California Debt Blog

Student Loan Garnishments

Many people take out student loans to help pay for college, graduate school, professional school, and the like. After all, with college costs skyrocketing, people need a way to pay for their education. What most people do not understand is that you MUST pay back student loans. Student loan debt is generally not discharged in bankruptcy. Furthermore, the government has now authorized some debt sevicers to administratively garnish your wages.

What does that mean? Basically, if you are a student loan borrower and you stop making payments, the government does NOT have to sue you to collect the money. They can send a wage garnishment notice to your employer and your wages will automatically be garnished.

You can thank those people who chose not to pay back student loans for this. Congress passed this law to help keep the default rate on student loans in check. The rate was rising and there was little that could be done. Now, if you get behind, your wages will be garnished, up to 15% of your income.

You can find all of this in Public Law 102-164 and 20 USC 1095a.

Conclusion: Make sure you pay your student loans timely!

Capital One Files Suit

Nope, not against one of its consumers. That is not uncommon. Actually, when Capital One sues a consumer, they are not that bad to deal with.

In this case, however, Capital One filed suit in federal court in San Francisco attempting to block California's Attorney General from getting its records. In 2006 and 2007, the Attorney General asked for certain records. Capital One did not provide them. In March, Capital One converted its charter from a Virginia state charter to a federal charter. It now argues that it does not have to respond to a state's request.

This is fascinating. Of course, the first response is that if they had nothing to hide, why not turn over the records? Furthermore, they cannot avoid responsibility by a subsequent change. Imagine if you broke a law in California and then claimed Canadian citizenship after the fact. The subsequent change does not prevent you from being charged with breaking California law. The same thing applies here.

I will keep you updated on Capital One's posturing on this.

Homeowner Debt

Forbes.com and Yahoo have come out with a ranking of the 10 worst cities for homeowner debt. The top of the list is the place I call home: Sacramento, CA. The reason: falling home prices, large mortgages and a concentration of home equity loans.

Is this bad news? Not necessarily. People who are going to stay in their homes for a while are fine. Also, people who are looking to buy can still get good deals. In fact, if you are thinking about buying a home, now may be the best time.

If you are trying to sell, as long as you have equity, you can still sell. However, for those people who find themselves not able to pay the bills, they may have problems. The best solution is to talk to an attorney and find out what you can do, including negotiating with your creditors.

World Malaria Day

First, I know this is off topic. But, its my little way of giving back.

Second, today is World Malaria Day. I know, every day is something day. I think yesterday was World Black Is Not Really A Color Day and Wednesday was World Be Kind to Fire Ants Day. But, Malaria Day is a bit different because, unlike arguing over black or being nice to a fire ant, you can do something to help.

Malaria is the leading killer of children in Africa and every 30 seconds a child died. Thus, while I wrote this post, 2 children died. But there is a solution. A simple insecticide treated net can protect a family of 4 from the mosquitoes that carry malaria for 5 years. The net costs a whopping $10. Now, I am the last to ask any of you to spend money as I know its tight. So, let me propose another idea.

Major League Soccer has teamed up with the UN’s Nothing But Nets Campaign. But, instead of giving money, all you have to do is play a 1 minute online video game: www.NothingButNets.net/game (Normally, I imbed links so you don't see them, but I want you to have this link so you can pass it on to your friends and family.) In the game, you deliver nets to families in Africa. (Okay, I found away around it and you don’t have to actually play the game and can send the net without playing.) You can do it for each email address you have. I have already played 5 times.

I ask that you all take a minute to go to the link and send a net. This is an easy way you can help someone. Over 7,000 people have already signed up. Will you join me? And when you do, please let me know.

Housing Crisis Worsened by Payday Loans

Ah, one of my favorite topics: payday loans. Reuters is reporting that the payday lenders are making the housing crisis worse.

Some disturbing facts from the story:

• In one section of Cleveland, banks have been replaced by payday lenders;
• Ohio has more payday lenders than McDonalds, Burger King and Wendys locations COMBINED;
• The average borrower takes 2 years to pay off their "payday loan;"

Some states have 36 percent interest rate caps. Of course, in some states, like New York, that does not apply to internet loans. So, lenders use the internet to loan money from out of state.

The Federal Government has stepped in, but has only placed a cap for members of the military. California legislators are considering a cap as well.

For now, avoid a payday loan as long as possible. Borrow from friends and family. Check with your bank or credit union. Call anyone you know. You cannot do any worse than a payday loan.

FTC Releases New FDCPA Report

The Federal Trade Commission just released its annual report on the Fair Debt Collection Practices Act. This report has some interesting tidbits:

• Debt collection complaints are the #1 type of complaint the FTC receives;
• Total number of complaints in 2007 was 70,951, up over 1,000 from 2006;
• Over 38% of the FDCPA complaints were about debt collectors demanding more money than is permitted by law;
• Almost 20% of the FDCPA complaints were about harassing behavior;
• 6.5% of complaints were about threatening an action that the debt collector could not take;
• Just under 6% of complaints were about calls to a consumer's workplace;
• Failing to send consumer notices or validating a debt were, combined, 5.7% of all complaints; and
• Almost 5% of complaints were about debt collectors continuing communication after receiving a cease communication letter.

The report also provides information on consumer education, including the Staff Commentary about the FDCPA which you can find here.

There is nothing in here that shocks me. The debt collection industry has some good collectors and some bad collectors. I know a few collectors who I can settle cases with easily and professionally. At the same time, I know plenty of collectors who will stop at nothing to try to collect money - whether it is owed or not.

Bottom line: violations still occur and if you think a debt collector has violated the FDCPA, you can contact the FTC or an attorney so that you know your rights.

The Softer Side of Debt Collectors?

I remember a few years ago when Sears had the slogan "The Softer Side of Sears." Very cute.

Well, apparently, the debt collection industry wants to show its softer side. According to Walletpop, a website I admit to not having heard of before now, the debt collection industry has decided:

• Debtors are their customers;
• Debt collectors want to educate consumers;
• Debt collectors want to put themselves out of business.

Amazing. Have you ever met a business that wants to put itself out of business? Really? Come on. What would these fine debt collectors do for a living? Some of them are very nice and could make a living doing telemarketing. Some of them, however, would end up unemployed.

Sorry, as much as they want to try, debt collectors will not be able to show a softer side - it just does not exist.

Zombie Debt III: Still There!

I have written about zombie debt a few times. This is a fascinating topic to me. Imagine - people with no proof you owe anything still demanding you pay them. And these people are serious about it. And if you don't pay, they get mean.

ABC News has picked up on the conversation about zombie debt. Here is their story.

If you have a story about zombie debt, please email me. I would love to hear it.

Debt Collector Using Illegal Tactics

News10 in Sacramento reported on a debt collector, Jeff McCoon, who is alleged to have used illegal liens to get people to pay on debts. Apparently, Mr. McCoon is facing 132 felony charges in Orange County this summer. His illegal tactic: placing liens on properties under the UCC for unsecured credit card debt.

There is a lesson to be learned here. First, check your property and see if there are liens. A title insurance company can do this for you relatively easily. Once every one or two years probably makes sense. Second, if someone does claim a lien, get the supporting documents, including a copy of the court file. If there isn't one, talk to an attorney immediately. An illegal lien is criminal, and can subject the person to a civil lawsuit.

More Information on Zombie Debts

I wrote before about zombie debts. Now Clark Howard posts this on his useful website:

"SCAM ALERT: Zombie debt is a lucrative and illegal part of the debt-collection world that Clark wants to warn you about. Scavenger collectors buy up expired debts that can be up to 30 years old for as little as 1 penny on the dollar. Then they unleash vicious collectors to try to collect, and frequently violate the Fair Debt Collection Practices Act in the process. They may be going after debts set aside in bankruptcy; stemming from ID theft; or that have passed the statute of limitations, which is typically 4 years on credit card debt. There is no legal way they can collect these debts, but that doesn't stop the scavengers from trying to intimidate you.

This is not a discussion about whether or not you should you pay your bills; this is about what your rights are on old debts. The scavengers are so good that they typically collect about 13 cents on every dollar. Many of them also engage in illegal activities by wrongfully putting old debts back on your credit report; harassing you over the phone; or secretly taking money out of your account. If you're being harassed by a zombie debt collector, send them a certified letter stating the debt is invalid and instructing them to stop contacting you. But beware that scavengers don't care if the debt is valid. They've declared war on your wallet and will use any tactics. Be tough and know your rights."

Clark is right: Know your rights and, as David Horowitz used to say, fight back!