Debt Collectors Go Beyond the Grave for Money

According to the New York Times, "dead people are the newest frontier in debt collecting" – and apparently a lucrative one as well.

Yes, it's true – debt collectors that are "trained in the five stages of grief" (according to Adam Cohen, chief executive of Phillips & Cohen Associates of Westampton, N.J.) – telephone surviving family members to sympathize with their loss and then encourage them to make good on the deceased person's outstanding bill.

"We want the dead to rest easy, knowing their obligations are taken care of," said Michael Ginsberg of Kaulkin Ginsberg, a consulting company to the debt collection industry.

Never mind the fact that in most states, survivors are NOT obligated to use their own assets to pay for a dead relative's bills. Collectors can file against an estate and are actively using the databases of the country's 3,000 probate courts to discover when estates are opened, but if there is no estate to go after, collectors use the power of sympathy and the pitch of "honoring the wishes of their loved ones." Most of those being called probably believe they are required to pay the debt, as it is not clearly disclosed at the onset of the communication. It seems that the creditors/collectors could be pressing vulnerable, ignorant, non-culpable relatives into taking on the dead's non-existent responsibilities, thereby making the deceased relatives own debilitating debts, which weren't theirs until tricked or otherwise coerced.

Joel from Lowell, Mass., commented, "It was deeply upsetting for me to get a collection call about my father's Sears charge card balance a year after he had died. My father left no estate, and none of what he bought with the small outstanding balance had gone to me. It angers me that this big company was trying to make me feel guilty or responsible for a debt that was in no way mine and that I had no moral, much less legal, obligation to pay."

He isn't the only one outraged by these collection tactics.

Christine in San Francisco said, "As a Ph.D. candidate in psychology, the thought that the five stages of grief developed by Dr. Kubler-Ross could well be used to manipulate people to pay money they don't legally owe is beyond contempt. Particularly given the fact that many more deaths will not be the result of illness, but sadly, the increase in suicide rates resulting from the economic crisis. Here's a better idea: why don't these people get trained in goading rich people to pay the taxes they owe from their off shore bank accounts? Maybe guilt and fidelity won't be as lucrative in this endeavor, but I am sure the market is bigger."

This story, posted by Michael David of North Vancouver, summarizes such an experience:

When my father died after a debilitating and ultimately futile battle with cancer in 1991, we discovered that he had used his credit cards to pay for his obviously-ineffective chemotherapy treatments. Now, the creditors wanted their money and were calling, and calling…and calling…and though we understood ourselves to “not” be legally-responsible for his debt, they insisted every day (and several times a day) that we were.We didn't even have a chance to grieve because now, in addition to trying to bury our dead father, we had to continue telling creditors that he was no longer alive! But they wanted their money and insisted that we "were in fact responsible," contrary to what this article reports.What I don't understand is, why is this news now? "Suddenly" creditors have discovered this newest source of revenue?

After the 15th phone call in five days, an agent from Visa Credit Card services screamed into the telephone, demanding that my brother "provide a final address to send the bill to." So he obliged her by giving the address of the cemetery and told her to "go dig him up." After he slammed the phone down, I took a pair of scissors and physically cut the phone cord. Call-center agents, particularly this sinister brood, should occupy the same circle of Hell that Dante reserved for landlords: the 9th circle. There, frozen in a solid block of ice for all time, they can contemplate their own malevolence while eternally staring at their dead dunned clients’ accounts.

One collection agency, DCM, presented the NYT reporter with a "stack" of letters of appreciation (names redacted). I found this one to be particularly tragic:

One widow wrote that a collector “was so nice to me, even when I could only pay $5 a month a few times.” Saying that money was “so tight” after her husband died, she added: “It was very hard for me, and to get a job at my age. Thank you.”

No wonder half of these agencies' new hires don't make it past 90 days. There is no amount of yoga classes, foosball or free lunches that could motivate me to use false sympathy and guilt tactics to collect on a bill, or make old widows go back to work to pay $5 a month.

FICO '08 Rolls Out… A Year Late

Yesterday, Fair Isaac Corp. (creator of the FICO score) and TransUnion, one of the three major credit bureaus, rolled out the long-anticipated FICO '08 to lenders.

The new scoring model changes a number of calculations. It's more forgiving of one-time "slips" – for example, the impact of a late payment will be less for someone who is in good standing on multiple credit accounts. Conversely, FICO '08 will be harder on those will have less impact on your credit score, whereas "repeat offenders" will see credit scores reflect habitual delinquencies. Those with good credit should see a slight increase in their scores; those with multiple delinquent accounts will see their score drop. The score will continue to range from 300 to 850.

Equifax is expected to roll out FICO '08 in the second quarter. Experian, which is currently embroiled in litigation with Fair Isaac, is not disclosing whether it will implement the new FICO '08 model. However, Experian recently sent a letter of termination to Fair Isaac, stating that it will no longer allow MyFICO to provide Experian MyFico scores to consumers. (Experian will continue to sell consumers the PLUS and VantageScores, which are NOT the scores used by lenders.)

One major concession in FICO '08 – the scoring model will continue to count authorized users (such as children or spouses) on credit card accounts. An authorized user on a good credit account will get a credit score boost. Fair Isaac has purportedly tweaked the algorithm to prevent credit repair companies from gaming the system.

According to the Wall Street Journal, Fair Isaac predicts FICO '08 will improve the accuracy of lending decisions by as much as 15%. But it may be a while before the score is widely available to consumers, as lenders will be carefully evaluating the score and deciding whether or not to use it.

Possibly the Biggest Credit Data Breach Ever?

A global cyber fraud operation is thought to be behind what may be the biggest credit data breach ever reported, eclipsing the 2007 TJX breach that compromised the data of 45 million customers.

The breach occurred on the internal computer network of Heartland Payment Systems, a major payment processing company that processes 100 million transactions each month from about 250,000 businesses nationwide.

How did this happen?
After a customer swipes a credit or debit card, the information is then transmitted to obtain authorization from a bank or payment company. During this brief transmission, the data is unencrypted. "Sniffer" software, which may have been installed on Heartland's network as far back as May 2008, captured card numbers, expiration dates, and some cardholder names and internal bank codes during this authorization period. Personal security codes are not believed to have been compromised.

What credit and debit cards are impacted?
Visa, MasterCard, Discover and American Express customers are vulnerable.

How many people could be affected?
An exact number of compromised customers is not available; however, according to a report in the New York Times, 600 million or more cardholders might be affected.

When was this breach discovered?
The breach was discovered last week by a forensic investigator following inquiries by Visa and MasterCard of suspicious activity surrounding processed card transactions.

What remedies do customers have?
Heartland has set up a Web site to provide updates to customers about the incident: www.2008breach.com. Cardholders are not responsible for unauthorized fraudulent charges made by third parties. The United States Secret Service and the Department of Justice are actively involved

Please review your credit card statements carefully each month for any charges that you don't recognize.

Lenders Begin to Look Beyond FICO

A few years ago, Fair Isaac reported that the average FICO credit score in the U.S. was 723 out of a possible 850. The higher the score, the greater the likelihood that the borrower would repay a loan.

At least that was what Fair Isaac pitched to lenders.

Thus spawned several years of streamlined loans – loans that were predicated solely on credit score. "Stated" loans allowed people with good credit scores to put down any income figure on a loan application and get approved. The sheer number of applications in an overheated market where an hour could mean a $50,000 difference in selling price necessitated glossing over details that were mandatory – or at least a consideration – in pre-FICO days. (I know you're thinking, what, there was a time when credit scores didn't exist? Credit scores weren't developed until the late 50s.)

According to an article in Time magazine,

A few years ago, Fair Isaac produced a chart predicting the odds that a borrower with a certain credit score would default on a mortgage. For example, it predicted that a loan to a borrower with a 680 score had a 1 in 144, or 0.7%, chance of becoming delinquent over the life of the loan; a person with a 700 FICO score would have a 1 in 288 chance, or just 0.3%.

Unfortunately, those predictions proved too optimistic. According to mortgage-data tracker First American Loan Performance, banks have already foreclosed on or are in the process of foreclosing on 1.5% of the mortgages originated in the last three months of 2007 to individuals with credit scores between 660 and 720. And those mortgages have been around for only a year. Over 30 years, the delinquency rate on those home loans is likely to be much higher.

The rise in defaults among "good credit" borrowers is beginning to force lenders to revert back to more traditional ways of predicting risk. Consumer advocates who have long opined that a three-digit credit score managed by for-profit entities is an inaccurate measure of creditworthiness should be pleased at this trend, which takes a number of variables (such as phone bill payment records) into account - especially helpful for those borrowers with thin or non-existent credit histories.

New Year's Resolution – Get Your Credit in Good Shape!

Ever since the credit bureaus were mandated to provide one free credit report each year, I've made requesting and reviewing my credit report part of my New Year tradition. It's my opportunity (and responsibility!) to make sure that I haven't been the victim of identity theft and that the credit bureaus are reporting my credit history accurately.

I was especially motivated to do so this year because I recently discovered that one of the credit bureaus is reporting erroneous information – information that is causing my credit score to vary 50-75 points from the other two scores.

This year, make a resolution to get your credit and finances in good health. Remember, the ONLY place to get your credit report for free (per the federal Fair Credit Reporting Act) is https://www.annualcreditreport.com/... NOT freecreditreport.com.

You may also order your credit reports by calling toll-free to 877-322-8228, or by mail. To request your credit report by mail:

• Download the request form (You need an Adobe viewer to view the requested form. Download the free Adobe viewer)
• Print and complete the form
• Mail the completed form to:

Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281

Here are some tips on ordering your credit report (courtesy of Bankrate.com):

Free is free: If you have to supply a credit card or checking account number, it means you're going to pay. You may get the initial credit report for free, but you may also be signing up for a continuing service at a price.

No junk mail: Don't respond to e-mail offers for free credit reports -- they're almost always spam.

Be secure: Always be sure you're on a secured Web site when entering your personal information.

Keep it secret: When phoning the toll free number (877-322-8228) for a free credit report, ask that only the last four digits of your Social Security number are displayed on the reports to be mailed to you.

Reduce solicitations: Don't give out your e-mail address to obtain a federally mandated free credit report -- it is not required.

Run from pop-ups: If you do choose to go online to https://www.AnnualCreditReport.com and see pop-up ads, or if the site is not secure, close your browser and start over. Secure sites will have a padlock logo in the corner, and the address will begin with https:// instead of just http://.

Check and uncheck: If you go online to https://www.AnnualCreditReport.com, be sure to look for any pre-checked marketing or newsletter offers. If you decide you do not want these offers, uncheck the box.

Consumers Skeptical About New Credit Card Regulations

After years of complaints against the credit card companies for unfair and deceptive practices, the federal government approved sweeping new restrictions on credit card companies on Dec. 19. Consumer responses to the measure, however, show that many remain skeptical about the long-term benefits of the changes and strongly disapprove of the 18-month delay in implementation.

Many comments echoed the sentiments of one poster: "When was the last time Barnes & Noble called you up and said they wanted more money for the book they sold you last month? Have you EVER paid in full for a computer or a cd player or a shirt and later received a letter telling you the price was actually 500 or 1,000 percent more than what you had agreed to pay and you had better fork over the bucks? Credit card companies are not our friends; they should not be taking taxpayer hand-outs; they should not be permitted to abuse the citizens of this country. Further, I am SHOCKED that the new rules will not take effect for eighteen months. There is literally NO COST involved in effecting them NOW."

Another wrote: "These rules and regulations need to be implemented NOW, not almost two years from now. What a joke as the ripoff continues. How come the Wall Street bailouts always take place immediately, why do new taxes always take place immediately, but when it comes to given [sic] Main Street some help it always takes years from the time they pass the new rules."

Under the new regulations, banks, credit unions and savings associations are prohibited from raising interest rates on existing balances unless a payment was received more than 30 days late; charging a late fee if a borrower was given less than 21 days to pay; and applying payments in a way that would result in debts with higher interest rates getting repaid last. It also protects consumers against predatory credit cards that reduce available credit to subprime borrowers through fee harvesting.

"I believe the eighteen month grace period was a compromise," one commenter wrote. "This timing could make the regulations toothless. The potential is the banks will cull all accounts, reduce or eliminate available credit for millions, raise interest rates to 29.99% or higher for most people, raise late and overdraft fees to $50 or more, and use their current “contract” to extract as many dollars as possible from cardholders. When the new regulations go in effect they will have us where they want us."

The issue of consumer protection from credit card industry practices will continue to remain a priority in the Senate, according to Sen. Christopher Dodd (D-Conn.). In a recent Washington Post article, he is quoted as saying, "To restore our economic stability, we must stop credit card companies from ripping off their customers and driving them into deeper and deeper debt…While I expect the Federal Reserve's rules to be a significant step forward in addressing this issue, I believe we need a strong law in place to protect consumers from unfair credit card practices including 'anytime any reason' rate increases, universal default, excessive and unreasonable fees, and marketing targeted to young consumers."

The $970 billion industry stands to lose about $10-12 billion in annual revenue as a result of these changes. The banks have provided dire warnings about the measures, citing a probable decrease in the amount of available credit that would be extended to consumers and increased difficulty in qualifying for new credit.

But most agree with one poster's sentiments that the changes are long overdue: "Too little too late. Where was Congress when these scummy vultures were robbing the American public for the past 10-20 years? And why do they have 18 months to continue robbing us? Maybe to have more time to find loopholes and new ways to screw the public? Look, it's no secret any more that a large part of most banks revenues and profits come from usurous [sic] fees and bogus penalties. They have to find a way to continue to rob the public along these lines. And Congress has to give them time to find those ways so the campaign contributions continue to roll in."

Democratic Congress Passes Credit Cardholders' Bill of Rights

For anyone who has experienced universal default, where a credit card company raises its interest rate based on any change in your credit report, even if that change is unrelated to that company… or wondered why their payment due date has shrunk from 21 or more days to just 14… for anyone who has paid off their credit card in full and then got a bill the next month for interest accrued the previous month… for anyone who has been upset that payments are always applied to the lower-interest balance first… good news is on the horizon.

Yesterday, 228 Democrats and 84 Republicans in the U.S. House of Representatives voted to support The Credit Cardholders' Bill of Rights (H.R. 5244). The bill now heads to the U.S. Senate for its consideration.

Not unexpectedly, banks such as Bank of America, JPMorgan Chase, Citigroup, Capital One Financial Corp and Discover Financial Services oppose the bill. With the markets in turmoil and drowning from the collapse of the U.S. housing and subprime mortgage markets, the legislation could limit their credit card revenue by limiting the fees they can charge for practices that consumer advocates say are designed to hurt or deceive consumers. The White House also opposed the legislation, which seeks to curb unfair and deceptive credit card practices, saying it would constrain banks' ability to price risk.

Summary of the H.R. 5244 bill

111 Republicans and 1 Democrat voted "nay." How did your representative vote on H.R. 5244?