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

 

Debit Cards: Friend or Foe

I remember when debit cards first came out in the mid-1990s. Our bank mailed my husband and I each a card and we were on our way.

At first we thought it was great. Well, to be clear, it was my husband who thought it was great. You see I was in possession of the checkbook, so I already had access to the money in our checking account whenever I wanted it. But now, with his new debit card in hand, my husband now had immediate access to the funds in our joint-checking just like I did.  Perfect, right?!  Well, not so much.

Let me explain. Whenever I went shopping or wrote a check for cash, I immediately wrote the debit in the register and subtracted it from our balance.  You gotta remember back then there was no internet banking, so there was no way to know exactly what your balance was until your bank statement came in the mail at the end of your cycle—unless, of course, you kept meticulous records by tracking every debit. But here’s the thing, my husband, knowing perfectly well how these things worked saved each and every receipt whenever he used his debit card so he could give them to me to put in the register.  The problem was, he didn’t always hand them over in a timely fashion.  That led to a couple of overdraft charges from our bank and merchants alike—yikes! Don’t you hate double-dipping!  It didn’t take long for us to put a kibosh on the debit card thing.

Fast-forward a couple of decades and we both are back to having debit cards (and yes, I’m still writing my debits in the checking register) but internet banking has given us the ability to keep better tabs on money coming and going. But that’s not always the case for a lot of people.  I read an old New York Times article by Ron Lieber and Andrew Martin called “Overspending on Debit Cards Is a Boon for Banks” that talks about how lucrative debit cards are for banks.

You see banking institutions have their debit cards set up with a nifty feature they market as “overdraft protection”.  In an effort to save you, the consumer, from embarrassment by having a debit card rejected, let’s say, while you’re out on a dinner date, they will pay the debit (oftentimes ‘floating’ you money from your own savings account!) while charging you a fairly steep fee for the convenience.

The NYT article tells a story about a bank customer that was stunned when his bank charged him seven $34.00 fees to cover seven purchases he didn’t have cash in his account to cover. For example, they charged him $34.00 to cover his $4.11 Starbucks purchase, and didn’t notify him of the problem until after they covered these seven expenditures at $34.00 a pop.

The fees generated from the marketed overdraft protection have become an important source of income for the banking industry. In fact, according to that article, banks make more covering overdrafts than they do on penalty fees from credit cards.

“Banks will let you overspend on your debit card in a way that is much, much more expensive than almost any credit card,” said Eric Halperin, director of the Washington office of the Center for Responsible Lending.

There have even been claims of banking institutions manipulating the order in which they pay purchases, running larger purchases first so more fees are incurred.

Federal regulators have acknowledged problems since 2001, they have done little to curb the explosive growth of overdraft fees.

In 2017 alone, Americans paid $34 billion in overdraft fees.

The sad truth is that people need to qualify to get a credit card, but are handed a debit card when they open a checking account.  What we all need to understand is that the convenience of having a debit card comes with responsibility.

Please stay on top of your accounts. You’ve worked hard for your money, don’t let your bank ‘protect’ it with their overdraft fees.

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.

Image provided by: wikimedia.org

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.