Legislation has tightened the rules that creditors have to play by in recent years. However, even with these new laws on the books, debt collectors still regularly exploit consumers who don’t know their rights. If you’re carrying credit card debt, it’s important to know what the rules are regarding credit bureau reporting, interest and collections practices.
1) Debts Older Than Seven And A Half Years Should Not Be On Your Credit Report
Under the Fair Credit Reporting Act, an account that has been charged off can only appear on a consumer’s credit report for seven years and 180 days from the original date of delinquency.
The original date of delinquency is the date that the first payment became overdue directly prior to the account being closed. For example, if someone had credit card payments due on the first of each month, and missed their February payment and all subsequent payments until the card was closed, Feb. 1 of that year would be the original date of delinquency. If they missed their payment on Feb. 1, but then later brought the account back into good standing, Feb. 1 would not count as the date of original delinquency. In other words, it’s the date of the first missed payment that started the chain of missed payments that eventually led to account closure.
In the past, the date could be changed when one collections agency sold the debt to another. This is no longer legal, but some of the shadier collections agencies still try to get away with “re-aging” the debt by simply reporting incorrect dates to the credit bureaus and hoping the consumer doesn’t notice or isn’t aware of their rights. A debt can be re-aged legally only if the consumer agrees in writing with the current debt holder to make payments on the account.
The date of original delinquency should be listed on credit reports under a “tradeline” bearing the original creditor’s name; sometimes, however, these don’t appear. If the original tradeline isn’t available on one credit report, check the other two for it. If it isn’t on any of your credit reports, you’ll need to dig up your old statements from the credit card company to determine the true date of original delinquency. If you don’t have these, you can usually get them from the original creditor without any trouble, though they may charge a fee for them.
If you’ve been a victim of re-aging, you should first contact the current debt holder and inform them that they are reporting an incorrect date of original delinquency in violation of FCRA Section 605. If they do not voluntarily change the date, the next step is to report them to the FTC using the “Complaint Assistant” tool at their website. You can also contact each of the credit bureaus directly about changing the entry, though this method is less sure. You’ll have the best chances of getting through to them if you hand-write a polite letter with any supporting documentation that is necessary.
One important thing to note is that debts aren’t cancelled after seven years, they simply can’t be reported to the credit bureaus any longer. Owners of the debt may still attempt to collect it from you by contacting you directly.
2) There Are Legal Limits On Interest That Can Be Collected
The original creditor is allowed to continue collecting interest and late fees that were specified in the original contract until they charge the debt off and sell it to someone else. From there, the law gets a lot more complicated and fuzzy. The Fair Debt Collection Practices Act limits debt buyers to collecting interest and fees that were specified by the original contract, in essence putting them in the shoes of the original creditor.
Some debt collectors go above and beyond, of course. As with illegal re-aging, they’re hoping the consumer doesn’t know their rights or challenge them on it. State law comes into play here. Each state has its own statute of limitations on how long a debt collector has to sue a debtor, usually four or five years. The state where the debt originated is the one that matters for this time limit — it doesn’t matter if a collection agency in a different state purchases it. Once that statute of limitations is up, the debt collector has no legal recourse whatsoever to collect on the debt. All they can do is pester the debtor with letters and phone calls in the hopes that they’ll capitulate. State law may allow them to continue adding interest at this point, but they have no means of collecting on that amount unless you agree to pay them.
When debts are sold, they are sometimes only sold with the name and last known contact information of the debtor. If the original contract was lost at some point while the debt was changing hands, the debt holder no longer has any legal basis on which to charge interest or fees.
Collections agencies will often present a staggering amount of interest and fees to the debtor in the hopes of convincing them to “settle” for a substantial reduction. But the reason they’re always so willing to settle is that they originally purchased the debt for much less than its actual value, and they know that if they’re taken to court over it, they’ll likely have a hard time justifying the extra amount they’ve tacked on.
3) Many Common Collections Practices Are Illegal
The Fair Debt Collection Practices Act lays out a set of rules regarding what debt collectors can and can’t do. Of course, some will take calculated risks in violating these laws, with the expectation that the relative few consumers who catch them in their wrongdoing and get them fined will be outweighed by the many they can intimidate and harass into paying.
A debt collector isn’t allowed to contact third parties about your debt. They can only communicate with the original creditor, the credit bureaus, and an attorney that you specify. They are given more freedom to contact other people solely for the purpose of determining your whereabouts, but they can only contact each third party once and cannot reveal that they are collecting on a debt.
If a collector has gotten hold of your phone number, there are limitations on when they can call you. Calls earlier than 8 a.m. and later than 9 p.m. are forbidden. If you can demonstrate that you work a late shift and sleep during the day, you can also prevent them from calling during that time. They are allowed to contact you at work, unless your workplace has a policy preventing personal calls or collections calls. If you have appointed an attorney to represent you and they have the attorney’s contact information, they may no longer contact you directly.
Collectors may never use threats, insults or obscenity in any communication with you. They are also not allowed to publicize your debt in any way. They are allowed to verify your name when you pick up the phone, but then must immediately identify themselves as a debt collector. As with re-aging, complaints about violations can be directed to the FTC through their online “Complaint Assistant” tool.
Debt collectors will continue to skirt rules as long as they think it’s profitable and not too risky for them. The only answer is consumer vigilance. At a minimum, everyone should take advantage of their free annual credit reports to ensure that the information in them is accurate.