Laws Regulations

debt collection credit problems

What is the Fair Debt Collection Practices Act?

The Fair Debt Collection Practices Act is federal law that regulates the activities of those who collect debts from others. Many states have adopted similar laws regulating the practices of debt collectors.

A debt collector:

May contact you by mail, in person, by telephone or by telegram during “convenient hours” (commonly between 8 AM and 9 PM);
May not contact you at work if the collector knows or has reason to know that the employer forbids employees from being contacted by debt collectors at the workplace;
May not contact you if you are represented by a lawyer (the debt collector must then contact your attorney);
May not continue to contact you after you have sent him/her a letter telling him/her not to contact you (however, s/he may contact you to tell you that some specific action is going to be taken);
May not contact you after you send him/her a letter by mail within 30 days of the first contact that you dispute all or part of the debt (however, s/he may begin collection activities again if s/he sends you proof of the debt);
Must within five days of the first contact send you a written notice stating the name of the creditor you owe money to, the amount of money you owe, what to do if you believe you do not owe the money, and the name of the original creditor if different from the current creditor (because the debt was sold or assigned to someone other than the original creditor);
May not threaten violence against you or your property, use obscene or profane language, repeatedly telephone you to annoy or harass you, make you accept collect telephone calls or pay for telegrams, or use false or misleading information in an effort to collect the “debt.”

If a debt collector violates the law, you can write a letter concerning the activity to the nearest office of the Federal Trade Commission. You can file a federal or state lawsuit against the debt collector for violation of the law, although there is usually a 1-year “statute of limitations.” That means you have to file the lawsuit within 1 year of the violation to recover the actual damages that you’ve suffered. You can also recover up to a $1,000 in an individual lawsuit or $5,000 in a class-action lawsuit for each violation, plus attorney fees and costs.

For more information on the Fair Debt Collection Practices Act visit the Federal Trade Commission’s website.

(Reviewed 11.3.08)

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finance charge credit problems

Can I avoid a finance charge on some forms of credit?

Yes. Many credit cards enable you to pay the entire outstanding credit amount within a certain time period without incurring any finance charge. By paying off your credit balance within the grace period (which must be at least two weeks from the receipt of the bill), you receive what amounts to an interest-free loan. The creditor still makes money by charging the seller (such as a department store or other retailer) a fee to process their credit card transactions, so the lenders collect from the retailer an amount that covers their cost of these short term loans.The credit card company may also charge you an annual fee.

Cards such as American Express and Diners Club expect you to pay off the balance each month and usually have no finance charges.

(Reviewed 10.31.2008)

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fixed variable credit problems

What is the difference between a fixed and a variable interest rate?

A fixed interest rate means that the rate of the finance charge does not change throughout the duration of the extension of credit. For example, an automobile dealer may offer a loan for an automobile at 4.9% interest rate for 24 months; this means the interest rate is fixed at 4.9% for the duration of the loan (which is an installment closed-end credit loan).

Under a variable rate loan, the finance charge is determined by an index, such as the “prime rate” published nationally each quarter for short term loans charged by banks. This form of loan enables the lender to charge an interest rate that reflects current market conditions. Many credit card issuers charge a base interest rate (such as 4.9%) plus the indexed rate (such as prime rate) to assure them adequate return on the loans that they extend. This mean your payments could decrease over the course of the loan, but they might also go up suddenly.

When shopping for credit, keep in mind that there is a difference between fixed and variable rates. Some lenders now extend credit on a fixed basis, but only for a short time, after which the interest rate becomes variable. It is important for you to read the fine print of the contract to know how the interest rate will be set and how it may change.

There are advantages and disadvantages to each kind of loan. Variable rate loans often have additional options, like accelerated repayment without penalty that might be valuable to you. There is more flexibility with these loans and more competition among lenders that might keep rates down. Fixed rates, on the other hand, give you security and stability, and let you plan for the future with certainty.

To determine which is better for you, crunch the numbers, determine the amount of credit you will use over the life of the loan, and apply the applicable credit rate. You could discover that a higher initial APR will result in a lower finance charge over the duration of the loan.

It’s sometimes possible to split your loan into a variable/fixed loan hybrid. For example, you could split the loan 50/50 or 35/65. To decide if this is a good choice, you still need to crunch those numbers and find out what fees and penalties apply.

(Reviewed 10.31.2008)

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