Are Americans Arrested and Jailed for Owing Money?

I want to be very clear here. The answer is an unequivocal resounding NO!

A couple of months ago, the ACLU came out with a report which asserted,   “….Thousands are arrested and jailed each year because they owe money.”

Oh, please! I am pushing the BS button on this one. “There is not one consumer in this country that was put in jail for the failure to pay a debt. Our court system simply does not work that way.”  You don’t have to take my word for it.  The above statement is a direct quote from the National Creditors Bar Association’s response to the ACLU report.

The ACLU’s assertion that thousands of consumers are arrested and jailed each year because they owe money is displayed prominently in the first paragraph of their 97 page report. Later they actually get to the truth by writing, and I quote, “Laws in states and federal rules of civil and bankruptcy procedure expressly authorize debtors to be arrested and incarcerated for contempt of court.”  Wait, what? It’s not because they owe a debt, but because they were in contempt of court? BIG DIFFERENCE!

In the National Creditors Bar Association’s response, they said, “The ACLU’s report was not only factually inaccurate but was conveniently lacking in relevant truisms in an attempt to sensationalize unfortunate circumstances for individuals who fail to comply with court orders.” Yada, yada, yada…”Members of the NCBA as well as attorneys across this country know that in order for a court to send someone to jail in a civil matter, as opposed to a criminal matter, a complete and utter disregard for a court’s order must have occurred. Judges use this power sparingly otherwise the penalty for contempt would become superfluous.

Litigation is the path of last resort for a creditor.  The process is expensive and time consuming and results in a judgment only and not necessarily the payment of the debt. However, what the ACLU fails to recognize is that the courthouse can be the safest place for consumers if consumers chose to avail themselves of the ability to participate in the system. In court, a judge can supervise the conduct of an attorney and also ensure that the consumer, especially a self-represented consumer, has the required access to the protections the court can provide.”

Do you know what’s funny, ironic even, about the ACLU’s assertion that if you don’t pay your debt you will go to jail? If I said it I would be breaking the law!  That’s right, the Fair Debt Collection Practices Act (FDCPA) that was approved way back in 1977 explicitly prohibits debt collectors from making any threat that the nonpayment of a debt can result in arrest or jail.  Why? Because it is not true!

Each quarter our sister company, United Credit Service, Inc., puts out a newsletter. The 2018 1st quarter newsletter (vol. 6 issue 1) that went out in March was entitled: Fake News or News facts. Can you tell the difference? In it we discussed urban myths and false news stories, and how they pertain to us in the collection industry. As stated in the newsletter, some urban myths and false news stories are told to be entertaining, others are cautionary tales and still others are meant to control a narrative. Which category do you think the ACLU’s report falls into?

I think the NCBA said it best, ”The ACLU’s lack of understanding of the legal debt collection process including its failure to acknowledge federal and state laws which govern debt collection activity, court rules of procedure and the regulations imposed both at the state and federal level result in a report that lacked fundamental credibility, but more importantly hampers the ability of legitimate debt collectors to communicate with consumers to fairly and efficiently resolve their financial obligations.”

A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners.  Founded in northern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 12 years.

image provided by: CC: Pierre Lecourt

 

Go Ahead, Pile on the Debt! Have We Reached a “Tipping Point”?

Perhaps you have read the book by Malcolm Gladwell called The Tipping Point.  If you have not, it is worth a read.  There is a lot in it despite being a pretty short read.  In summary, Gladwell points out a number of phenomena that can be traced back to a single, often simple, cause which in turn caused a much larger, and often very drastic, change.  I am oversimplifying a bit, but watching world events, financial market behaviors, and ongoing trade wars and political conflicts, I wonder if we are about to reach a significant “Tipping Point” for the American economy and perhaps the world?

I know that is a broad suggestion, and one that is often associated with being a ‘Debbie Downer’ these days.  Yes, the economy continues to be robust.  Employment is at all-time highs.  New job creation continues apace with wages increasing.  Consumer sentiment is strong and the economy growing. 

Yet I can’t get the enormous amount of consumer debt off my mind.  It hangs like a storm cloud over an otherwise pretty rosy financial picture.  As we all know, though, roses have thorns and sometimes that light we see at the end of the tunnel turns out to be a freight train!

Once again, we find ourselves at record levels of consumer debt.  The New York Federal Reserve just published its report for the second quarter of 2019, and it continues to show that we still seem to have no end to our appetite for personal debt accumulation (read the press release here). 

No surprise, we set yet another record!

Some highlights of this quarter’s report are:

  • The headline from the Fed is “Total Household Debt Climbs for 20th Straight Quarter…”
  • Household debt now stands at a whopping $13.86 trillion.
  • This is a $192 billion increase from the first quarter.
  • The report points out that “Balances have been steadily rising for five years and in aggregate are now $1.2 trillion higher, in nominal terms, than the previous peak (2008Q3) of $12.68 trillion. Overall household debt is now 24.3% above the 2013Q2 trough.”
  • Mortgage related debt stood at $9.4 trillion, a $162 billion increase.
  • Non-housing debt increased by $37 billion in the second quarter
    • New auto loans totaled $155 billion, a $17 billion increase   
    • Credit card balances totaled $868 billion, a $20 billion increase
    • Some good news was that there was an offsetting $8 billion decline in student loan debt.
  • Credit card balances in the 90+ day delinquency range rose to 5.2% from 5.0%.

Unfortunately, an increasingly important part of this debt is from so called ‘shadow banking’ institutions and should cause concern as well.  Consumers that may otherwise not qualify for credit from traditional sources often turn to these institutions to finance their purchases.  That does not help stabilize the debt picture, however.   

Granted, as long as employment stays strong and wages continue to rise consumers can continue to finance their debts.  

Most recently, however, the bond market began to flash warning signals of a potential recession.  Of course, that can force companies to tighten their belts, cause static or negative job and wage growth, which in turn can cause significant financial turmoil.  With little savings, or other financial cushions, to protect consumers during hard times (which surely will come) the “Tipping Point” represented by personal debt will continue to shadow us for a long time.

What can you do now to protect your business?  First, as we have previously suggested, make sure to review your credit policies and stay on top of your receivables.  Make sure that your customer records are as complete and accurate as possible. Finally, make sure to turn your delinquents over as soon as possible for prompt and efficient collections action.  We are here to help.  Let the professionals at A. Alliance show you how. 

A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners.  Founded in northern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 14 years.

Debt Collection: It’s All About the Info

Unless you collect 100 percent of charges billed at time of service (or delivery) people are going to owe you money. That’s a fact. How successful you are at getting paid is dependent on a number of factors (like the age of the debt). But without a doubt the most important thing you can do to improve the collectability of past due accounts isn’t some elusive collection strategy privy to only a few. It’s actually quite simple: get as much information as you can about the person (or company) before you provide service. 

I can’t tell you how often clients, especially the smaller sized ones, will send us placements for collection that are missing key pieces of information. I can’t stress this enough: The more information you provide, the more collectable the account will be.

To be fair, simple is not the same as easy. I understand that. Getting all the requested information will take some work. I know most of our clients already provide their customers with a form requesting the information.  But oftentimes simply asking for the information isn’t enough. It’s important to follow up to make sure the form is filled out in its entirety.

At first it might feel awkward asking customers to fill in the unanswered questions. But if you make the completion of the form a company policy it will make it less personal when you explain that everyone is required to do it.

Contrary to what you might have heard debt collection is a heavily regulated industry. There are certain pieces of information that we are required to have and others that will aid in the collection process.

Best practices include the following: 

Please note: * denotes information we are required by law to have or we cannot pursue the debt.

  • First and last name of debtor* – It might be hard to believe, but we have had clients send us accounts without the last name of the debtor. This is a must-have piece of information!
  • Address – We are required by law to send a debt validation letter on all accounts placed.  If you had an address that is no longer valid send it along as the last known address.  We can use it to skip-trace the account to find debtor’s current address.
  • Date of Birth and/or Social Security Number – Having this information makes finding the debtor’s current address easier. Also, we must have either a DOB or a SS number or we are unable to report the debt to the credit reporting companies (Experian, Equifax and Trans Union). Reporting debts to these agencies is a great tool we use to get debts paid.
  • Phone Numbers – Best practices include: home, cell and work. We use telephone calling campaigns as one of our collection tactics.  Lack of phone numbers prohibits this worthwhile tactic.
  • Amount Owed* – Many of our clients include late fees and interest on amounts owed.  Typically these fees are not collectable and should not be included in the amount owed. (There are some instances when fees can be collected, but only on certain types of debt that have a contract with the debtor such as a signed lease or signed financial agreement. Even then the fees must be expressly stated in the contract. And a copy of the signed agreement must be submitted when the account is placed.) Law requires us to be able to validate the debt. Balance forward pages do not fulfill this requirement. Accuracy is extremely important. We must be able to notify the debtor of the exact amount they owe. 
  • Last Date of Service* & Date of last Payment – There is a Statute of Limitations (statutes vary state to state) on how long we can pursue a debt for collection. To stay compliant with collection laws we need to have last date of service.
  • Employment – Name and address of employer.  This is a critical piece of information needed when considering litigation as a way to collect.
  • Spousal Information – Name/Address/phone numbers/employment information for spouse.  Sometimes (depending on the state and type of debt) the spouse of the debtor is also financially responsible for the debt.
  • Name of Creditor* – We must have both the legal name of your business as well as a DBA if it is different (or if you have more than one business) to validate the debt and when reporting to credit reporting agencies. 

I hope you found this list to be useful. Whether you partner with us or another reputable collection agency it is important to work together as a cohesive team so the money owed can be collected as effectively and efficiently as possible.

A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners.  Founded innorthern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 14 years.