Maryland Consumer Rights Coalition Releases Report on Debt Settlement Companies
February 4, 2010
The Maryland Consumer Rights Coalition (MCRC) and Maryland Attorney General Doug Gansler recently announced the publication of MCRC’s report “Debt Settlement in Maryland:Â Compounding Problems, Deepening Debt.”
Click here for a copy of the report.
As you might guess from its title, the report paints a pretty dire picture of debt settlement companies.
The report examines the following:
- Problems with procedures used by debt settlement companies. Consumers are told to stop paying their bills and instead make monthly payments to the debt settlement company.
- Additional damage done to consumer’s credit file by these debt settlement tactics.
- Large advance fees charged by debt settlement companies whether or not they ever do any work for the consumer.
- Difficulties consumers have in canceling debt settlement agreements and / or getting refunds when no work is ever done on consumer’s behalf.
If you are considering signing up with a debt settlement company, read this report so you can make an informed decision.
Will Paying a Collection Account Improve my Credit Score?
January 11, 2009
How do collection accounts affect my credit report and credit score?
The company with whom you originally had an account is called an “original creditor.”
Once the original creditor gives up on trying to collect on an account, it will charge off the account and may assign or sell the account to a debt collector.
Once the account has been sold or transferred to a debt collector, there may be two entries on your credit report.
One entry will be from the original creditor. It will usually show that the account has been “charged off.”
The debt collector may make a separate entry on your credit report. Both of these entries can harm your credit report and your credit score.
Will paying the debt collector improve my credit score?
Simply paying a debt collector may not help your credit score.
This is partly because of the double reporting problem described above, and partly because of the scoring model that is used to calculate your credit score.
Even if you pay a debt collector, the original creditor’s negative item will still appear on your credit report.
And, a debt collector may not delete its entry on your credit report after you pay. It may simply notify the credit bureaus to report the account as a “paid collection.”
But, the credit scoring models are designed to penalize consumers for any collection account appearing on their credit report– even if the account is a “paid collection.”
But, there may be other reasons to pay a collection account.
Even though paying the collection account may not help your credit score, there may be other reasons to pay and / or settle the account.
Avoid a debt collection lawsuit. These days, more creditors and debt collectors are suing consumers to collect on old debt.
You plan to make a large purchase. Most mortgage companies and some car financing companies will require you to pay any collection accounts before they will give you a loan.
You are looking for a job or applying for a security clearance. Many employers do a credit check before offering applicants a job. Many employers will see unpaid collection accounts as a red flag. And, it would be very difficult to get any kind or security clearance if you have outstanding collection accounts on your credit report.
Negotiate Improved Credit Reporting.
For the reasons discussed above, it is very important to negotiate the best possible credit reporting when paying any accounts.
Many times (though not always), the best possible outcome is a deletion of the debt collector’s entry (also called a “tradeline”) from your credit report.
But, be sure to negotiate improved credit reporting before making payment. After you have paid off the account, the creditor or debt collector has no incentive to change its reporting of the tradeline.
And, as always, get everything in writing.
Debt Collectors: who are they, how did they get your account, and will they negotiate?
December 4, 2008
Many people call our office with questions about letters and calls they have received from debt collectors or debt purchasers. (Click the link for an explanation of the terms “debt collector” and “debt purchaser.”)
The consumers’ first questions are usually, “why am I getting calls from XYZ Collection about an old Discover card? Why would I take their word for it that I should send them money I supposedly owe to another company?”
These are great questions to ask. These and other frequently-asked questions are discussed below.
Proper party to pay: get it in writing
Before paying any old accounts, you want to be sure you have verified that the party asking for payment is legally entitled to payment. You will want to get this in writing before making any payments
How did the debt collector get the account in the first place?
If a consumer falls behind in his or her account payments, the account may be sold to a debt purchaser. Or, a creditor might hire a debt collection company or attorney (as an independent contractor) to do its collection work.
But, unfortunately, some collection accounts never belonged to the consumer in the first place. Our office has seen many cases where a debt collector will try to collect on a so-called Âdebt that never existed.
Do I really owe the amount the debt collector says I owe?
Even when the original debt did exist, some debt collectors try to collect amounts that are much greater than the original debt.
They do this by adding on interest, penalties, attorneyÂs fees, and court costs to the original debt amount. But, some or all of these charges might be invalid.
Our experience has been that consumers sincerely want to pay any amounts they owe. But, a consumer might not really owe the amount the debt collector claims.
Keep in mind that collection agencies, debt buyers, and the attorneys who assist them are subject to the Fair Debt Collection Practices Act as well as applicable state laws.
Will a debt collector negotiate the amount they say I owe?
It depends. If the debt collector is working as an independent contractor (doing collections for an original creditor), its ability to negotiate will usually be limited.
For example, the debt collector might be authorized to settle for a certain percentage of the amount they are seeking. Depending on the original creditor, this amount might be 35% – 85%.
When the debt collector is also a debt purchaser and has bought the debt, they may have more room to negotiate lower settlements.
For more information
For more information about the above topics, contact our office and / or take a look at the following related posts:
Debt Lawsuits: FAQ and General Information
Negotiating and Settling Debts and Accounts
August 19, 2008
Maybe you want to improve your credit; maybe a debt collector has contacted you. Either way, there are several things to keep in mind if you decide to negotiate an account settlement with either an original creditor or a debt collector.
- Research and negotiate all legal aspects of the account. Examples include credit reporting of the account, resale of the account, tax implications of a settlement [including discharge of indebtedness (DOI) income], acknowledgment of the debt, and several other considerations.
- Watch for illegal collection techniques. Collection agencies and even original creditors may violate applicable state and federal law when trying to collect on an account. Document any such violations to prevent them from compromising your negotiation.
- What is the debt collector’s reputation? Attorneys specializing in credit issues often repeatedly deal with the same creditors and debt collectors. You may want to get the advice of an attorney who has dealt with your particular creditor in the past.
- Conduct all negotiations in writing. This can cut down on the stress of the negotiation, and will also provide documentation if the creditor or debt collector violates any laws in its attempts to collect.
- Give the creditor or debt collector only your name and the account number the creditor referenced when contacting you. Note: the creditor / debt collector may have referenced its own internal account number, which may be very different from the account number in your records.
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