Several of our recent blog entries discussed payday lenders, debt collection and collection abuse. In some instances, those who took out payday loans found themselves victims of identity theft.

When bills are unpaid, often you might feel tempted to take drastic measures.  Predatory lenders are waiting to take advantage of your vulnerability.

A recent report entitled “Do Payday Loans Cause Bankruptcy?” revealed people taking out payday loans are 7 times more likely to file bankruptcy than people who don’t use payday loans. The report was prepared by Marta Skiba from the Vanderbilt Law School and Jeremy Tobacman from the University of Pennsylvania.

Debt collection can make people do desperate things.  Bills keep coming and the phone keeps ringing. Payday lenders charge up to 450 percent interest for a short term loan rather than a longterm solution.

According to “Do Payday Loans Cause Bankruptcy?” there are over ten million Americans seeking payday loans every year. They are driven by financial stress and the desire to avoid financial ruin.

Often these same people wind up borrowing repeatedly, taking out numerous payday loans. Even though the average amount borrowed is only about $300, significant interest is paid.

As the pattern continues, people start to depend on payday loans to live ahead of their means.  Rather than living from paycheck to paycheck, they live in anticipation of their next paycheck.

What if an illness or issue causes your paycheck to be late – or nonexistent?

Payday lenders offer loan extensions and charge more interest.  A vicious cycle of repaying payday loans begins. Instead of getting caught up, borrowers find themselves further behind. The ultimate consequence is often bankruptcy.

Predatory lenders are never the answer to financial problems. If your bills are getting more difficult to pay, seek the advice of a professional right away.

Payday loans lead to further debt and possible bankruptcy. A professional can help you face your finances with confidence instead of dread.

Photo courtesy of StormyDog

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Are you the victim of collection abuse? As economic problems in America worsen, debt collection methods become more aggressive. People are unable to pay their bills on time and banks want them to pay up. If a collection agent uses illegal tactics, you might be the victim of collection abuse.

Statistics prove more Americans are in debt today than in recent years. The Federal Reserve reported Americans owe about $969 billion in revolving debt such as credit cards. In 2003, Americans owed a total of $770 billion, showing debts have continued to soar over the past five years.

Simultaneously the cost of basic necessities such as gas, utilities and food increased. Many Americans found themselves unable to pay their credit card bills on time. The American Bankers Association revealed 4.5 percent of bank-issued credit cards were delinquent during the second quarter of 2008.

With so many debtors, debt collection is a top priority for banks. A recent Associated Press article discussed aggressive collection efforts and how the public feels about them. The article stated 71,000 people filed harassment and abuse complaints about bill collectors with the Federal Trade Commission last year.

There were 14,000 additional people who complained about bill collection abuse to the Better Business Bureau (BBB). David Polini, president of the upstate New York BBB chapter, said, “And it is going to get worse. With the recession, with the horrible credit problems, this is going to be off the charts.”

During the days of easy credit before the current economic crisis, many people took on major debt. If you are one of these people, you may be facing debt collection and collection abuse. The following are a few rules debt collection agents must follow:

• They can only call between the hours of 8 AM and 9 PM.

• The phone cannot be repeatedly used to annoy you.

• Unwarranted charges cannot be added to your bill.

• Any discussion of legal action must be completely truthful.

• Debt collectors cannot threaten to have you arrested or curse at you.

Even if a debt collector is on the receiving end of a hostile debtor, they cannot act in any of the above ways. Collection agents can take honest legal action, discuss legitimate debt resolution and report unpaid debts to the three major credit reporting agencies.

If you are pursued for a debt that you did not incur, you might be dealing with a collection agency that buys old debt records. “Zombie debts” may not belong to you so never agree to pay a debt if you are unsure you incurred it.

Minnesota Attorney Genera, Lori Swanson, comments, “We’ve seen people being pursued over debts that are 8, 9 or 10 years old.”

When you face debt collection, know your rights. Collection abuse is against the law. Check your credit report and know what you really owe. Consult with a professional to ensure you only pay off legitimate debts. As soon as a professional acts on your behalf, those annoying telephone calls and letters will slow down.

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Yesterday we covered fake debt collection. People who took out past payday loans were targeted for identity theft by scammers.  The Wall Street Journal reported on payday lenders backing Election Day ballot initiatives challenging state restrictions on payday loans.

Payday loans are short term loans secured by a person’s income. The lender verifies the borrower’s income to determine a loan amount. Direct deposit paychecks are verified by a bank statement. A postdated check from the borrower acts as security for the loan.  The loan is repaid on the borrower’s next payday.

Typically interest charged on payday loans is $15 to $20 per $100 borrowed. Loans are paid back within one to four weeks. If the borrower needs an extension, similar interest rates are charged. Due to the high interest rates, payday loans are now illegal in 15 states.

Payday lenders spent about $30 million on Ohio and Arizona ballot initiatives. Payday lenders promise financial freedom, which states find misleading. Payday loans are costly and even more expensive when borrowers can’t repay them.  Excessive interest accrues and borrowers face possible collection abuse.

If you took out a payday loan in the past, verify your debts. Order reports from the three major credit reporting agencies to review your credit history. Don’t talk to misleading debt collectors who will not provide identification.  Instead, discuss your situation with a professional to find out your options.

A payday loan is only useful in a short term crisis. If you have an emergency car repair and need to get to work, a payday loan may help. Payday loans are not a longterm solution. Often a vicious cycle begins causing you to get deeper in debt.

Another alternative is to workout a deal with creditors. Ask for an extension until your next payday rather than taking a payday loan. Remember only the lenders achieve financial freedom with payday loans.

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Scammers are getting more savvy, finding new ways to steal your identity and compromise your credit. In a difficult economy, more people face mounting debts. Scammers, aware of this fact, now call posing as debt collectors.

If you owe several creditors, you might not unsure if the caller is one of them. These unscrupulous people try to get information about your identity before you can think - and the result is identity theft.

From jail threats to invoking the wrath of God, fake debt collectors will stop at nothing.  Legitimate debt collection does not involve these tactics.  ABC News reported about posers who call consumers to collect debts that don’t exist.

Norman Googel, West Virginia Assistant Attorney General, stated, “The way they’ve hidden themselves is pretty slick.”  So how can you tell if a debt collector is a poser or the real deal? Here are a few tips:

• According to Googel, scammers are operating under various names including U.S. National Bank, United Legal Processing and Federal Investigation Bureau. An official name doesn’t mean the call is legitimate.

• Many of these scammers appear to be from foreign countries. They are unfamiliar with American names and use celebrity names such as Denzel Washington and Steve Martin.

• Debt collectors cannot threaten or harass you in any way. Mentioning God or threatening jail is inappropriate. God is never be part of a general business conversation. No debtor’s prison exists in the United States.

• Googel found groups target people who took out payday loans online in the past. If you took a payday loan, be aware scammers may have access to your Social Security number and other personal information.

There are also ways to protect yourself. Review your credit report frequently to find inaccuracies. Be aware of your current creditors and how much you owe. Ask creditors for identification before you provide any information over the telephone.

When collectors use misleading statements and fail to provide identification, they are breaking the law. Never pay money to a possible thief. Keep cool when you hear from collectors to avoid this collection abuse.

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Sometimes you run across a website that gives good information on a topic.  If you’re dealing with zombie debt and just want to know what to do if it happens to you, read this article.

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