When a leading debt collections law firm that had been accused of breaking consumer protection laws collapsed in Maryland last week, debtors searched for answers about what Mann Bracken LLP's demise would mean for them.
The episode was a stark reminder: You need to know your rights in case a creditor or debt collector comes calling.
While federal and state laws offer a range of consumer protections, thousands of people complain each year that debt collectors ignore these laws.
Part of the problem is that the federal Fair Debt Collection Practices Act, now 33 years old, needs to be updated so that protections keep up with a rapidly changing industry, according to the Federal Trade Commission and others.
In the meantime, here's a primer on the law as it stands.
The federal act covers third-party debt collectors, not the original creditor. It prohibits debt collectors from calling you before 8 a.m. and after 9 p.m., unless you give permission. Debt collectors can't swear at you or threaten violence. They can't threaten legal action they have no intention of taking. And they can't lie about your credit to others.
Maryland law offers similar provisions that cover collectors and creditors, plus some other protections.
For example, you can sue a creditor or collector for emotional distress. Towson consumer lawyer Jane Santoni said she's suing a credit card company under this provision for making hundreds of calls over a couple of months to a client who was undergoing chemotherapy. "Here you are trying to battle cancer and getting 10 or 15 calls a day," she said.
There's no deadline when creditors or debt collectors must stop trying to recoup a debt, but Maryland limits how long they can pursue you in court. Generally, the statute of limitations here is three or four years after you stopped making payments, although it can be as long as 12 years.
The statute of limitations has its own limitations. For example, it only applies to contracts written under Maryland law. Many credit card agreements come under the laws of other states that have more generous creditor rights.
Often with very old debt, a collector will bombard you with calls, hoping to get you to break down and make a payment, said Robert Grossbart, a Baltimore bankruptcy lawyer. If you do, that starts the clock all over again on the statute of limitations, he said.
And collectors aren't supposed to take you to court if the statute of limitations has run out, but they often do anyway. If you ignore the court notice, the judgment will likely go against you. And the collector will be able to garnish your wages and bank accounts to collect on very old debt.
What do you do if a collector calls?
If you're sure the debt is yours, try working with the collector. Don't make promises you can't keep, or you'll end up in default again, said Sonya Smith-Valentine, a consumer rights lawyer in Greenbelt. "The second time around, they won't want to deal with you or cut you any slack," she said.
And if you do work out an agreement over the phone, follow up with a letter sent certified mail that spells out the terms so you'll have it in writing, Santoni said.
Collectors must send you a written notice of your debt within five days of first contacting you. If you doubt the bill is yours, send a letter via certified mail disputing the debt within 30 days of getting the notice. Collection efforts must stop until the collector provides proof that the debt is yours.
A collector also must stop contacting you if you request that in writing. However, that won't stop a collector from taking you to court. And the collection agency can contact you once more to let you know what action it plans to take against you, such as going to court.
Debt collectors are quicker than ever to drag consumers before a judge, and a U.S. Government Accountability Office report last year noted a steep increase in collection cases in state courts. If you get a court notice, don't ignore it. A judge will likely rule against you if you don't show up.
Keep good records of your payments, Smith-Valentine said. Debt is sold and resold to collectors. And even old bills that have been paid off have resurfaced again and again with a different collector demanding payment, she said.