1 Creditor's Tactics Printable Version

When You Owe Money

Section 1 - Dealing With Several Common Creditor's Tactics

A Publication of Prairie State Legal Services

Revised: May 25, 2006

Content Updated: January 2006

About These Materials

The following information is not meant to be legal advice or to replace the advice you should receive from an attorney. There are times when it would be wise to consult a lawyer and other times when it is essential to do so. Always remember, each individual case is unique. The information applies to general consumer situations and should help you to avoid many problems before they happen. If you have additional questions or want legal advice, follow this link to find the Prairie State office nearest you.

Dealing With Several Common Creditors' Tactics

When it comes to paying bills, most consumers have to decide which debts to pay first. If your debt is far beyond your ability to pay, however, then you or your family must make choices about which debts to pay and which ones to leave unpaid for a period of time. If the period of time that you have not paid a particular creditor is long enough, it is likely that the creditor will consider stronger methods of collection. Some creditors will resort to certain tactics to collect debts owed to them. These tactics and suggestions for dealing with them are described below.

Three Ways Creditors Try to Push Consumers Around

A creditor may engage in several well-known tactics to try and push consumers around.

First, a creditor may try to play on a consumer's feelings of guilt in not paying, which is a form of intimidation. Or, the intimidation may rise to the level of harassment. For example, a creditor might repeatedly call you or call you at inconvenient times. Or, the creditor may threaten you in various ways or use abusive language. What the creditor is really trying to do is put pressure on the consumer so it will become so uncomfortable that the consumer will pay the abusive creditor ahead of others that are not pressing so hard.
Second, in many cases, the creditor will give you a bad credit rating by reporting your default to a credit reporting agency. A bad credit rating may affect your ability to take out a loan or to get credit cards or even to rent an apartment. Creditors know that the best way for a consumer to clear up a bad credit rating is to pay the debts appearing on credit reports prepared by such agencies.
Third, a creditor or a finance company may try to convince you to refinance the debt. Refinancing involves replacing one or more current debts with a new one. It is frequently offered as a way of dealing with a delinquent debt or a way to consolidate several debts into "one easy payment", as some creditors like to say. This may at first seem like a good idea but, as we will discuss later, it might not always be in your best interest. The new debt may have many hidden disadvantages.

Short of bankruptcy, which may or may not be a good alternative for you, here are some ideas for dealing with these tactics.

Dealing With Intimidation and Harassment

Special rules apply if you are being harassed by a collection agency. If that is the case, you should refer to the section of this booklet on Collection Agencies. However, if the creditor is doing its own collection and uses intimidation and harassment tactics, you might consider using one of the following techniques:

Be straight with the creditor and try to work out a payment plan. Call them up and explain the family situation and the other debts you have to pay. Make sure the creditor understands that you cannot afford to pay the whole bill but will pay them when you can. Try to work out a payment plan. Be polite and honest; do not promise what you cannot deliver and do not agree to making reduced payments which you really cannot afford to make. It is much easier to work out payment plans with creditors before they hand the debt over to a collection agency.
Write the creditor a letter. Your letter should request that the creditor stop harassing collection contacts, or stop all contacts whatsoever. In the letter, explain why you cannot pay right now, but you should also explain when you expect things to get better, if that is the case. Describe the harassment you have experienced from the creditor's employees and the distressing effect it has had on you and your family. Be sure to keep a copy of the letter. Collection agencies must honor requests that they stop contact with you, but creditors collecting their own debts do not have to honor such requests. Often creditors will honor such requests anyway.
Complain in writing to government agencies. There are agencies responsible for enforcing laws that prohibit debt collection abuse. However, you should not expect them to investigate immediately unless the agency has received other complaints against the same collector. These agencies might include:
Federal Trade Commission
Bureau of Consumer Protection
55 East Monroe Street, #1437
Chicago, IL 60603
312-353-4423
If you send a copy of the letter to the collector, they are more likely to stop the harassing tactics and may be more willing to work out a payment plan with you.
File or threaten suit. If the harassment is really severe and damaging to you, you can hire a lawyer and threaten or bring suit against the creditor for abusive collection practices. Lawsuits should be considered where the collector's conduct is outrageous or extreme [such as threats to have you thrown in jail or deported or have your children taken away] and where the emotional and psychological injury is severe [such as lost sleep, nausea, headaches, or where the consumer must seek medical treatment]. If suit is brought, you might be able to collect not only your actual damages, but punitive damages, as well, meaning an amount to punish the collector and to stop them from doing such things again.

Dealing With Reports to a Credit Reporting Agency

Your credit record is kept by credit reporting agencies such as Equifax, TRW/Experian, and Transunion. If a creditor chooses to report your credit problems so they are on your credit record, there is nothing you can do to avoid it. That might mean that you will have to live with a bad credit rating for a while. For families in real financial trouble, bad credit reports are unavoidable. However, the law does give consumers several rights with regard to these credit reports:

The right to obtain certain information. As a consumer, you have the right to be informed of the content of the files of the credit reporting agency and to see your credit report. In this way, you can find out what is written about you, who reported it, and who has received information about you.
The right to dispute information and have it corrected. If you receive a copy of your credit report and see that it has incorrect information in it, you have the right to tell the agency that you believe the information is incorrect. The agency must look into it and consider any information that you provide. If they see that the report is wrong, they must change the report.
The right to have users of the reports told about the dispute. Even if the agency refuses to remove or correct the disputed information because they believe that it is correct, you can file a statement of dispute which briefly explains your side of the story. The agency must then attach your statement to any report they give out. Also, you can require that they send it to anyone who received the report before you added your statement.

When It's Good to Refinance and When It Isn't

When you default on a debt, your creditor, or perhaps a finance company, might try to convince you to refinance it, or to combine several debts into one new, larger one. When you refinance a debt, you sign a new contract. It has different terms and conditions. It may seem like a good way to resolve your problems by paying off or appeasing creditors who are threatening you. And there are times when refinancing is a good idea. However, refinancing can be a disaster, and may just be a scam to get more money out of you or to steal your house or other property. Here are some factors to consider about refinancing:

It's bad to convert an unsecured debt into a secured one. A secured debt is where the creditor takes your home, car or other property as collateral for the loan. Secured debt is bad because the creditor can seize the property if you get behind on the loan. So, if your original loan is unsecured, watch out if the company offering refinancing wants security.

Similarly, it is bad for the new loan to add new security that was not part of the original loan. For example, don't turn a car loan into a second mortgage on your home.

It's bad to convert a low cost loan into a high cost loan. Finance companies are notorious for doing this [banks are better]. On many refinanced loans, the interest rate will be higher and there may be any number of additional or even hidden charges and fees. Request a disclosure statement in advance so you can walk away and shop around for another loan that may be better. There are certain things to look for on the disclosure statement. These include the:

Annual Percentage Rate [the interest rate];
Finance Charge [the total interest payments over the life of the loan];
Amount Financed [the amount of money coming to you or going to pay off your obligations].
Always ask for an itemized breakdown of the Amount Financed, so you can see what amounts are really going to pay for insurance or various fees and charges. That money is not going towards paying off your loan.
Always look at how long the loan is for and whether there is a balloon payment at the end. Decide whether you want to make fewer but larger monthly payments or a greater number of smaller monthly payments. Don't be fooled into an agreement which requires a substantially larger payment at the end of the loan which you may not be able to afford.
Watch out for overpriced "extras". Things like credit life insurance or credit accident and health insurance rarely are worth the cost.
Is there a penalty for prepaying the loan? Some contracts make you pay a lot of extra money as a penalty if you you pay off a loan before the loan period is supposed to end. You may have to pay a penalty on your original debt if you refinance it. And you may have to pay again if there is a prepayment penalty in the new contract and you pay it off early.
Do you have a defense to the creditor's claim? Do not refinance if you have a valid legal reason for not paying the particular debt.

Copyright 2002 Prairie State Legal Services, Inc. ALL RIGHTS RESERVED
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975 N. Main Street, Rockford, IL 61103, (815) 965-2134, publications@pslegal.org