Steve Harms

Friday, August 23, 2013

Collections: knowing when it is time to take the next step in the collection process...

If you have good collection policies, your policies include timeframes in which to take certain actions, such as the following:

                           *  Following up with demand letters requiring payment when an account balance becomes delinquent.

                           *  Following up with collection phone calls when demand letters don’t produce payment.

                           *  Immediately following up with the debtor when the debtor doesn’t keep promises to make payment.

When you’ve taken the actions defined by your collection policy (see my book, Credit and Collections Kit for Dummies for specific credit policies you can implement) and your debtor still hasn’t paid, you should shift into collections mode. Delay in initiating collection action, including bringing in collections professionals as appropriate, can be the death knell for collecting on the account. If your debtor still has (or may have) some ability to pay but continues to stall payment, you need to move quickly.
Remember, accounts that aren't collected within 12 months after the due date are generally only 10% collectable!

After you decide to start the collections process, do you collect the delinquent account yourself, or do you bring in a professional? You should consider placing an account with a professional when

                           *  Lines of communication between you and the debtor have completely broken down.

                           *  You can’t reach your debtor by phone, and you think your debtor may have skipped town.

                           *  You sense that your debtor has financial difficulties and has several other unpaid creditors who will be going after what’s left of your debtor’s money.

                           *  You don’t trust the debtor’s words or intentions because of the passage of time since the last payment and the number of promises the debtor has broken.

                           *  Your debtor’s delinquency threatens your own credit by putting you in danger of violating standards set by your auditors, banks, factors, or receivable insurance contracts.

                           *  Your instinct tells you it’s time to bring in a professional.

Strive for a solid relationship with your collection agency or attorney in which the agency or lawyer is an extension of your credit department. Without a good relationship, you may feel awkward referring a case to an outside collector, but relying on team members for assistance seems only natural.

Thursday, August 15, 2013

Collections alert: debt buyers may not be able to add interest to purchased accounts

The following is a summary of a new Michigan case on the subject of debt buyers adding interest to their is a warning, of sorts:
Asset Acceptance purchases pools of charged-off credit cards.  In its purchasing agreements, there is clause where the original debtor waived its right to charge interest after the date of charge off.  After Asset purchased the accounts, they brought suit for the charged-off amount, plus interest from the date of charge off to the date of filing the complaint in state court.

 This was held to be a violation of the FDCPA.  “Because [the original creditors] waived interest, Asset could not retroactively impose interest for the period in which it did not own the accounts.” “Further, Asset purchased the debts subject to the waiver, thereby precluding Asset from imposing interest or revoking the original creditor’s waiver”.  Thus, Asset violated Sec. 1692e(2)(A) and 1692f(1). 

 Also worth noting, it appears that the violation occurs upon the filing of the state court action, and the statute of limitations on the violation is 1 year from that date.