The FTC got more than 165,000 complaints against debt collectors last year and they have begun to take some action.  According to the Wall Street Journal, they fined Acceptance Capital Corporation $2.5 million for coercing borrowers into paying debts they did not owe!

Acceptance Capital is one of those companies that buys old debt for a few pennies on the dollar and starts trying to collect it.  Much of this debt it turns out is beyond the statute of limitations (which varies by state, ranging from two to ten years), which means that the borrower no longer owes it.  Courts will not enforce it.

Acceptance Capital did not, it seems, let the borrowers know that the debt was beyond the statute of limitations and they could not enforce it in court.  Not only that, but they did not tell borrowers that if they made a payment the clock would start ticking again, allowing collectors to use the courts.

Do not pay debts you do not owe.  Do not deal with debt collectors.  If you want to pay your debts go to the original creditor or do a debt management plan with a Consumer Credit Counseling Service.

I agree that a debit card can be very useful for people who cannot get a credit card, but if you can get a checking account, you can probably get a regular debit card free (or close to it) from your bank.  The main advantage is that all your deposits (paychecks included) are automatically available for use with the card.  There is no need to go through the hassle and fees of a prepaid card which requires special deposits; has many fees, and requires you to deliver cash to selected retail outlets before you can use it.

If you cannot get a debit card from a standard checking account then a prepaid debit card may be worth checking out, but you can do better than the Orman card.  Fees include from $3.00 to $4.95 every time you make deposits (only at stores that take Western Union or Moneygram payments).  There is also a monthly $3 fee and a $2 fee for any withdrawals from an ATM.  That ain’t cheap!

The American Express prepaid card appears to be a better deal.  It has no monthly maintenance fee. They charge $2 for ATM withdrawals after your first free one each month, and depositing money at a retail location (they say they have 50,000 available) incurs the same approximately $4.95 charge as does the Orman Card.

There is another way to do this:  Use an American Express Gift Card. But you may need some help.  Someone you know could order a “Gift Card” for you via the previous link.  It works like a prepaid debit card, except you cannot withdraw money from an ATM.  Depending on how you do it, it could be cheaper.

Every state has some limit on the length of time, ranging from three to ten years from the last loan payment, during which debts can still be collected under the law.  Once your debt has passed this time limit, creditors have no legal recourse, and they write off the debt.  But some debt collectors buy this debt and work with a bank to tie a credit card to your making payments.

It’s hard to get by in life without a credit card, and if you have had debt problems you might not be able to get one.  So it may be tempting to be told that if you make a payment on an old debt, you would be eligible for a credit card.

The problem is that once you make a payment on the old debt, the statute of limitations starts running all over again and they can reinstate collection efforts on the entire amount!  They may even set you up for an automatic payment plan with money being charged to your account every month.

So, you get a low limit, high interest, high fee credit card and open up a while new collection campaign on debts that would be past the statute of limitations.  You could have forgotten about them!

If you’re in this situation, look first at a debit card or a prepaid credit card. See our main article on Credit Card Types.

Do not waste time with debt collectors.

My advice has always been that you should not deal with debt collectors.  It is a waste of time.  All they do is hound you for every nickel they can get.  The good news is that you do not have to deal with them.  If you send them a letter like the one you will find here: Debt Collection Cease and Desist Letter , they have to leave you alone except to notify you of a court date.

The letter we drafted ends with a sentence saying that you will deal only with the original creditor.  If the debt is legit, then that is what you should say.  But if it is not, you should say “This debt is under dispute.”  If you want to explain why, that is fine, but they will probably ignore you.

There are many ways to deal with debts, including debt management plans and bankruptcy, and things you can do to straighten out your credit when it has an incorrect entry .  But dealing with a debt collector should not be on your list.

These psychologists have prepared scripts for the collection agents (most of whom are in India and Uruguay).  They have also created software that analyzes what borrowers say, and makes suggestions for responses to be used by collection agents.

Some people think this helps get more money out of borrowers, but others are skeptical.  I agree with a comment from a mortgage industry insider who says that “…the most important factor in getting a borrower back on track is whether the borrower has the capacity to make the loan payments.”

In other words, the vast majority of borrowers make their mortgage and loan payments if they can.  When they stop it’s usually because there has been a loss of income, as with a lost job, or unexpected bills, often due to medical problems.

When people cannot make payments, some adjustment to the terms of the loan, like a modification of the interest rate, is the first thing that should be looked at.  If that does not reduce payments to a level that the borrower can afford, then other actions should be explored including bankruptcy.

One of the underused solutions for keeping people in their homes.  Bankruptcy is very effective if you have a lot of credit card debt that can be wiped out, leaving more money for mortgage payments.  Get more information in our previous post: Filing Bankruptcy Could be Your Best Option

If there is no way that you can afford the mortgage, even with a bankruptcy, then you should try to avoid the pain of foreclosure with a “short sale” or “deed in lieu of payment.”

Until recently that would have been the end of it (and medical creditors are still letting these debts go).  But now, a subset of collection agencies has offered creditors (usually credit card companies) the chance to recover something from the relatives of the deceased debtor, even though they know that relatives have no legal obligation to pay unless they had cosigned on the account.

How do they convince people to pay these debts they do not owe? One trick is to lie and tell the wife, husband, son or daughter of the deceased that they are responsible for their loved one’s debt.  Many people, not knowing any better and often still in grief, send a check.  Often it is a check they cannot afford to send.

Another technique is harassment, constant calling, which often exceed limits set by the Fair Debt Collection Practices Act.  (For more on FDCPA see our main article on Fair Debt Collection Practices.

A third tactic they use is to play on emotions.  The collector admits that the relative has no obligation to pay, but plays on their feelings for their loved one.  As one victim put it, she paid her husband’s bill because she “…didn’t want his name dragged through the mud like some kind of deadbeat.”

Seniors carry more unsecured debt these days.  According to one survey, people over 75, carried an average of $7,200 in credit card debt in 2010, up from three times from 2008.

What to do if this happens to you:  The rule is that if your name is not on the debt, then the deceased’s estate is responsible for paying.  If the debt is secured (like a mortgage or an auto loan) the creditor can repossess that. If there is any money in the estate then the creditor (usually a credit card or a hospital) can file in court for a share of that, but money left to relatives is usually unavailable for debts.

If you are a relative and they come after you, then you should immediately send them a letter like the one shown here Debt Collection Cease and Desist Letter , by registered mail, return receipt requested, with the following last sentence: “I do not owe this debt and you know it.  Any further contact by you will constitute harassment.”

At the urging of federal regulators these 24 loan servicers have hired outside consultants to determine damages (if any) and appropriate compensation.   Regulators claim to have taken steps to make sure that the consultants are truly independent.

You can see a list of the companies participating, get detailed info on what procedures the servicer may have failed to take, and how to apply for compensation at Independent Foreclosure Review.  You can also call 888-952-9105.

There are some catches. The main ones are:

– You have to be current with your mortgage payments (there are other programs for those who are behind in their payments).

– Your mortgage has to be insured by Fannie Mae or Freddie Mac (about half of all mortgages are in this category).

It does not matter how far your mortgage is under water.

It is possible to pursue this refinance on your own, but I strongly recommend that you start with one of the free mortgage counselors licensed by the government.  You can find one at this government web site: Making Home Affordable.

Remember, you should never have to pay for mortgage modification counseling.