California Consumer Rights

If you take a call from a debt collector, you should understand that they are trained to control the conversation. That puts you at a significant disadvantage which is exactly the point. How can you change that?  Improve your understanding of the two elements of every negotiation.

The Two Elements of Every Negotiation

There are two elements in every negotiation: substance and relationship. The substance is what you are negotiating. In a collection negotiation, it’s money. The relationship element refers to the relationship between the parties: cooperative or competitive, or some of each. In a collection negotiation, the relationship is typically competitive.  And here’s the match-up: a trained professional with laser focus on getting your money in one phone call – against a stressed-out, ill-informed consumer with a muddled purpose – to pay, not to pay, if so how much and when, to save face, avoid court, and ultimately to stay out of debtors’  prison. Who is likely to perform more effectively in this contest?

How does this knowledge help?  Next time you lock horns with a trained debt collector, you will be able to recognize rudeness, disrespect and abuse as mere TACTICS.  The collector is creating a relationship problem so that you will make a substantive concession. You will realize it is not personal.  Dishing disrespect is a core job skill of the successful collector.  Credit card debt collectors disrespect everyone, all day, every day, and a good part of the night.  It’s the way the job is done. [Imagine doing that for a living.]  And it works, because consumers don’t recognize the tactic as….just that, a tactic.  Instead,  consumers accept the abuse and insults, which compounds their existing anxiety, stress and depression.  And when it all becomes too much, they pay-up….simply to end the pain.

What if consumers understood that they are being “gamed” in debt collection calls? What if they knew that creating relationship problems is a basic debt collection strategy? What then? Perhaps the results would be different:  “Hey, I know what you are doing and it won’t work on me,” you say to yourself.   Maybe then, consumers would feel less pain, less stress, more control over their lives and less threatened.  Maybe then, they’d stop making substantive concessions to solve relationship problems.  And maybe then, whenever they made a substantive concession, they’d insist on a substantive concession in return.

With increasing frequency, consumers are reporting that debt buyers – companies that buy the right to collect defaulted credit card debt for pennies on the dollar – are refusing to negotiate reasonable payment plans, and instead are demanding payment of the full amount claimed.  The major debt buyers are huge companies that know how to make a profit, but their rigidity makes no sense to me. Clients remark:  ”If I could pay that kind of money, I wouldn’t have defaulted in the first place. “

Here’s why it doesn’t make sense [and I invite anyone to enlighten me]: The credit card issuing banks – Chase, Capital One, Bank of America, etc – will often work with debtors in default, meaning: they’ll take less than the full amount owed on a credit card and/or offer payment plans. And these companies are likely to win at trial if a lawsuit is required to enforce payment, because they typically have sufficient documentation (evidence) to prove their case.

On the other hand, debt buyers – the ones driving the hardest bargain – cannot win in court if they are properly opposed and the judge applies the law. I have yet to see a debt buyer prove their case.  To prevail, they must prove that they own the debt. The only way to do this is by producing (1)  a valid bill of sale or assignment document from the previous owner of the debt and (2) a witness at trial from the assigning/selling company who can testify to the authenticity of the bill of sale. This is an expensive proposition, since the previous owner may very well be an out of state bank or debt buyer. So, until debt buyers – on their own dime – start flying in out-of-state witnesses to testify,  I will continue to believe that, if challenged, they cannot win.

Nevertheless, it is these companies – the ones with the weakest cases – that are forcing litigation by refusing to negotiate with consumers before filing. As far as I can see, there are a couple of possible explanations for this strategy: First, in spite 0f the current cash crunch, the collectors are persuading  enough people to cough up the full amount claimed; and, second, consumers who are sued don’t respond, leading to inexpensive default judgments, wage garnishments and bank account levies.  Either way the collector’s cash out, and interest keeps accruing, so where’s the risk in refusing to negotiate reasonably.

Obviously, the hardball strategy is relies on consumer’s failure to understand the legal process. If consumers knew two things, ONLY TWO, they could turn their collection disadvantage around and avoid stressing out in the process.

Here’s the first thing you need to know: Debt buyers do not have the evidence that they own your account, and therefore, cannot prove their case against you in court, if properly opposed. And here’s the second: the effectiveness of a threat is determined by your reaction to it.  It’s worth reading again. Thus, if you know they can’t win – and conversely that you can and should – how intimidated do you need to be by their threats? There is absolutely no reason to believe that the threats of debt buyers will be realized. They are empty threats.  So where is the stress in that?

Their is an unscientific rule of thumb: The worse the collectors tactics, the weaker their case. So when you are up against a bear, keep these points in mind, and you’ll handle the stress of collection calls more effectively.

If you are negotiating your own settlement with a debt collector, beware of this common lie. Here’s how it goes: Let’s say the collector is seeking $5000 from you. You negotiate a 65% lump sum settlement and are pleased to get it over with for that price.  The collector takes a check over the phone for $3250, and tells you that settles the case. “Can you send me something in writing?” you ask. “Sure. I’ll send something out as soon as the funds clear.”

Read the rest of this entry »

The Debt Settlement Company Horror files are now open.  Too many of my clients have wasted their precious time and money on so-called debt negotiation, debt relief or debt settlement companies, who promise to settle your debt for 60 cents on the dollar and get you debt free in twenty minutes. Sounds good, until you learn that the upfront fees and monthly account maintenance fees can amount to 20% -40% of the total debt.  Do the math.  It doesn’t leave much room for real savings.  When you consider everything, even if they do make good on their 60% promise, you’ re still out of pocket 80% – 100% of the total debt, plus you’re going to pay taxes on the portion of the total debt that you didn’t pay. It’s called forgiven debt and its taxed as ordinary income.

Want to hear another dirty little secret? They won’t tell you this up front either:  some creditors won’t even talk to them.   Also,  when stop paying your creditors as they instruct, and instead pay them to set up a settlement “war chest”, they don’t tell you that you are likely to be sued well before your settlement fund hits critical mass. Since these companies are not law firms and don’t practice law, you are left high and dry,  payin’ money for nothin’.

Oh and one last thing. Most of these outfits are out of state, so good luck getting your money back.  They’ll take a hefty bite out of any refund as a cancellation fee.

You are not going to believe this. You’ll say: ” C’mon Bill, you’re kidding right?”   Not kidding. This is a true story.

I had just recently paid off some high interest credit cards. One of them, a Chase Card with a 29.9% rate, had a remaining balance of $9.25 in left over interest after I made a $1000 payment.

About a week later, a promotion from Chase arrives by mail.  On the outside of the envelope, just beside the address it blares exactly this: ” GOOD NEWS! Here’s an opportunity to get a lower interest rate on your credit card purchases!”

Lower rates? I rip that open quick.

Inside, it reads:

“GOOD NEWS ! [Again]

WILLIAM ROSE, now you can get a lower purchase interest rate on your credit card from Chase in three easy steps…

1. Sign up for Automatic Payments.

2. Continue to pay on time, stay within your credit line and have no returned payments for 12 consecutive months.

3. Then watch your rate DROP to 28.24%

Drop? More like Free Fall.

28.24%. Wow!

These marketing guys are SO wired in to the American psyche.

I think I’ll close out that $9.25 balance.

Consumers who are “between jobs” have seen their credit card balances explode as they swipe plastic to make ends meet. Their interest rates have soared too, thanks to something called the Universal Default Provision in their credit  agreement: miss any payment, anywhere and Slam! You’re at 29.9% everywhere. Add late payment fees and over limit fees and…Surprise! Some folks just can’t keep up.

So they stop paying. That’s when the collection calls begin. And when they try to be reasonable and explain their good intentions and ask for a payment plan they can afford, the debt collectors spin their head just like Linda Blair. Read the rest of this entry »