abusive and unfair collection practices.
Fortunately, there is some hope in this otherwise dismal situation.
Some states have passed laws that only allow the originator of a debt to charge interest on it, though the practice is still legal in the majority of states. Some credit card companies and other creditors also include clauses in their user agreements which state that no third party can use the terms of their agreement, meaning that if a debt collector buys an account from them it cannot use the agreements interest rates or other terms against the debtor. Hopefully more lawmakers and creditors will catch on to this abuse of power by debt buyers and debt collectors so that the practice of charging interest on purchased debts might eventually be stopped completely.
In the mean time, make sure you know your rights so they don't get stomped on. If you believe you are being unfairly and illegally harassed contact a consumer attorney well experienced with the Fair Debt Collection Practices Act.
Here are some informative links that will help you understand your fair debt collection rights;
See earlier Debt Collection Blogs
Debt Collectors and your Rights
Find some great videos and informative blogs by my friends over at Alabama Consumer Law, here: AlabamaConsumerLawBlog.com.
.
That's why it's a good idea not to ever underestimate the depths to which some debt collection agencies will sink --when it comes to finding new ways to squeeze a few extra dollars out of those who are already struggling to get by --stretched to their limits.
In addition to collecting on the full amount of the debt they purchased -after late fees, interest and other charges that were piled on before the account was closed -some debt buyers and collection agencies have decided to begin tacking on even more interest to the debt. To make matters worse, this interest typically begins well after interest stopped accumulating on the original debt because the account was already closed by the original creditor. This is in addition to any interest or other charges that may have been added by the original creditor, meaning that the interest is charged on the entire amount of the debt and not just the original amount owed.
The amount of interest that a debt collector can charge is set by state law and varies from as low as six percent in Texas to as high as 15 percent in New Mexico. Unfortunately, the rates used by most debt collectors who charge interest tend to be significantly higher than the state maximums. To make matters worse, it's perfectly legal for them to use higher interest rates because of a loophole in the law that the debt collectors are more than happy to take advantage of.
Even though the original account was closed and turned over to collection, the law allows the terms of the account to remain binding after the debt is purchased by a debt buyer or debt collection agency. Because the terms are still binding, debt collectors can use the highest agreed upon interest rate when charging interest on a collection account. Generally this is the "penalty rate" charged by credit card companies and lenders on those who are delinquent and may be as high as 20 to 30 percent or higher. Since the account holder agreed to this rate when opening the account, the use of this rate by a debt collection agency is considered fair game despite being two to three times higher than the maximum set by the state.
The fact that debt collection agencies and debt buyers can charge interest on a closed account at all is bad enough, but using the terms of an agreement that consumers have with another company to drive that rate up as high as possible is just shameful. I suppose it's to be expected though from an industry that is well known for lying to consumers, falsifying paperwork, pursuing collections against those who don't owe a debt and outright ignoring laws designed to protect us from abusive and unfair collection practices.
Fortunately, there is some hope in this otherwise dismal situation.
Some states have passed laws that only allow the originator of a debt to charge interest on it, though the practice is still legal in the majority of states. Some credit card companies and other creditors also include clauses in their user agreements which state that no third party can use the terms of their agreement, meaning that if a debt collector buys an account from them it cannot use the agreements interest rates or other terms against the debtor. Hopefully more lawmakers and creditors will catch on to this abuse of power by debt buyers and debt collectors so that the practice of charging interest on purchased debts might eventually be stopped completely.
In the mean time, make sure you know your rights so they don't get stomped on. If you believe you are being unfairly and illegally harassed contact a consumer attorney well experienced with the Fair Debt Collection Practices Act.
Here are some informative links that will help you understand your fair debt collection rights;
See earlier Debt Collection Blogs
Debt Collectors and your Rights
Find some great videos and informative blogs by my friends over at Alabama Consumer Law, here: AlabamaConsumerLawBlog.com.
NEWSLETTER SIGN UP
SUBSCRIBE
CONTACT
This can be counted as a reason for recession.Well, at least partly. Wrong interest rates, collecting on debts payed, sums it up. The originator of the debt only having rights on the interest rate, with the written statements, sounds like a better option for the consumer.
Hard to believe but they are as bad of an industry as the finance industry. The same one that put all the debt on us in the first place. The same one that strung us along thinking we could get loan refinances or loan modification. The same one that cut off credit lines without reason and then jacked up our interest rates and this contributed to our recession. Laws like this will keep consumers broke and keep our recession going. What I want to know is how our legislators sleep at night. Shame on them too.
FDCPA, yes, interest rate gouging on existing credit card debt IS THE NUMBER ONE CAUSE of the recession.
900 billion in consumer credit card debt, a trillion in student loan debt. Now is the time to encourage overall consumer credit cared debt pay-down with lower interest rates, not higher.
It gets worse, folks. The credit card banks are located in states with laws most favorable to them, not to their customers. Thus, even if many states pass consumer protection laws, it will have low impact upon banks that are in other states without those protections. If you are sued on a credit card debt in California, my website has several short videos on the home page explaining your options. www.stopcollectionlawsuits.com/