What to Know About Credit Card Debt Collection

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No one likes to be hounded by debt collectors. And when it's over your credit card debt, it can get even more complicated. Here's how it works, and what you can do about it.

This post is from partner site LowCards.com.

Debt collection always ranks high in any survey that tracks consumer complaints. It’s an industry with an aggressive reputation, known to sometimes use strong and harassing tactics in an attempt to collect debt that’s past due.

In its 2011 report to Congress, the Federal Trade Commission received more than 140,000 consumer complaints regarding unfair, deceptive, and abusive debt collectors.

According to American Banker, the Office of the Comptroller of the Currency is currently investigating JP Morgan Chase for improper credit card collections. The publication cites current and former employees who report that Chase “took procedural shortcuts and used faulty account records in suing tens of thousands of delinquent credit card borrowers for at least two years.” Chase employees report that the Chase card litigation involved unreliable outside attorneys as well as poor office procedures. Perhaps as a result of the investigation, Chase stopped suing delinquent borrowers in 2011.

The publication further states that company documents, court filings, and interviews with seven current and former employees reveal, “Chase’s credit card litigation operation was allegedly plagued by unreliable external attorneys, management’s disregard for accuracy, and patchy technology.” It also reports that the bank’s computer systems frequently disagreed about how much debtors actually owed.

Collection of bad debt has grown into a billion-dollar industry. In 2000, Chase recouped $130 million a year from bad consumer debt of all kinds. By 2009, Chase recovered more than $1.2 billion on credit cards alone, according to the American Banker. Litigation became a profitable way to handle bad debt, as the bank would charge off more than $20 billion in credit card accounts in 2010 and 2011.

Debt collection is complicated, and some collectors may push the boundaries of the regulations and law to get money out of you. The best way to protect yourself is to be familiar with the laws, and know exactly what you owe and to whom. If the collector is doing something that is illegal, report that company to the FTC.

How it works

Your credit card minimum payment is due at least 21 days after you receive your bill. If the minimum payment is late, it will be reported to the credit bureaus (if this is your first time, and you are a good customer, they may not report you until the account is 60 days late).

If you don’t make your minimum payment in 60 days, your account is turned over to the collections department, and the delinquency is reported on your credit report. If you can’t make your minimum payment now or over the next few months, this is the time to call your credit card issuer to try to work out a payment plan.

If your account is 90 days past due, this is serious delinquency, and you’ll receive insistent calls and letters from your creditor. Late fees and interest payments will accumulate and your credit card issuer will probably shut down your credit card account.

Beyond this point, your account will be charged off by your credit card issuer and turned over to a collections agency or a third-party debt collector. The debt collector will contact you through phone calls, e-mails, and letters. The Fair Debt Collections Practices Act provides guidelines for contact from debt collectors. Before you make a payment, verify the amount and the creditor. You may be better off negotiating a settlement with the credit card issuer. The third-party collector can even sell your debt to another collector.

If this doesn’t work, the third-party collector can sue you and take you to court. They will send you a summons to appear in court. Do not ignore this, because if you don’t show up, it’s an automatic win for the collector. If the debt collector or creditor wins the case and receives a judgment, it can seize assets or garnish wages to pay off the debt. The judge could also create a payment plan.

There is a statute of limitations to sue for credit card debt, and if the date has passed, you can have the case dismissed. This limit is set by the states and varies from three to 10 years. It’s up to you to know and prove this. The debt collector can still attempt to collect on debts.

Information about a delinquent account remains on your credit report for seven years from the date you first missed a payment.

Stacy Johnson

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