Ask Liz Weston

If you’re tempted to feel sorry for credit card companies, what with all the new restrictions kicking in Feb. 22, read on.

Capital One was recently sued by West Virginia’s attorney general for a variety of alleged misdeeds, including sending customers a debt repayment plan disguised as an offer of new credit. (Hat tip to Bill Hardekopf at LowCards.com for bringing the suit to my attention.)

Capital One sent the solicitations to people whose balances had already been charged off as bad debt, West Virginia Attorney General Darrell McGraw alleged in his complaint. Although it looked like a new credit card offer, what Capital One was really offering was $1 of new credit in exchange for the customer agreeing to have the charged-off balance transferred to the new card, McGraw said.

The agreement allowed Capital One to charge interest, late fees and over-the-limit fees on debt that otherwise would have been beyond its reach, the complaint alleges. The agreement also allowed Capital One to re-age the debt, restarting the statute of limitations.

According to a Legal Newsline article by Nick Rees:

“Capital One’s practice of offering nominal extension of credit, if and only if, the consumer agreed to pay off a debt too old to be sued on is tantamount to loan sharking,” McGraw said.

The complaint alleges Capital One also:

• issued multiple low-limit credit cards, each charging exorbitant fees, rather than raising credit limits on consumers’ existing accounts
• unconscionably imposed over-the-limit fees on consumers’ accounts
• sold services to consumers who could not benefit from the services
• billed and attempted to collect for credit card accounts that were never activated.

I’ve made a big fuss about the difference between fair play and foul play, and how often credit card companies crossed the line. But this little scheme may have crossed another line: the one between foul play and pure evil.

Dear Liz: With the rise in personal delinquencies these days, my husband and I are in the same boat as a lot of people with common surnames: We get daily robo-calls from collection agencies attempting to collect debts from individuals with names similar or identical to our own.

These are not our debts, and we check our credit report regularly enough to know that these also are not fraudulent charges made to our accounts or accounts opened fraudulently in our names. Is there a way to stop these calls?

Answer: Under the federal Fair Debt Collection Practices Act, you have the right to tell collection agencies in writing to stop contacting you, and they’re supposed to comply.

This, unfortunately, can be tougher than it sounds.

Some of the agencies employing automatic dialers routinely ignore the laws requiring that they identify themselves and provide you with contact information, including the firm’s name and address. If they leave a return phone number, you can try calling it or entering it into an Internet search engine to see if you can determine who’s calling.

If you get a name and address, you can write a letter telling the agency the debts aren’t yours and to stop contacting you. If the agency calls again, you can report it to the Federal Trade Commission or sue it in Small Claims Court for violating the Fair Debt Collection Practices Act.

Dear Liz: I’m in default on my student loans.

I don’t know how many there are, I don’t know who owns them, and I don’t know how to start paying them off. I’ve had a debt-collection agency threaten to cut my throat and to hurt me in other physical ways if I didn’t pay.

I’ve talked to the Department of Education, which doesn’t seem to know who owns the loans because the secondary lenders have since turned all the debt over to collection agencies.

I’d like to begin repaying my loans, but I have no idea who to pay and I certainly don’t want to pay the company that threatened me with violence.

This is killing my credit. What to do?

Answer: At the very least, you should complain to the Federal Trade Commission about this rogue collector. Any kind of harassment, including physical threats, is forbidden under the Fair Debt Collection Practices Act. You can find the FTC’s guide for consumers HERE.

You can use the resources at FinAid.org’s Lost Lender to try to track down your lenders. The FinAid website recommends two services to find loans, both based on the National Student Loan Data System, said Mark Kantrowitz, the site’s founder.

Another possible source of help, Kantrowitz said, is the financial aid office at your college.

If you have any federal loans, you can dig them out of default by making nine out of 10 consecutive on-time voluntary payments, Kantrowitz said. Then you’ll be able to consolidate them into the Direct Loan program. This will also remove the default from your credit history.

After you consolidate those loans, Kantrowitz suggests switching them to an income-based repayment if you can’t afford to pay the full amount due under standard repayment. For more tips, CLICK HERE.

If you run into a wall, either finding your loans or working out repayment, contact the Federal Student Aid Ombudsman or (877) 557-2575.

If you have any private student loans, contact the lenders directly about working out a repayment plan, Kantrowitz said. Repayment options for private loans are more limited than those for federal loans.

photo credit: apesara

Much is being made of the fact that credit card debt has dropped $70 billion, or more than 7%, since hitting an all-time peak of $975 billion in September 2008. I’ve heard the statistic mentioned several times in stories about how frugality is becoming mainstream.

Yes, we are saving more, as the uptick in the personal savings rate shows. Yes, we are spending less, as retailer bankruptcies demonstrate.

And many folks are laying off their credit cards, either voluntarily or because their issuers have raised rates, lowered limits or even closed their accounts.

What’s often missed, though, is the contribution of charge-offs to the decline in credit card debt. As noted by Phil Britt of insideARM, a newsletter that tracks the collection industry, debt that’s written off as uncollectible by credit card issuers promptly disappears from the Fed’s consumer credit figures.

Quantifying how much of the $70 billion drop is due to bad debt is tough, but Britt noted that credit card charge-offs hit an all-time high of 9.55% in the second quarter–a huge uptick from the first quarter’s 7.64% rate.

So yes, there’s less riding on the cards, but it may be as much consumers hitting the wall as consumers getting religion.

Dear Liz: You recently stated that the latest FICO credit-scoring formula, FICO 08, excludes collections under $100. Not so. My 820 credit score was recently dinged by a $65 collection. It dropped my score over 100 points and took me a lot of time to get it removed.

Answer: Not every lender uses FICO 08. When a new version of the FICO formula is rolled out, some lenders adopt it immediately while others may take month or years, or may never do so at all.

The bureaus only started offering FICO 08 to lenders this year, so it’s rather likely that many lenders will still be using the older versions to calculate your scores.

If you missed it last weekend, take time to read the New York Times piece about how much information about you credit card companies compile–and what they do with that information.

I wrote about some of this previously in “8 secret scores lenders keep” but reporter Charles Duhigg goes into some remarkable detail:

The exploration into cardholders’ minds hit a breakthrough in 2002, when J. P. Martin, a math-loving executive at Canadian Tire, decided to analyze almost every piece of information his company had collected from credit-card transactions the previous year. Canadian Tire’s stores sold electronics, sporting equipment, kitchen supplies and automotive goods and issued a credit card that could be used almost anywhere. Martin could often see precisely what cardholders were purchasing, and he discovered that the brands we buy are the windows into our souls — or at least into our willingness to make good on our debts. His data indicated, for instance, that people who bought cheap, generic automotive oil were much more likely to miss a credit-card payment than someone who got the expensive, name-brand stuff. People who bought carbon-monoxide monitors for their homes or those little felt pads that stop chair legs from scratching the floor almost never missed payments. Anyone who purchased a chrome-skull car accessory or a “Mega Thruster Exhaust System” was pretty likely to miss paying his bill eventually.

Read the rest at “What do credit card companies know about you“?

Dear Liz: Our FICO score is above 900. When we retired and moved to Oregon, our previous landlord in California imposed false charges against our security deposit that we refused to pay. The landlord has since turned the account over to a collection agency that indicates it will notify all three credit agencies of this outstanding amount. How will this affect our FICO score?

Answer: The top FICO score is actually 850. If the last score you saw was over 900, you probably were looking at a VantageScore, which isn’t used by as many lenders.

In any case, your scores probably will drop if the collection agency follows through on its threat. How much they’ll drop depends on the rest of your credit history, how much the collector says you owe and which version of the FICO formula a lender happens to use (the latest, FICO 08, excludes collections under $100).

Typically, though, collections are considered a serious negative that can easily knock your score out of the “prime” range.

This is why you don’t let disputes go to collections. You would have been better off paying the landlord under protest and then suing him or her in Small Claims Court.