Debt Collectors Revealed: 5 Lies We Tell Consumers (And How to Stop Them)

Here is my list of the top five lies debt collectors use to get people to pay:

1. If You Don’t Pay We Will Garnish Your Account.

Only the IRS, State Taxing Authorities, and Child Support Enforcement have the power to garnish your account without first suing you, winning, having the court issue a writ of garnishment and then garnish your account. Unless you have been sued and had a judgment taken against you, they can’t garnish your account.

Do you really think that they will garnish your wages because of a 5 year old unpaid library fine? How about an old bill from Time Life Books? Of course not, here is why:

First, the debt collection company has probably bought this debt for pennies on the dollar, or even pennies per hundred dollars. Anything they get will be profit. Second, the debt collector is probably a minimum wage employee at a call center located out of state, or even outside the United States. They make many calls per hour and are after the easy payments. Lawsuits cost money. Even if they win, they won’t normally get their attorney fees as part of the judgment.

2. If You Don’t Pay We Will Have to Inform The Credit Bureaus.

Guess what. If the bill collector is calling, the credit bureaus have already been notified. Bad accounts hurt your credit score for approximately two years from the time that they are first reported. In other words, if the debt was reported more than two years ago, it doesn’t hurt your score anyway. In fact, by paying it, you may do more harm to your score than by ignoring it. Also if the collector makes this threat and doesn’t follow through they have violated federal and state law by threatening action that they do not intend to take.

3. We’re Going to Take Your House Unless You Pay Immediately.

Again, it is illegal for a collector to threaten action which they do not intend to take. Unless the creditor has already obtained a judgment, or is your mortgage company, your house is safe.

4. If You Don’t Pay Today, A Warrant Will Be Issued For Your Arrest.

In the United States, being in debt is not a crime. You cannot be arrested or imprisoned merely because of debt.

5. Pay Up Or We’ll Hurt You.

This is the old gangster, loan shark, or Tony Soprano trick – threaten violence in order to get paid. It is also known as robbery, attempted robbery, menacing and/or extortion – all of which are serious felonies. The Fair Debt Collection Practices Act specifically prohibits threatening violence against any person or their property in order to collect a debt.

If a debt collector tries this or any of the other lies above, here is how to handle the situation. Get the collector’s name, company name and telephone number. Write down the date and time of the call, as well as any threats made by the collector. Even better, get a tape recording of the threats being made. File a report with your state’s collection bureau licensing board, state attorney general, or local police department. Under federal law, the collector may be liable for damages of up to $1000 plus court costs and attorney fees. You may be able to have the entire debt cancelled under your state law.

Don't Use a Debit Card When Shopping Online

The movie “Gone in Sixty Seconds” showed how a professional car thief could break into, start and drive off in a stolen car in sixty seconds. If you shop online using a debit card, a stranger could steal your identity and empty your checking account in even less time.

Why? The law governing debit card transactions is much, much weaker than the law governing credit card transactions:

• Credit card liability. If you report the theft before the card is used, you have zero liability. If you report it after the card is used, it is capped at $50 per card
• Debit card liability. If you report the theft within two business days, your liability is limited to $50, and some issuers may waive that amount. However, after two business days, your liability jumps to $500. And if you don't report the loss or theft within 60 days of receiving your statement, your liability is unlimited.

Now, both Visa and MasterCard, as a matter of company policy offer some protection. Visa offers zero liability, unless the cardholder was negligent. Mastercard offers zero-liability in the event that the client has not reported two more “unauthorized events” within the past year.

If you choose to use a debit card to shop online, here are some ways to protect yourself.

• Get the seller's phone number in case you have questions or problems.
• Type the seller's name in your search engine to see if there are unfavorable reviews.
• Read the website's privacy policy to see how your personal information will be used.
• Understand the return policies.
• When entering payment information, make sure the http:// changes to https:// in the site's URL address line.
• Don't shop online unless your computer has antivirus and anti-spyware software, and a firewall.

Borrowers Get Year-End Gift from Fed

Here is some news from my friend Rod Cameron of Cameron Financial Services concerning the Federal Reserve Board's decision to lower interest rates.

The Federal Reserve lowered interest rates today for the third straight meeting of the FOMC. What does this mean? Well, if you're looking to capture the best home loan rates, you need to act now. For those with an application already in process, you should probably lock your rate as soon as possible. And, for anyone who has yet to begin a loan application, what are you waiting for?

Rate Hikes on the Horizon
Despite this latest cut from the Fed, rates for many borrowers could actually increase soon. Why? Because Fannie Mae and Freddie Mac have recently announced 2008 Loan Level Price Adjustments (LLPAs) that are already starting to show up on lenders' rate sheets. LLPAs are automatic “penalties” based on credit scores, which tack on costs in the form of points or higher rates for most anyone with a FICO less than 720. Call me, and I will give you all the details.

Back to The Fed
But, let's get back to the good news. The Fed cut the Federal Funds Rate, an overnight lending rate that banks charge each other and which influences the amount of interest consumers pay for various types of debt, such as credit cards, home equity lines of credit, and auto loans.

Since September 18th, the Federal Funds Rate has gone down 100 basis points. If you have a loan that is tied to the Prime Rate, this means your rates have been lowered a full point. But, for those seeking to obtain new financing, you must act now to take advantage.

No Time to Wait
Following each of the last two interest rate cuts by the Fed, home loan rates jumped higher a couple of weeks later. Remember, lower short-term rates are inflationary by nature, and cause consumers to spend more money. Because of this, long-term rates tend to increase as bond holders hate inflation and command higher rates as a result in order to protect their investments.

Because of these pressures and the upcoming Loan Level Price Adjustments, interest rates are going to rise. You need to call me now in order to secure the best deal you may see for some time. You'll be glad that you did.