By: Lance T. Denha, Esq.
Failing to make payments on your credit card accounts in a timely manner will likely result in the lenders reporting late payments to the major consumer credit reporting agencies Experian, Equifax, and Trans Union. Credit card debt is generally unsecured debt. “Unsecured debt” means there is no property pledged to secure payment, as with most credit card debt, for example. Oftentimes, both creditors and consumers question what legal rights each has in regards to the collection and payment of credit card debts. This article provides a short understanding of the basic laws and rights put in place for both the creditor as well as consumer.
With respect to the collections process, collections agencies are a business that pursue payments of debts owed by individuals or business. An unsecured loan is more difficult to collect, and often collection agencies will take over. When collecting a consumer debt, the collection agency or attorney must follow rules that include disclosure requirements and harassment prohibitions. If violated, the collector must pay the debtor damages. Consumers will likely receive collection calls and letters from the creditor directly. If you are still unable to pay the debt after several months, the creditor is likely to refer the account to a third-party collection agency or law firm. Third-party collectors are known to be much more aggressive in their collection tactics than original creditors, so do not be surprised if the calls become more persistent, or even threatening.
Collection agencies purchase debt at a percentage of its value. Creditors are governed under the Fair Debt Collections Practices Act (FDCPA), third-party debt collectors must stop calling if creditors send a written demand to cease communication. FDCPA also sets the time parameters as to when these harassing calls occur. Typically these calls made by debt collectors are performed by an automatic dialing system to consumers between the times of 8am and 9pm local standard time.
In some cases, when all other collection efforts fail, a creditor will decide to file a lawsuit against a consumer for his or her unpaid credit card account. Often when a creditor sues, the court will likely issue a judgment in the creditor’s favor. The creditor may be able to garnish your wages, levy your bank accounts, or take other action to enforce its judgment. When an employer is notified of a judgment requesting wage garnishment, only a certain percentage of wages can be withheld according to the total of disposable earnings of the employee — allowing the employee some income to live on. Also protected from garnishment are deductions that are legally required to be paid by the employee, such as federal, state and local taxes, unemployment insurance, state employee retirement system payments and Social Security payments. However, deductions not required by law (health insurance, union dues) are not protected against garnishment.
Consumers should understand that once collections agencies become involved they should know and understand the legal rights they have and determine whether these collections agencies have the proper paperwork to pursue and enforce collections. In short, all creditors without exception hired to pursue judgments are required to validate the debt. Otherwise they are not able to pursue and collect on the debt nor are they allowed to contact a consumer about the unsecured debt. Furthermore if they are unable to collect or contact the consumer about the debt, under the Fair Debt Reporting Act (FDRA), these creditors are prohibited from reporting the debt as doing so will be in violation under the FDRA and consumers are able to sue for $1,000 in damages for any violation of the Act. Federal Trade Commission opinion letters clearly spell out that a collection agency CANNOT report a debt to the credit bureaus which have not been validated.
We are beginning to see an increasing trend by creditors to utilize all legal tactics to improve their chances of recovering funds which were provided to the consumer initially through unsecured credit card, including lawsuits and suits to garnish wages. It is highly recommended to seek legal and professional advice immediately when there is an inclination that one’s debts are becoming increasingly unaffordable and to speak with legal experts familiar with consumer law rights.