About Consumer Finance

Consumer finance is a huge business in the United States as of 2010. The U.S. is a capitalist country, driven by consumer spending. And a large percentage of products purchased are not bought outright, but rather financed. Some purchases are almost exclusively financed--like houses and cars. Consumers can take advantage of excellent programs by monitoring and building their credit scores.

Significance

The significance of consumer finance is huge: finance companies rely upon loans to stay in business. These companies include home finance companies, auto finance companies, credit card companies and many others. Fees, interest rates and origination charges often pad the pockets of lenders. When consumer credit becomes scarce (like following the 2008 credit crisis), the economy slows tremendously.

Personal Finance

Perhaps the largest percentage of all consumer financing in the United States happens via credit cards. Americans often struggle with credit card debts. Almost everything can be charged on plastic. Consumers who do not pay close attention to fees, rates and credit limits can find themselves in precarious financial situations. However, with fiscal responsibility, consumers can obtain very low-interest credit cards and highly valuable reward programs.

Auto Financing

Auto financing is another form of consumer finance. Nearly all new cars come with loans. These are often closed-end loans. A revolving loan (like a credit card) allows a consumer to borrow funds, repay them and re-borrow against the credit line. A closed-end loan is pre-calculated. A set number of monthly payments for a set amount are predetermined and then agreed upon at closing. So long as payments are made on time, the loan expires when all payments have been made.

Home Financing

Another huge business in the U.S. is home loan financing. Mortgages, equity loans and home repair loans are all very common programs. Banks and credit unions, who cater almost exclusively to top-tier borrowers (those with credit scores above 720), offer the most competitive financing programs. Finance companies, like Wells Fargo Financial, offer higher-cost loan programs to borrowers who've experienced credit problems.

High-Risk Loans

One ethically gray segment of the consumer finance market is that of sub-prime lenders. These lenders take many forms: payday lenders, car title loans and sub-prime mortgages. Payday loans, especially, are high-cost and high-risk. In the worst cases, they can lead to an endless cycle of re-borrowing--causing interest charges to increase exponentially. These loans historically target the weakest and most vulnerable segments of the population.

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Federal Trade Commission Rules on Fixing Credit Report Errors

The Federal Trade Commission offers several do-it-yourself steps to fixing credit report errors. The Fair Credit Reporting Act gives you the right to order an investigation into any inaccuracy on your credit history at no charge. Both the credit bureau and the original information provider are legally responsible for correcting any legitimate inaccuracy once you dispute it in writing.

Negative Information

Your credit history is a written record of your ability to pay debts. Credit bureaus will report accurate negative information to your credit history, such as unpaid debt or civil judgments, for at least seven years; bankruptcies for 10 years. Criminal convictions, jobs paying more than $75,000 annually and attempts to secure more than $150,000 in credit or insurance can stay on your history indefinitely.

Error Investigations

A credit bureau you contact, in writing, about an inaccuracy must investigate that inaccuracy within 30 days as long as your request for an investigation isn't considered frivolous. The credit bureau must forward your dispute to the organization that originally provided the information in question. By law, the information provider must then investigate and report its findings to all three credit bureaus to resolve the dispute.

Credit Repair Help

According to the FTC, "Credit repair organizations must give you a copy of the 'Consumer Credit File Rights Under State and Federal Law' before you sign a contract." Credit repair companies are required to have you sign a contract specifying the total cost for services, payment terms and a detailed description of services promised, according to the Credit Repair Organizations Act. A credit repair company can only accept payment from you after it fulfills the services it promises to provide.

Credit Repair Warnings

The FTC suggests avoiding any credit repair organization that claims it can remove negative items from your credit history or help you create a new credit history altogether. You can get in trouble by using such services. Save your money. Maxine Sweet of Experian writes, "There is nothing any credit repair clinic can legally do for you --- including removing inaccurate credit information --- which you can't do for yourself for free."

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Why Are Debt Counseling Services Non-Profit?

Debt counseling services have become proven options for those struggling with credit card debt. The vast majority of these agencies are nonprofit, and that's a good thing. The nonprofit nature of debt counseling services helps to protect customers in a variety of ways.

Debt Counseling Services

Debt counseling services, also known as credit counselors, generally act as middlemen between customers and their creditors. By setting up customers on debt management programs, credit counselors can help save its clients thousands in interest fees while simultaneously helping them build lengthy histories of on-time payments. These programs enable customers to get out of debt within five years, at which time they are ready to re-establish their credit.

Consumer Assurance

The most obvious reason why a credit counselor would register as a nonprofit agency is to show customers that they're not out to make money. It's a good faith measure that shows people that their money is safe with the agency and that the agency will do what it claims. Since the customer gives thousands of dollars to the agency over the life of the debt management program, this show of legitimacy is important to the agency-client relationship.

Debt Counseling Ownership

You may be surprised to learn that many debt counseling services are actually owned by the credit card companies. This fact isn't advertised in most cases because it may indicate a conflict of interest, but this is another instance where an agency's nonprofit status is crucial. This shows that even though the agency may be bankrolled by the credit card industry, it's not making excessive profits under the guise of helping you. The reality is that the credit card companies have a great interest in these companies because the success of credit counseling means your credit cards get paid, as opposed to being settled or charged off.

Use of Caution

The Federal Trade Commission warns consumers that just because a credit counselor claims it's a nonprofit doesn't mean it's legitimate by default. It's a nice thing for an agency to brag about, but the group must have additional factors to show its credibility. For instance, a long history of helping consumers is a plus, as are reasonable fees and a willingness to work with you to create a plan that works for you. Debt management program fees cannot exceed $50 per month, and these fees can be waived in instances of severe economic hardship. In short, be wary of the company's practices as a whole and not just its claim of being a nonprofit agency.

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California State Debt Collection Law

If you have had some financial setbacks, you have probably been contacted by one or more collection agencies. Although many debt collection companies are ethical and willing to work with you to get your accounts settled, some engage in practices that are unethical or even illegal. Residents of California are protected against such activities by both by federal law and by California's Fair Debt Collection Practices Act.

Federal Debt Collection Law

The tactics used by debt collectors are governed under the federal Fair Debt Collection Practices Act. The act regulates how and when a debt collection agency can contact you. The act also prevents the agency from making frivolous threats, and it gives you several ways to either force the collection agency to verify your debt or ask it to stop contacting you entirely.

California Fair Debt Collection Practices Act

California has its own version of the Fair Debt Collection Practices Act, which is similar to the federal law but includes some other provisions. California residents can file a complaint with the California Attorney General's office if a debt collector violates the California Fair Debt Collection Practices Act.

Telephone and Mail Contact

Under state law, a collection agency can contact you by telephone only between 8 a.m. and 9 p.m. Furthermore, a bill collector cannot call you at work if you inform it that you are not permitted to receive such calls. Any mail sent to you at your office must be marked as "Personal and Confidential."

After the first time a collection agency contacts you, it must send, within five days, a letter stating the amount you owe, the name of the original creditor, and instructions on what to do if you dispute the debt. If the agency sends you subsequent letters and there has been a change in the amount you owe, the letter must explain these additional charges.

Postdated Checks

If a collection agency asks for a postdated check, be sure that you write "postdated" above the date on the check. If your check is postdated by more than five days, the collection agency must notify you in writing three to 10 days before your check is cashed.

Statute of Limitations

Bill collectors sometimes attempt to collect on debts that are past the statute of limitations. Sometimes known as "zombie" or "time-barred" debt, these debts are not legally collectible (your wages can't be garnisheed to pay them off), but this doesn't stop some collectors from aggressively pursuing them. California law sets the statute of limitations for credit card and written contract debt at four years, and for judgments at 10 years. If you are contacted by a collector who is trying to collect a debt that is past the statute of limitations, notify the collector in writing that the debt is not collectible.

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How to Write to Collection Agencies

Depending on your debt situation, you may find it necessary to write to a collection agency. When you communicate in writing, you have the opportunity to maintain a record of your correspondence that may prove to be vital if you, or the collection agency, choose to sue each other in the future. Verbal agreements do not hold up as well in court as written agreements. However, you must take special precautions when writing to a collection agency to ensure that you do not accidentally provide information that could one day be used to legally incriminate you.

Instructions

1

Decide what type of letter you plan to send to the collection agency. You can offer a debt settlement, request a debt validation, or demand that the collection agency stop contacting you.

2

Research the type of letter you plan to write before you begin. This will teach you what you can and cannot include. You are entitled to make certain legal demands, such as requesting proof of the agency's authorization to collect the debt, requesting a copy of the agency's collection license for your state, or demanding proof that you owe the debt.

3

Type your letter. Include only your first and last name and the account number for the debt. It is not necessary to give the collection agency your Social Security number or middle initial and it could be dangerous. The collection agency is able to use extra identifying information against you to validate the debt or report the debt to the credit bureaus.

4

Admit no prior knowledge of the debt. Even if you are sending a debt settlement offer, do not admit fault for the debt. Payment of a debt is not considered a legal admission of guilt. Your admission in writing can be used against you in court if the collection agency ever sues you.

5

Type your signature rather than physically signing the letter. A signature can easily be pulled from one document and transferred to another. Although this practice is illegal, it is sometimes difficult, if not impossible, to prove in court.

6

Mail your letter with a certified return receipt requested. This step will require a collection agency representative to sign for your letter and proof of the signature will then be mailed to you. This action prevents the collection agency from ever making the claim that your letter was not received.

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Information on Debt Elimination

Sinking deeper into debt can present a no-way-out hopelessness. From home loans to credit cards, the average American household carries approximately $18,654 of debt in 2003, not including mortgage debt, according to MSN Money. With careful planning and diligence, however, nearly anyone with a steady income not only can cut back on debt, but also eliminate debt completely.

Monthly Financial Analysis

Organize your finances by making a spreadsheet to track earnings and spending. Free computer programs are available, such as OpenOffice, which allow you to create a spreadsheet to track finances or use a pre-made template. Enter all expenses and earnings. Once completed, you can determine how you're spending your money every month, which will assist you in eliminating debt.

Cutbacks

Find ways to cutback on any unnecessary spending. You most likely will need to sacrifice some luxuries for awhile in order to save money and eliminate your debt. For example, if your average monthly recreation budget is $150 per month, try to reduce to $100.

Balance Transfer Options

Exploring balance transfer options potentially can be the most effective step toward eliminating debt. Many credit cards offer a low-cost or free balance transfer option. New cards will oftentimes offer an introductory period with a low or even 0% APR. By exploring these options for existing credit card or new cards, you can cut down on your monthly interest payments significantly.

Sticking To The Plan

Perhaps the most important part of eliminating debt, and also the part at which most people fail, is sticking to the plan. Eliminating debt can be a painstaking process and may require years of dedication and budgeting, depending on the depth of your debt when you formulate a plan. Once you realize you won't be able to pay off your debt overnight, you can begin to set realistic goals of reducing debt at regular intervals until it is gone.

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How to Stop Collection Agency Calls for a Relative

Collection agencies may contact you if a relative has accrued a debt that the creditors are attempting to collect. This is often to obtain information about a relative's employment or living situation. According to the Fair Debt Collection Practices Act, collection agencies must abide by certain practices when they are attempting to collect a debt. Debt collectors in most instances cannot give you any information pertaining to a relative's debt and are not allowed to harass you in an attempt to collect for your relative. Politely request that they stop calling you. If they refuse, you can take legal action.

Instructions

1

Keep track of any correspondence or calls you receive from the collection agency. Have a notebook available and write down dates, name of the collector and any information that was discussed.

2

Tell the collection agency upon first contact that you are not the creditor and you do not wish to be contacted again about another person's debt. Speak with a supervisor if available, or request a callback to ensure the debt collector gets the message that you are requesting no further contact.

3

Put your request in writing. Write a "cease and desist" letter to the collection agency and let the company know that you want no further contact in the form of letters or phone calls in reference to a relative's debt. Send the letter via certified mail. Keep any receipts or correspondence in a file in case you may need to resort to legal action.

4

Get a lawyer and sue the collection agency if it continues to contact you after you have sent the company a "cease and desist" letter. In addition, if the debt collector is harassing you, using insulting or derogatory language or being abusive, consult an attorney to stop the debt collector from bothering you about a relative's debt.

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