California Debt Blog

Supreme Court Ruling Helps Protect Consumers from Debt Collectors

On April 21 the U.S. Supreme Court issued a ruling in favor of debtors who are subject to abuses at the hands of debt collectors.

 

In Jerman v. Carlisle, the Court ruled that if a debt collector makes an incorrect statement of law during communications with a debtor, in violation of the Fair Debt Collection Practices Act (FDCPA), the debt collector cannot claim they merely misinterpreted the FDCPA in order to shield themselves from a lawsuit. The Court reasoned that ignorance of the law is no excuse when it comes to unfair debt collection tactics.

 

The case arose when Carlisle, a Cleveland law firm, filed a foreclosure action on behalf of Countrywide against Karen Jerman. However, Jerman had already paid off the mortgage on her home. When Jerman protested, an attorney for Carlisle told her that she must dispute the debt in writing, which is not true. Carlisle admitted the mistake but claimed it should not be liable for legal mistakes. The Court disagreed.

 

This ruling is a win for debtors who have been subject to abuses by the debt collection industry. The case should result in fewer debt collector misstatements of the law, since they can’t claim those incorrect statements were merely a mistake.

FAQ: Credit Checks by Prospective Employers

Can a Potential Employer Run a Credit Check on Me? In California, yes.

 

A bill went through the California Legislature last year that would have prohibited employers from running credit checks on perspective employees, but it was vetoed by Governor Schwarzenegger.

 

However, a potential employer must have the written authorization of the potential employee before running a credit check. In addition, if the employer decides not to hire the applicant after running the credit check, the employer must give the applicant the name and contact information of the company that prepared the report, as well as a copy of the report. The applicant can then dispute the completeness or accuracy of the report.

 

Lawmakers in 16 states have proposed banning most credit checks on potential employees, claiming the practice traps people in debt because it gives those with past financial problems a tough time in finding work. Hawaii and Washington currently have laws in place that prevent employers from running credit checks when hiring for most positions, unless the information is relevant to the job.

 

Employers who use credit checks as a hiring tool claim they help make better hiring decisions. A 2008 survey by the Association of Certified Fraud Examiners found that the two most common red flags for employees who commit workplace fraud are living beyond their means and having trouble meeting financial obligations.

New Regulations in Effect for Credit Monitoring Services

New rules for credit monitoring services went into effect April 2. The regulations require companies that offer credit monitoring services to add warning labels about their services.

 

Websites offering “free” credit reports must now tell consumers that a free credit report is available at AnnualCreditReport.com or by calling a toll-free number. In addition, the websites must offer clickable links to the FTC and AnnualCreditReport.com websites. Starting September 1, radio and television ads must also carry the disclaimer. Since 2003, consumers have been allowed to get one free credit report per year.

 

These regulations are aimed at the explosion in credit monitoring services, which typically entice consumers with a free credit report. Once consumers sign up for their free report, and their trial period ends, they are left with a subscription to a credit monitoring service, which then notifies customers if there are any changes on their credit reports.

 

Following the changes, Experian (one of the three major credit reporting bureaus, along with TransUnion and Equifax) began charging $1 for credit reports offered on its website FreeCreditReport.com and donating that money to charity in order to avoid the FTC rules.  

Recent Study Shows Chapter 13 Bankruptcy Does Little to Save Homes

        Under federal law, there are several types of bankruptcies available to debtors. A Chapter 7 is the most common form of bankruptcy, and involves a process of liquidation. In a Chapter 13 bankruptcy, a debtor does a reorganization and proposes a plan to pay his or her creditors over a 3 to 5 year period.

 

            A recent study in the Journal of Legal Studies by economists Michelle White of UC San Diego and Ning Zhu of UC Davis shows found that although 96 percent of those who file Chapter 13 are homeowners, only one percent of those who would have otherwise defaulted were able to save their homes by using a Chapter 13.

 

            Chapter 13 is designed to help homeowners save their homes in several ways. Chapter 13 delays foreclosure proceedings and gives homeowners a chance to catch up on overdue payments. Chapter 13 also helps debtors to challenge excessive fees and penalties from lenders. In addition, debtors in a Chapter 13 can discharge some or all of their unsecured debts, which frees up money that can be put towards the mortgage.

 

            The study found that although the reason most of the Chapter 13 debtors chose Chapter 13 over the other types of bankruptcy available was in order to save their homes, Chapter 13 actually did little to help filers save their homes. One reason is that the money that is freed up by discharging the unsecured debts (typically credit cards) is not enough to save the homes for one-third of filers. Many other filers had enough money to save their homes without discharging their unsecured debts using a Chapter 13.

 

            If you are a homeowner and are confused about which form of bankruptcy is best for allowing you to keep your home, don’t assume a Chapter 13 is best. Consult with a bankruptcy attorney.

Do Not Call List Basics

Question:  If I place my name on the Do Not Call Registry, will it stop my creditors from calling me?

 

Answer: No.

The Do Not Call Registry will prevent telemarketers from calling your home or cell phone. Once you have been on the list for 31 days, telemarketers are no longer permitted to call you. If they do, you can file a complaint. There are some exceptions for charities, political organizations, surveys, and companies with which you have an existing business relationship.

 

However, if you owe a debt, creditors have the right to call you. However, there are limits on the tactics creditors can use to collect from you. Under the Fair Debt Collection Practices Act (FDCPA), creditors cannot use abusive, unfair or deceptive practices to collect. The FDCPA covers many types of debts, including personal debts, mortgages, medical debts, car loans, and medical bills, among others. The FDCPA does not cover loans to start a business.

 

So how do you get a creditor to stop contacting you? Notify them in writing, using certified mail with a return receipt requested. Once receiving your letter, a creditor is not allowed to contact you again, except to let you know there will be no further contact, or to let you know they will be taking specific action, such as filing a lawsuit against you.