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What the New DOL Fiduciary Rule Means For You

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Geeting advice on future investments

Seven years in the making, the Department of Labor’s long-awaited Fiduciary Rule finally went into effect June 9.* The full breadth of the rule’s impact won’t officially be felt until January 2018, when advisors must be fully compliant with the rule’s requirements.

The rule survived an upheaval by the Trump administration, which had hinted earlier this year that it might seek to block the rule’s implementation.

Aimed at saving consumers billions of dollars in fees in their retirement accounts, the Department of Labor’s new fiduciary rule will require financial advisers to act in your best interest. However, the final rule includes a number of modifications, including several concessions to the brokerage industry, from the original version proposed six years ago.

Here’s what you need to know about these new rules and how they may affect your money.

*This story has been updated to reflect the rule’s successful release.

What is a Fiduciary?

So what exactly is a fiduciary? According to the Certified Financial Planner (CFP) Board, the fiduciary standard requires that financial advisers act solely in your best interest when offering personalized financial advice. This means advisers can’t put personal profits over your needs.

Currently, most advisers are only held to the U.S. Securities and Exchange Commission’s suitability standard when handling your investments. This looser standard allows advisers to recommend suitable products, based on your personal situation. These suitable products may include funds with higher fees — with revenue sharing and commissions lining their own pockets —  which may not reflect your best possible options.

What is Changing Exactly?

Affecting an estimated $14 trillion in retirement savings, the Department of Labor’s new fiduciary rule is meant to help you receive investment advice that will aid your nest egg’s ability to grow. Many investors have been pushed toward products with high fees that quickly eat away at profits.

All financial professionals providing retirement advice will now be required to act as fiduciaries that must act in your best interest. This applies to all financial products you may find in a tax-advantaged retirement accounts. Because IRAs offer fewer protections than employment-based plans, the Department is concerned about “conflicts of interest” from brokers, insurance agents, registered investment advisers, or other financial advisers you may turn to for advice.

Despite these new protections, the Department of Labor also made some key concessions. Previously, brokers were required to provide explicit disclosures about the costs of products to their clients. This included one, five, and ten year projections. However, this requirement has been eliminated. After heavy pushback from the industry, the Department of Labor also agreed to allow the use of proprietary products.

Additionally, the Department of Labor has pushed the deadline for full implementation of their new rules. Firms must be compliant with several provisions by June and fully compliant by January 1, 2018.

Despite all of these concessions, the Department of Labor’s highest official insists the integrity of their rule is still in place.

Exceptions You Should Know About

Although advisers working with retirement investments will no longer be able to accept compensation or payments that create a conflict of interest, there’s an exception many brokers will likely pursue.

Firms will be allowed to continue their previous compensation arrangements if they commit to a best interest contract (BIC), adopt anti-conflict policies, disclose any conflicts of interest, direct consumers to a website that explains how they make money, and only charge “reasonable compensation.” The best interest contract will soon be easier for firms and advisers to use because it can be presented at the same time as other required paperwork.

How These New Rules Might Affect Your Investment Options

Although these new rules don’t call out specific investment products as bad options, it’s expected advisers may direct you to lower-cost products, like index funds, more regularly. New York Times also predicts the new regulations may also accelerate the movement toward more fee-based relationships. They also suggest complex investments like variable annuities may soon fall out of favor.

What Will the Larger Impact of These Changes Be?

Backed by extensive academic research, the Department of Labor’s analysis suggests IRA holders receiving conflicted investment advice can expect their investments to underperform by an average of one-half to one percentage point per year over the next 20 years. Once their new rules are in place, they are anticipating retirement funds will shift to lower cost investments, savings consumers billions of dollars.

What You Can Do To Protect Yourself

Although these new rules are a positive step for consumers, it’s important to remember there are still a wide variety of financial professionals out there. And the quality of the advice you receive can vary greatly based on their level of education, experience, and credentials. In order to find someone who is equipped to handle your unique financial situation, you will still need to do your homework.

You may want to start by looking for a fee-only financial planner. Due to the nature of how they are compensated, fee-only financial planners operate without an inherent conflict of interest. They are paid a fee for the services they provide and they don’t earn commissions from product sales.

Once you’ve narrowed down your options you’ll want to ask about their credentials, what types of clients they work with, what types of services they offer, while carefully checking their background and references. Like any professional working relationship, you’ll want to feel comfortable with someone you are receiving financial advice from, so it’s important to make sure your personalities and priorities are aligned. Remember, no one cares more about your money than you do. That’s why it’s essential to carefully vet anyone who is working with you to secure a healthier financial future.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kate Dore
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Kate Dore is a writer at MagnifyMoney. You can email Kate at [email protected]

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Consumer Watchdog

What to Expect When You Have Debt in Collections

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

debt collection
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Updated – November 15, 2018

If you’ve ever been sent to debt collections, you know it’s not fun. It can affect your credit score and negatively impact your financial health. Debt collectors don’t mess around, either: Few people have great experiences dealing with them.

Dealing with a debt collection agency can be painful. The phone never stops ringing, and they won’t stop asking for money. Agencies have a reputation for pushing the boundaries of the law, using aggressive (and sometimes illegal) tactics, and bending the law to pressure people into making payments.

In fact, at the Consumer Finance Protection Bureau (a government agency that gathers financial services complaints), collection agencies are the fastest growing complaint category. And the main reason people complain: they don’t recognize the debt that is being collected. That complaint is often valid. There is no central registrar of debt, and sometimes the only “proof” that a collection agency has of your debt is that your name is on a spreadsheet. The debt collection market has a high risk of fraud, abuse and simple human error.

If your debt has been sent to collections, there are some things you need to know to protect yourself. If you’re armed with information, you can turn things around. Keep reading to find out everything you need to know about your debt being in collections. Next, take the proper steps to rectify the situation.

Understanding the debt collection process

What does it mean when your debt is in collections?

Being late on your debt payments is one thing, but having your debt to go collections is quite another. According to the Consumer Financial Protection Bureau (CFPB), a debt collector collects debts that are past due. There are different kinds of debt collectors, including individuals, lawyers and companies that buy debts from other creditors to try to get them paid. When your debt goes into collections, it means that a third party is trying to retrieve what you owe.

A debt collector may take certain steps to get you to pay.

  1. You will receive a debt collection letter: Banks and credit card companies usually make the collection calls themselves during the first 180 days. However, after 180 days of collection activity, the bank “writes off” the debt. At this point, most major banks will hire a collection agency to collect the debt. And after a few more months, the banks will typically sell the debt to a collection agency. When banks sells the debt, they wipes their hands of the relationship. But the timeline varies. You might receive a letter telling you the debt went to collections and asking for payment to avoid legal action. It is crucial that the letter contains information about your rights.
  2. Debt collection calls and letters will continue: The debt collector will continue to send letters and call you to “remind” you about the debt and ask you to pay it. Although you can negotiate most debt collections, you must work out a payment plan or settlement figure to avoid the legal phase.
  3. The debt collector might sue you: If you don’t make a plan with the collector, the agency might have an attorney file a suit against you. The court will notify you of the suit and give you an appearance date. Do yourself a favor and show up. If you don’t, you’ll lose by default and be legally responsible to pay.
  4. The court will decide on your debt: The court will send out its judgment. If you lose, you may be held responsible for additional expenses, such as attorney fees, collection costs and interest. Further, the debt collector will have additional tools to get back the money you owe, including the ability to garnish your wages or funds in your bank account or place a lien on property you own.

When can your debt be sent to collections?

You might be wondering when your overdue debt will be sent to collections. It’s a bit complicated. Martin Lynch, compliance manager and director of education at Cambridge Credit Counseling Corp. — a nonprofit in Agawam, Mass., dedicated to helping people get out of debt and stay that way — explained it in layman’s terms.

As soon as a debt is past due, it can be sent to a collector, though there’s seldom that kind of urgency, Lynch said. It’s the creditor’s call on how long it will try to collect on the account internally or turn it over to a commission-based collector. Most credit card accounts will charge-off after six months, for example, but mortgage loan servicers often carry delinquent loan holders longer than that.

“It’s more important to avoid these scenarios altogether since there’s no way of predicting whether your particular creditor is going to place your account with a collector or give you some time to catch up,” Lynch said. And there’s no federal requirement to notify a consumer when their account is being placed in collections.

“Our counselors won’t give any guidance on this point, as we don’t want the consumer to feel there’s no threat of collection/lawsuit activity after their account slips into default,” Lynch said. “The best thing to do is communicate with the lender or loan servicer as soon as you realize you can’t make the monthly payment. Waiting until you’ve missed several payments is like playing Russian roulette.”

It’s also important to understand the difference between a debt collector and a debt buyer, according to Lynch. A debt collector gets assigned to an account but doesn’t own the debt — he is collecting on a commission basis for the original creditor, who still owns the debt. A debt buyer, however, actually purchases debts from an original creditor or another collector.

Impact on your credit bureau

A collection item has a big impact on your credit bureau. The higher your score, the more points your score can drop. For example, if you have a 770 credit score, you could see your score drop 40 to 70 points from a single collection item.

A collection items stays on your credit report for seven years. Even if you pay the collection item, it doesn’t disappear.

Fortunately, this is changing with FICO 9. If you pay off a collection item, the item will no longer be included in your FICO score. However, it will be awhile before banks start using FICO 9.

In the current model, the only way for a collection item to disappear is to wait seven years from the date it is first reported. So, that means seven years from the date that you become 180 days past due.

The only way to have a collection item removed is for the collection agency to remove the debt. You can ask an agency for a “pay for delete” deal. This means that you agree an amount to pay, and then the agency will remove the collection item from your account. Some collection agencies will offer this (even though they technically are not supposed to do so). The closer you are to seven years, the more likely they are to deal with the debt. You can also dispute the item with the credit bureaus (online). If the debt collection agency does not respond with proof of the debt in 30 days, then the item would be removed. Here are the links to dispute:

What are your rights?

After the original creditor places the debt with a third party, the Fair Debt Collections Practices Act (FDCPA) protects consumers, Lynch advised. The FDCPA imposes a host of requirements on collectors, but the most important is probably the consumer’s right to request the debt’s validation.

“You should invoke this right when the collector first contacts you in writing, and remember that if the first contact is by phone, the collector has to send you a letter within five days,” Lynch said. The letter will provide some basic account details, and it must advise the consumer of their right to seek confirmation of the debt. All consumers should exercise this right.

“The best way to seek validation of the debt is through a certified letter to the collector,” Lynch said. “If you know the debt is yours and that the statute of limitations hasn’t expired, at least you’ll buy a little bit of time to put your budget together to determine how much you could put toward a monthly payment plan.”

The FDCPA also has other protections, and some states have imposed even more stringent limitations on the collections process, according to Lynch. For example, there are limits on when calls can be placed to the debtor’s phone — generally not before 8 a.m. or after 9 p.m., unless the debtor has granted permission to go beyond those hours.

You can also send a cease-and-desist letter to the collector and a prohibition request on calls to your place of employment, according to Lynch. “Collectors can’t threaten to publish your name, nor can they impersonate law enforcement officers or officers of the court during the collections process,” Lynch said. “As outrageous as these clauses sound, bear in mind that they only made it into law because unscrupulous collectors were actually using these tactics.”

If your collector violates any of these rules, you could sue them for up to $1,000 in small claims court. If the violations are much more egregious, rising to the level of harassment, you could bring a suit for considerably more, Lynch advised. “Consumers dealing with collection accounts should review the FDCPA, as well as their own state’s rules governing the collections process,” Lynch said. “At any time they feel a collector is violating those rules, they should contact their state attorney general’s office or department of consumer affairs.”

If you feel that a debt collector has done any of the above, you need to file a formal complaint. If they have engaged in prohibited practices, you can file that complaint with the CFPB,Federal Trade Commission (FTC), your attorney general and the Better Business Bureau (BBB).

7 Things to Know if you have debt in collections

  1. If you don’t think the debt is yours, then take action right away. Within 30 days of the first collection activity, write a letter (certified, copied, with proof of delivery) to the collection agency. Tell them that you do not owe the debt and they must cease and desist all collection activity. Collection activity must stop until the agency provides concrete proof that you owe the debt.
  2. If you don’t think the debt is yours, and the collection agency provides proof that you don’t agree with, then complain to the CFPB. The more documentation you have, the better.
  3. Dispute the items with the credit bureaus. You can dispute the items online at Transunion, Equifax and Experian. It is fast and easy to make a dispute. The burden of proof is now with the collection agency, and they often will just decline to provide further information. If they don’t provide proof within 30 days, the information disappears from your bureau.
  4. The item disappears from your credit report seven years after it is with a collection agency. That usually means seven years after you become 180 days past due. This is not the same as the date you opened your account. Sometimes the best option is to just wait for the item to disappear.
  5. Be careful when you communicate with the agencies. There is a statute of limitations, which varies by state. After the statute of limitation expires, you are protected from further legal action (wage garnishment, etc.). In some states, admitting that the debt is yours on the phone is enough to reset the statute.
  6. Just because you are outside of the statute of limitations doesn’t mean that the collection agency won’t try to sue you. And, if they do, make sure you defend yourself in court. It will be easy: you just reaffirm the statute of limitations. But, if you don’t defend yourself, you could end up with wage garnishment or a new judgment. In addition, complain to the FTC, because it is against the law for a collector to sue you or threaten to sue you on a time-barred debt.
  7. When all else fails, use this line with the collection agency: “I do not recognize this debt. I have provided a written request for you to cease and desist all collection activity. In addition, I have complained to the CFPB. After this conversation is complete, I will reach out to the CFPB to update my complaint with this conversation. Given that you have not provided adequate proof that I owe this debt obligation, I believe you have further incriminated yourself by making this phone call. I will also provide a written complaint to the FTC, as I believe you are violating the FDCPA. At this point, I am going to terminate the conversation, and I hope that you will respect the law and promptly cease and desist from all collection activities, and ensure that negative information is removed from all 3 credit bureau. Goodbye.”

How to get debts out of collections

Lynch said there are several options to get debt out of collections: pay in full, negotiate a payment plan or settle the debt for less than the principal balance. After that, the options are based on what type of debt you’re talking about. Lynch outlined the different types below.

You can cure your mortgage problem by paying the full amount due, plus interest and fees, to stave off foreclosure. If it hasn’t come to that, the loan servicer might accept a workout plan, which means the past-due amount is divided into equal parts and added to the regular mortgage payment, typically over six to 10 months, Lynch said.

A consumer struggling with high-interest credit card accounts might be able to have their interest rates dropped to the single digits, Lynch said, by working with a nonprofit consumer credit counseling agency. You can find an agency in your state by visiting the Fair Counseling Association of America website.

If you’re behind on a federal student loan, you might be able to switch to an income-based repayment plan, rather than pursuing a deferment or forbearance, which doesn’t solve the problem. You also might be able to consolidate out of default, though you should discuss the pros and cons of that option with a counselor. Finally, federal student loan rehabilitation might also be an option, but, again, a conversation with a certified counselor would be in order first.

If the debt is older and the relevant statute of limitations has expired (or is about to), you must be careful not to revive the statute or waive its protections. Making a payment toward a time-barred debt restarts the statute of limitations, giving the creditor a fresh opportunity to sue, Lynch said.

“In a few states, simply acknowledging that the debt is yours will restart the statute, so be wary of collectors offering a sweetheart deal to pay off an old debt,” Lynch said. “They may simply be trying to get you to make a payment and revive the statute of limitations.” The statute runs from the date of the most recent payment, so check your bank records.

Be on the lookout for a collector who “re-aged” the account, or marked it on the credit report as current. Only a payment can cause an account to be re-aged. Doing so without a payment having been made is a fraudulent attempt by the collector to make you think that the statute of limitations has more time to run, according to Lynch.

Some good news: “If you can pay off the account in full, then, under FICO 9, the newest version of FICO’s scoring formula, the account won’t be included in the calculation of your score,” Lynch said.

But if you settle the account for less than the principal balance owed, you’ll probably do significant damage to your score, which will raise a red flag for future lenders, at least for a while.

Finally, you might consider declaring bankruptcy. If you can show that you have significant hardship paying your debt — and can prove that there’s no way you can repay the debt and still maintain a basic standard of living — a court might enable you to declare bankruptcy. Keep in mind that bankruptcy can have long-lasting effects on your financial life for years, so use it as a last resort.

Debt collection: FAQs

You likely still have some questions about debt collections. Review these seven FAQs and see if any match yours.

Having debt collections on your credit report will lower your FICO score — and continue to affect it for up to seven years.

Debt collectors can’t contact you before 8 a.m. or after 9 p.m., and they can’t call you at work if you’ve said you cannot get calls there.

A debt collector can contact you via mail, email, text or phone.

Send a snail-mail letter and ask the debt collector to stop contacting you. Consider sending certified mail and paying for a return receipt so that you have proof you sent it. Once the collector receives your request, they can contact you only to let you know action is being taken. For example, a lawyer might be filing suit against you. If you have an attorney, the debt collector must communicate only with that person, not you.

A debt collector can discuss your debt only with you, your spouse or your attorney. They can also contact other people to find out where you live or work and what your phone number is, but that contact is typically limited to once per person.

The debt collector must send you, in writing, the amount of money you owe, to whom you owe it and what action to take if you think there has been a mistake.

Debt collectors are not allowed to harass you. They can’t use obscene language when they talk to you, call you incessantly or threaten you with violence. Also, they are not allowed to make any false claims, such as saying they are government representatives or lawyers.

The bottom line

It’s a stressful, tedious process to pay a bill once it has gone to collections. That said, you must persevere and get it done to avoid further dinging your credit. If you’re dealing with a collections agency that’s proving particularly uncooperative, consider hiring an attorney with experience in credit issues to represent you. Sometimes, collection agencies “listen” better to an attorney than a consumer.

If you feel you’ve been charged in error on a debt collection, report it immediately to the agency and ask that it validate the debt for you. Also, if you feel a debt collector has overstepped the line of acceptable behavior, make sure you report it to the CFPB, FTC, your attorney general and the BBB.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at [email protected]

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Consumer Watchdog, News

Consumer Bureau Loses Fight to Allow Class-Action Suits Against Finance Giants

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Senate Republicans on Tuesday killed a new rule that would have made it easier for Americans to file class-action lawsuits against big Wall Street banks. 

Vice President Mike Pence cast a critical vote to break a 50-50 tie, giving the Street its first major victory since the Trump administration took office in January.  

Implications for consumers 

In the regulatory overhaul following the housing slump, Congress directed the Consumer Financial Protection Bureau (CFPB) to write the rule preventing financial firms from imposing arbitration when consumers wished to band together in class-action cases to resolve disputes. 

For years, financial companies have included class-action waivers in new contracts offering a consumer financial product or service. The arbitration clauses forced consumers to waive their rights to join class-action lawsuits. 

CFPB’s proposed rule, issued in July, would have banned financial institutions from inserting such clauses in standard contracts. Consequently, it would have restored individuals’ ability to pool resources and fight against banks and credit card companies in court.  

“Tonight’s vote is a giant setback for every consumer in this country,”  Richard Cordray, the director of the consumer bureau, said in an emailed statement to MagnifyMoney. “Wall Street won and ordinary people lost.” 

He added, “As a result, companies like Wells Fargo and Equifax remain free to break the law without fear of legal blowback from their customers.” 

What’s arbitration? 

When a company includes a mandatory arbitration clause in a contract, it generally means disputes will be handled as individual cases in small claims court or settled outside the court system, through arbitration. A neutral third party — an arbitrator or panel of arbitrators — listens to the arguments and decides on a resolution.  

Arbitration is said to be faster, simpler and cheaper than litigation. But opponents of arbitration say its downsides include questionable neutrality on the arbitrator’s part, a lack of transparency and a lack of recourse. For example, in a court case, a losing party could appeal — an option that doesn’t exist in arbitration.  

The CFPB argues that reducing consumers’ options to private arbitration or an individual lawsuit makes it easy for companies to avoid accountability for actions that can affect thousands or millions of people. 

Why now? 

The Trump administration and Republicans have pushed to curtail the CFPB as part of a broader effort to weaken the Obama administration’s tighter federal grip over financial institutions.  

The arbitration rule had sparked a political firestorm in Washington. Over the summer, members of the Senate Banking Committee pledged that they would take the unusual step of filing a Congressional Review Act Joint Resolution of Disapproval to overturn the CFPB rule.  

Rep. Jeb Hensarling, D-Texas,  introduced a companion measure in the House. 

Under the Congressional Review Act, Republicans had about 60 legislative days to overturn the rule. In ensuing months, financial institutions and their Republican allies in Congress joined forces, making serious efforts to block the arbitration rule.  

The Treasury Department on Monday released a report against the rule. “The Bureau failed to meaningfully evaluate whether prohibiting mandatory arbitration clauses in consumer financial contracts would serve either consumer protection or the public interest — its two statutory mandates,” according to the report. 

On Tuesday, the White House applauded the move by Senate Republicans. 

“The evidence is clear that the CFPB’s rule would neither protect consumers nor serve the public interest,” the White House said in a statement. “Rather, under the rule, consumers would have fewer options for quickly and efficiently resolving financial disputes.” 

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Shen Lu
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Shen Lu is a writer at MagnifyMoney. You can email Shen Lu at [email protected]