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Protecting yourself from deceptive debt collection practices

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Nearly 15% of all Americans show at least one item in collection on their credit report, and the average amount of debt in collection is $1,400. Debt collection is a $12.2 billion industry in the United States. Banks and other creditors may collect their own debt, and they can also sell off debt to third parties, which can also choose to collect the debt or sell it off. As a result, it is not surprising that debt collectors sometimes engage in practices that intimidate and harm consumers.

Many debt collection companies play by the rules and treat consumers fairly, but those that don’t can wreak havoc on your finances. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, all covered persons or service providers are legally required to refrain from committing unfair, deceptive or abusive acts or practices. Any entity that is not the original creditor is subject to the Fair Debt Collection Practices Act and is also legally required to refrain from committing unfair, deceptive or abusive acts or practices in the attempted collection of a consumer debt.

But what kinds of debt-collection practices should you be wary of? The following practices are typically deemed to be illegal.

  •   Threatening action the debt collector does not have the authority to pursue. Debt collectors and creditors should not make false threats of lawsuits, arrest, prosecution or imprisonment for non-payment of debt.
  •   Misrepresenting the nature, amount or legal status of the debt. Debt collectors and creditors must not falsely represent who owns the debt, the amount of debt that is owed or the debt’s legal status.
  •   Misrepresenting that a consumer’s debt would be waived or forgiven. Debt collectors and creditors should not misrepresent that a debt would be waived or forgiven if a consumer accepted a settlement offer when the company is not, in fact, forgiving or waiving the debt.
  •   Failing to properly post payments or credit to a consumer’s account with payments. Debt collectors and creditors should not fail to properly post payments or credit to a consumer’s account and then charge late fees to that customer if the customer paid on time.

It is important to point out that debt collection companies must also be careful about making statements regarding the impact of paying a debt on a consumer’s credit score, credit report or creditworthiness. Often times these statements — like telling consumers that paying a debt would improve their credit score — may be deceptive.

The Consumer Financial Protection Bureau has published a consumer bulletin regarding unfair, deceptive and abusive practices, which you can read here.

The CFPB has also published a second bulletin regarding debt collectors discussing consumers’ credit, which you can read here.

Other tips for communication with debt collectors

The CFPB has also published five action letters that consumers can consider using when corresponding with debt collectors. These letter templates are available for download from the CFPB at http://www.consumerfinance.gov/blog/debtcollection/. These letters may help consumers get valuable information about claims being made against them or protect themselves from inappropriate or unwanted collection activities. The letters address the following situations:

Needs more information on the debt: This letter is for consumers who need more information about a debt the collector has told them that they owe. The letter states the consumer is disputing the charges until the debt collector answers specific questions about what is owed. This letter may be useful, for example, for a consumer who may not immediately recognize the debt as their own.

Wants to dispute the debt and for the debt collector to prove responsibility or stop communication: This letter tells the collector the consumer is disputing the debt and instructs the debt collector to stop contacting the consumer until they provide evidence that the consumer is responsible for that debt. For example, consumers who do not want to discuss the debt until they have additional information verifying the debt might use this template.

Wants to restrict how and when a debt collector can contact them: The Fair Debt Collection Practices Act prohibits debt collectors from contacting a consumer about a debt at a time or place they should know is inconvenient. With this letter, the consumer is able to tell the debt collector how they would like to be contacted. This may be a useful option for a consumer who wants to work with a collector to resolve their debt.

Has hired a lawyer: If a consumer has hired a lawyer, the debt collector should be contacting the lawyer instead of the consumer. This letter provides a way for the consumer to give the debt collector the lawyer’s information and instruct the collector to contact only the lawyer.

Wants the debt collector to stop any and all contact: Consumers have the right to tell a debt collector to stop all communication. It is important to note that stopping contact from a debt collector does not cancel the debt or prohibit the collector from potentially pursuing other remedies, such as filing a lawsuit. This letter could be beneficial for consumers who feel they are being harassed by a collector’s communications.

Consumers can submit a complaint to the State of Maine Bureau of Consumer Credit Protection or the CFPB against any company collecting a consumer debt from them. You can submit a complaint at www.credit.maine.gov (BCCP) or www.consumerfinance.gov/Complaint (CFPB), or call their toll-free phone number at 800-332-8529 (BCCP) or 855-411-2372 (CFPB).

David Stolt

By David Stolt, Home Ownership Services Manager

Why you need to shop around for a mortgage

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Interest rates are at a record low, but many borrowers are still reluctant to shop for the best mortgage loan – a decision that could cost them money.

Looking at data from the November 2012 National Housing Survey, Fannie Mae researchers found that close to half of lower-income mortgage borrowers said they did not obtain more than one quote when signing up for their current mortgage.

Comparatively, three out of four higher-income respondents explored competitive offers and said better deals would definitely have an influence on their decisions.

“Although a home purchase is the largest financial obligation most people will ever make, many borrowers do not fully understand their mortgage products and costs,” said Fannie Mae chief economist Doug Duncan. “As a result, some homeowners in this position may find themselves with unsustainable payments down the road.”

Fannie Mae reported that failing to shop around for a mortgage can end up costing borrowers $1,000 or more in closing costs.

As a housing counselor, it’s my job to educate people on the importance of comparative shopping. I encourage clients to attend first-time homebuyers’ workshops as well as one-on-one pre-purchase and post-purchase counseling.

Education is the best way to avoid paying too much for a mortgage. Want to know more? Get in touch with me.

By David Stolt, Home Ownership Services Manager

How to get the most out of your tax refund

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A recent survey by TD Ameritrade finds nearly half of people expecting a tax refund said they plan to save the money, while 44% intend to pay debt. However, researchers found people tend to spend more of their refund than they anticipate, which means they don’t save as much as they want to, or don’t pay off as much debt as they need to.

Here are some smart ways to use your tax refund to boost your financial health.

Pay off high-interest rate debt, like credit cards

The average credit card interest rate is 15%, and for those with bad credit, it’s close to 24%. The average American household carries $15,000 in credit card debt. Pay down your credit card debt now to save yourself money in interest payments in the future.

Establish or rebuild your emergency fund

It is recommended that you have at least three to six months’ worth of living expenses in savings should you lose your job, get sick or face another challenge that makes it hard or impossible for you to work. Use your tax refund as a starter for this emergency savings fund or to rebuild your emergency fund if it has been depleted.

Set up an Individual Development Account

Individual Development Accounts (IDAs) are matched savings accounts designed to help people with limited income and wealth to save money to buy a home, start a business or get more education. The program provides a match to the funds deposited by the individual. It’s a great idea to use your tax return to start an IDA and start building your assets.

Community Financial Literacy partners with CEI to provide IDAs for immigrants and refugees. CEI also provides IDAs for non-immigrants. Contact CEI or CFL to learn more. A number of organizations in Maine also provide a similar account called Family Development Accounts.

Save for retirement and get a tax credit in return

Have you heard of the “saver’s tax credit”? It’s a federal tax credit that’s available to low- and moderate-income people who make contributions to a 401(k) plan or IRA. The size of the tax credit you are eligible for depends on your income level and how you file your taxes (see the table below).

The credit is applied to contributions of up to $2,000 per person, and the maximum credit amount is $1,000 for individuals and $2,000 for married couples. So, a single filer who makes $25,000 and contributes $2,000 to a 401(k) or IRA will receive a $1,000 tax credit. In addition, the $2,000 contribution will reduce the filer’s tax liability, which saves even more. Deposit your tax refund into a retirement savings plan this year and you will have a tax credit to look forward to next year.

Your employer might also provide a match funds for 401(k) contributions, which is another reason to start saving for retirement today.

Income Range
Credit Single Filers Head of Household Married Filing Jointly
50% of contribution $0-$17,750 $0-$26,625 $0-$35,500
20% of contribution $17,751-$19,250 $26,626-$28,875 $35,501-$38,500
10% of contribution $19,251-$29,500 $28,876-$44,250 $38,501-$59,000
No credit available Above $29,500 Above $44,250 Above $59,000

Invest in your home, or save for one

If you own a home, consider using your tax refund to make improvements which may increase your home’s value. A good place to start is to fix any structural issues (like a leaky roof) or mechanical systems. Energy-efficiency upgrades, like replacing leaky windows or adding insulation, not only improve your home’s value but save money in energy costs. You can also pay down the principal balance of your mortgage, which will reduce the amount of interest you will pay over the life of the loan.

If you don’t own a home and are thinking about buying one, use your refund to begin saving for a down payment. Do you have questions about whether home buying is for you, or do you want to learn more about the process? Sign up for one of our homebuyer education classes.

It may seem like a tax refund is free money begging to be spent on a splurge, but if you use your refund wisely, you’ll set yourself up for future financial success.

By David Stolt, Home Ownership Services Manager

Free tax preparation services for families who need them

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As we’ve done in the past, Avesta is spreading the word about free tax preparation services available for households who need them. Families are fortunate that there are so many ways to get free tax help instead of paying someone to file your taxes, or, worse, getting a refund anticipation loan that carries excessive fees and ridiculous interest.money jar

We’re partnering with Gorham Savings Bank and the United Way to sponsor a week of free tax preparation events beginning today. IRS-certified tax preparers will be on hand to help you prepare and file your taxes, check your credit report, and apply for Maine’s property tax and rent refund programs. The events are February 26-28 from 5-8 p.m. and Saturday, March 2, from 9 a.m.-2 p.m., happening at United Way’s office at 1 Canal Plaza, third floor. They’re available to people who made less than $51,000 in 2012.

If you can’t make it to an event, you can stop by our new HomeOwnership Center any time during tax season. Contact me to find out more or make an appointment. The United Way is also open to help, so give them a call at 874-1000.

If you’d rather take care of your taxes from your living room, and you made less than $57,000 in 2012, you can go to myfreetaxes.com/Maine and file both their state and federal taxes for free. The online software is easy to use and features a toll-free number to call if you have questions.

Taking advantage of these free services will save you up to $200 in fees you’d pay elsewhere for tax preparation, and we’ll help you apply for the Earned Income Tax Credit, which could give you up to $5,891.

Visit cashgp.org for more information.

And check out this space in a couple weeks for smart ways to spend your tax refund. Hint: playing the slots at Oxford Casino is not on the list.

By David Stolt, Home Ownership Services Manager