These two common mistakes put creditors in legal hot water

By on January 13th, 2015 in Compliance

More consumers are filing complaints with the Consumer Financial Protection Bureau (CFPB) due to debt collection practices. The number one reason, by a large margin (43% of the total in November 2014), is continued attempts to collect debt that isn’t owed. While many complaints are the result of the behavior of overly eager collectors, a lot of mistakes start with the original creditor. Old systems, bad reports and a sloppy debt sale process lead to balances being reported as unpaid, both to collection agencies and to credit bureaus. The CFPB has its eye on this problem, and collectors must be aware of its prevalence, since it leads to unnecessary disputes and hurts customers.

Providing Clear Information Is Critical
Common problems caused by creditors are lack of clarity about the underlying terms and conditions, and lack of data to support the collection request.

Unclear terms in the agreement often lead to unnecessary defaults. Credit is a complicated product, and many customers are confused by the legal language and terms they are expected to review. A customer might not fully understand the financial commitment they’re taking on, and might not even understand that they are late. Clear communication regarding the terms of the agreement, what payment is required, and the schedule of expected payment, will reduce defaults. Miscommunicating those and sending the customer to collections in retaliation is bad business practice and will lead to complaints.

There also has to be clear information flow in the default process. Creditors sometimes don’t send a notice to customers to let them know that they are placed in debt collection, leaving them to first hear that from the collector. Similarly, creditors hurt the customer’s right to ask for debt verification by making it hard to get account statements when asked. The debt dispute and verification process should be spelled out step-by-step and include a timeline of when the consumer should expect a response.

When things go wrong

At TrueAccord, we do our best to only work with creditors that use sound business practices. If we discover that a creditor has been less than ethical with late paying customers, we will terminate our relationship with them. Our main tool for discovering issues with creditor behavior is the automated dispute process. Usually, collectors view customers who dispute as slackers, who are looking for any excuse not to pay a debt. We understand that being in debt is confusing, and often you’re not sure which company collects for which creditor, and just need more information. We use the feedback from customers to learn about the creditor’s practices, and sometimes what we find is less than stellar. We had to terminate a creditor contract in the past, since customer disputes have revealed their terms of service to be misleading, and we were not able to get any supporting documents for the alleged debts they asked us to recover.

Credit products are complicated, and creditors risk hurting customers and creating a legal liability for themselves by repeating a few common mistakes. Make sure you don’t go that road – it will put you in hot water with the regulators and customers alike.