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The Truth About ‘Obama Student Loan Forgiveness’

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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The average 2016 college graduate carries $37,000 worth of student loan debt today according to an analysis of student loan debt by Mark Kantrowitz, publisher of Cappex.com. Kantrowitz tells MagnifyMoney he expects that number to rise for 2017 graduates.

It’s no wonder that those drowning in debt can get desperate. And scammers have come up with a clever way to dupe these borrowers into spending money on services that promise to erase their debt. One of the most popular student loan scams today involves companies that charge borrowers to sign up for the so-called “Obama Student Loan Forgiveness” program.

The only problem is that there is no such loan forgiveness program.

The truth about “Obama Student Loan Forgiveness”

So-called student “debt relief” companies use “Obama Student Loan Forgiveness” as a blanket term for the various flexible federal student loan repayment programs implemented over the last decade by the Bush and Obama administrations.

What they don’t tell unwitting consumers is that these programs, which include income-driven repayment plans and Public Service Loan Forgiveness, among others, are free to borrowers and do not require paying for any special services in order to enroll.

Promising relief to indebted college graduates, these companies lead people to believe that enrolling in these programs requires special assistance — which they may offer for a sizable upfront fee and/or recurring monthly payments. Rather than getting the help they need, borrowers are duped into paying for something they could easily accomplish for free with a simple phone call to their student loan servicer.

While there are multiple ways you can get scammed by debt relief companies claiming to offer you “Obama Student Loan Forgiveness,” there are some red flags that can help you spot a scam.

6 ways to spot a student debt relief scam

It’s important to note that it’s not illegal for a company to charge a borrower to enroll them in a program that’s free to them. These companies are arguably taking some of the work out of getting enrolled, even if that “work” could easily be accomplished with a phone call to your student loan servicer.

Nonetheless, some debt relief firms take things a bit too far, and it’s important to be aware of scams out there. After all, student loan forgiveness scams are really only one part of a broad range of debt relief scams. Debt relief scams share many of the same qualities and employ similar tactics to mislead consumers into paying for their services.

Here are some red flags to watch out for:

  1. They ask for fees upfront. By law, debt relief services are not allowed to ask for payment until they have performed services for their customer. A legitimate debt relief service may ask for a fee upfront, but they will place that payment in an escrow account, and they will not officially receive the payment until they complete the work.
  2. They charge fees for free government services. This one is a bit tricky. So long as a company makes it clear that it is possible to gain access to a government debt relief program for free, it’s not illegal for them to charge consumers for their help in enrolling in those programs. However, the worst actors out there will keep that information to themselves, leading consumers to believe they need to pay a professional for access.
  3. They claim to be affiliated with the U.S. Department of Education. The Department of Education, which manages the federal student loan system, does not partner with any debt relief services. Any company claiming to be associated with the Department of Education is a scam.
  4. They “guarantee” that your debt will be forgiven. Services will try to entice customers by promising total loan forgiveness or a reduction in their student loan payments. But monthly payments for borrowers enrolled in federal student loan repayment programs are established by law and cannot be negotiated. Also, the legitimate loan forgiveness programs out there usually require making payments for several years, and there is no company that can promise loan forgiveness unless you meet those payment requirements first.
  5. They advertise “pre-approval” for debt relief programs. There is no “pre-approval” for federal income-driven repayment or loan forgiveness programs. They are free for borrowers, and so long as your loans are in good standing, it’s a matter of the types of loans you have when you took them out that qualifies you for the different programs. To see if you qualify for a given program, contact your loan servicer directly.
  6. They offer to make your student loan payments for you. You should be the only person submitting payments to your loan servicer. The Department of Education has contracted these loan servicers to manage federal student loans, and loan payments should be made directly through their websites. Never send your payment to a debt relief firm, even if they promise to pay your loans for you. The exception here is if you’re working with a debt relief firm to settle a debt with a lump-sum payment. In that case, they are legally required to hold your cash in an FDIC-insured account until they officially settle the debt. And if their client decides they no longer want their services, they have to return the funds to them in full.

Do your due diligence before working with any debt relief service, by keeping an eye out for these red flags, as well as checking sites like the Consumer Financial Protection Bureau, the Federal Trade Commission, or the Better Business Bureau for complaints against the company.

What to do if you’ve fallen for a student debt relief scam

If you’ve been scammed by a debt relief company, there are certain steps you need to take to prevent further financial damage. However, know that it is possible you may never get your money back.

Submit a complaint to the Consumer Financial Protection Bureau and the Federal Trade Commission. Reporting scams, can not only help others from losing their money, but if an investigation by the CFPB or FTC results in suit and judgment, then the debt relief company may be required to issue refunds, cease business, and ensure borrowers do not miss out on important repayment benefits.

Track your credit reports with all three credit bureaus to ensure your personal information is not used fraudulently. You can get one free credit report each year at annualcreditreport.com or use these free services to monitor your report for suspicious activity. If you fear a debt relief scammer has your Social Security number and other financial information, you might want to consider a credit freeze. That will stop anyone from being able to open a new line of credit without you knowing.

Contact your loan servicing companies and have any power of attorney authorizations removed. Some companies will ask borrowers to give them power of attorney so they can negotiate directly with their loan servicers. You don’t want to leave any company with this privilege because they will be able to make decisions about your loans without you knowing.

Contact your bank or credit cards to stop payment to the debt relief company and see if they can work with you to try and get your money back. It is common for debt relief services to charge monthly recurring fees for their services.

Change your Federal Student Aid password. Every federal student loan borrower has a unique login for the https://studentloans.gov site, where you can track all of your federal loans. If you gave a company your FSA information, consider that information compromised and change your FSA password immediately.

9 Legitimate Student Loan Forgiveness Programs

While there is no such program called “Obama Student Loan Forgiveness,” there are several legitimate student loan repayment programs that offer student loan forgiveness.

These programs have a wide range of requirements and payment terms, some as short as five years, others as long as 25 years, and can be available based on the types of federal student loans you have as well as your chosen career.

In addition to loan forgiveness programs, there are programs that offer loan repayment assistance or loan discharge. How much can be discharged and the amount of repayment assistance varies greatly depending on the program.

9 examples of legitimate loan forgiveness programs, loan repayment assistance programs, and loan discharge programs

Program

Qualifications

How to apply

Max. loan amount forgiven

More info

Federal Teacher Loan Forgiveness

Teachers must complete five consecutive years of teaching at a low-income (Title I) school.

Application

Up to $17,500 in federal loans can be forgiven after five years.
Forgiven debt is not considered taxable income.

Studentaid .gov

MagnifyMoney’s guide to teacher loan forgiveness covers state programs as well as federal.

Public Service
Loan
Forgiveness
(PSLF)

Must work in a qualifying public service job, be enrolled in an income-driven repayment plan, and make 120 on-time payments.

Reserved for students who graduated after Oct. 1, 2007.

Contact your loan servicer and submit a Public Service Loan Forgiveness Employment Certification Form each year.

Total remaining balance, plus interest

Studentaid.gov:
PSLF

Income-Driven
Repayment

Eligibility depends on the types of loans, when the loans were borrowed, and whether they were borrowed for undergraduate or graduate programs.

Contact your loan servicer. Submit an IDR Plan Request with proof of income to each of your loan servicers

Outstanding balance after reaching end of repayment term is forgiven.
Note: forgiven debt may be considered taxable income.

Contact your loan servicer directly.

Military Service

Upon enlistment you agree to a minimum term of service and enroll in the military branch’s loan repayment program.
Most of the programs offer to pay one-third of the eligible amount for each year of service.

Be sure to discuss your eligibility for loan repayment programs with your recruiter and request enrollment as soon as possible.

Varies by branch.

Army and Navy offer a maximum of $65,000.
The National Guard offers $50,000, and the Air Force offers
$10, 000.

The program only applies to federal loans. There are a few exceptions for greater amounts depending on occupation. For example, a dentist could earn up to $120000 of loan repayment assistance, and an Air Force Jag Officer could earn up to $65,000 toward student loan repayment.

Americorps

Upon completing a term of service in one of three approved Americorps programs, you are eligible for the Segal Americorps Education award that can be used to pay current student loans or for educational expenses later on.

Apply to Americorps and if accepted, complete 12 months of service.

Currently, the total maximum you would be able to receive is $11,630. But students can complete the program twice, earning double the amount of forgiveness.

This education award would be considered taxable income.

The award must be used within seven years of completion of your Americorps service.

National
Institute of
Health (NIH)
Loan
Repayment

US citizens with federal or certain private loans in good standing working in qualified research programs such as a doctor (M.D., Ph.D., and other doctoral degrees) whose education debt exceeds 20% of their annual income can apply for either extramural or intramural NIH Loan Repayment Programs.

Determine which of the five Loan Repayment Programs best applies to your situation and submit your application and any required supporting documentation during the open application period.

$35,000 a year, with award terms that are either two or three years depending on the program.

In 2017, applications for all of the programs opens September 1, 2017, and have various closing dates with the earliest being November 15, 2017.

Loan
Repayment
Assistance

States or schools may offer these programs to those working in public service or under served rural areas.

Check with each individual program. For those working in a health related field you can learn more about repayment assistance programs here.

Lawyers, you can visit the American Bar Association Website to find out what states offer loan repayment assistance.
Those with a law degree can learn more about repayment assistance offered by law schools here.

Depends on the program

-

Closed School Discharge

If a school closes while you are enrolled or closes within 120 days of your withdrawing, you could qualify for 100% discharge of your federal student loans.

Contact your loan servicer(s) to get the application for discharge.

100% of federal student loans

Make sure you keep your loans in good standing by continuing to make payments while you wait to hear back on your discharge application.

Disability Discharge

If you are totally and permanently disabled and can establish that under the specific requirements of the program you could have your federal student loans discharged.

Must submit proof of your disability.

There is no cap on the amount that will be discharged.
Discharged debt may be taxable.

-

What to do if you can’t afford your student loan payments

If you are struggling to afford your student loan payments, there are some actions you can take to ensure your loans remain in good standing and you avoid a default that could negatively impact your credit score.

Enroll in an income-driven repayment plan

If you are unable to afford your current payment, you can apply to change repayment plans. For example, if you are on a Standard Repayment Plan for your federal student loans, you could request to enroll in an income-driven repayment plan. If you are already on an IDR plan and your income has changed significantly, you can request to have your payment amount recalculated.

Ask for a deferment or forbearance

If you are going through a temporary financial hardship, you can ask your loan servicer to apply a deferment or forbearance, which would not require you to make payments during the deferment or forbearance. While both a deferment and forbearance offer you relief from making payments, with a forbearance you will be required to eventually pay back the interest that accrues during that time. Also, it’s important to note that while you are in deferment or forbearance, you aren’t making payments, which means you might be missing out on forgiveness programs like PSLF if you are working in public service or for a nonprofit.

Consider refinancing or consolidating your loans

Refinancing involves taking out a new loan from a private lender and using that loan to pay off your old loan. The pros of refinancing include a reduced interest rate and the ease of having just one payment. If you refinance a federal student loan, you will lose all of the benefits that federal student loans offer.

Alternatively, you could consolidate your federal loans. A Direct Consolidation Loan combines all your loans using the average weighted interest rate into one loan. So instead of dealing with multiple loan servicers and multiple loan payments each month, you only have one student loan payment to make each month. You can apply for a Direct Consolidation Loan at no cost through the government’s Federal Student Aid website.

Work with your loan servicer

If you have private loans, your lender may not offer as many repayment options as federal loans. Reach out and work with your lender anyway. They may offer a financial hardship program that would lower your payments. Your loan servicer would much rather work with you to ensure they get paid.

Consider bankruptcy if you can pass the “hardship test”

While it is highly unlikely you will be able to discharge your student loans in bankruptcy, it isn’t impossible. You must either show that your loans would impose an undue financial hardship that will not go away or that the loan was not a qualified student loan in that it did not fit the definition or was in an amount that exceeds the school’s cost of attendance. An example of where this argument has been successful would be a private bar loan, a loan taken out to cover the expenses of taking the bar exam.

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.

Liz Stapleton
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Liz Stapleton is a writer at MagnifyMoney. You can email Liz here

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Consumer Watchdog

What to Expect When You Have Debt in Collections

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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 editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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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.” 

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Shen Lu
Shen Lu |

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

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