Debt after death: Banks chase down mourners

Oh, these...bastids. The next thing we know, they will be showing up at debtors' funerals with their hands out:

NEW YORK (CNNMoney) -- Nobody wants to remember a deceased family member by the debt they left behind, but many creditors certainly make it difficult to forget.

Denise Townley was appalled when she received a letter from her mother's credit card issuer less than two weeks after her mother passed away.

"We have recently learned that [your mother], a valued Discover Card customer, has passed away. Please accept our sincere apologies," stated the letter from Discover, which Townley sent to CNNMoney.

It then offered her or another family member the "opportunity" to assume the balance on her mother's credit card and offered a special introductory APR of 0% for the first six months (the APR would increase to 13.24% after that). If Townley wasn't interested in taking over the account, then the bank wished to discuss how the estate planned to pay off her mother's credit card balance.

Confessions of former debt collectors

Confused and concerned that she was on the hook for her mother's debt, Townley called Discover. When she asked a probate specialist there how they knew her mother had passed away, she was told that Social Security furnished the information.

"I find this not only ethically abhorrent, but also irresponsible and insensitive on both parties' parts," said Townley.

But while it may be "ethically abhorrent," it's not illegal. Banks are within their rights to seek payment for debts owed by a deceased borrower, and the estate is liable for the debt if it has enough money.

"We understand that settling the affairs of loved ones is difficult," a Discover spokesman said. When contacting family members about the unpaid debts of deceased card members, Discover states upfront that payments on behalf of a deceased relative are voluntary, not required, he added.

How soon is too soon?

Financial institutions typically receive notice of a person's passing from the Social Security Administration within a month or two, according to a recent review of the agency conducted by the Social Security Administration's Office of the Inspector General. Yet, in some cases, banks find out even earlier than that.

Because it's likely the deceased carried multiple debts, creditors often race to be the first to collect money from the next of kin or the estate before it has all dried up, said Gerri Detweiler, a debt specialist at credit card research and comparison site Credit.com.

Hey Social Security, I'm not dead!

"The longer a creditor waits to get paid, the less their chance of getting paid," she said. "And unfortunately, they may find that it's easiest to elicit payment when bereaved relatives are still trying to sort everything out."

During her husband's wake, Deborah Crabtree said she had set up an answering machine and put it on speaker phone so that loved ones could leave their condolences, according to the complaint she filed against Bank of America.

But instead of hearing only the voices of friends and family come through the speakers, she said a debt collector from Bank of America Home Loan Servicing called every 15 minutes and left harassing messages about the debts her husband had left behind that everyone in the house could hear.

Even after the wake, Crabtree said Bank of America collectors called her as many as 48 times a day -- and even threatened to foreclose on her home, according to a lawsuit she filed last month against the bank.

Crabtree, who lives in Honolulu, said she had told the bank that she would pay the debt as soon as she received her husband's life insurance check. However, the agents told her that since the calls were computer-generated they couldn't stop them until the debt was paid.

Extreme debtors

Crabtree's lawsuit claims that Bank of America violated state debt collection laws. Her lawyer, Gary Shigemura, said the bank has not yet responded in court.

For its part, Bank of America declined to comment on the particular case, but a spokeswoman said that in general, the bank informs family members when they aren't responsible for the debt of a deceased relative.

The Federal Trade Commission recently declined to impose a "cooling off" period after a death, during which creditors wouldn't be allowed to go after a debt.

The FTC said it was unnecessary, since its rules under the Fair Debt Collection Practices Act already prohibit third-party debt collectors from collecting debts at "inconvenient times" and harassing customers.

Yet, the FTC only governs third-party debt collectors, not the banks -- which are regulated by individual states. And while many of the states have laws similar to the FTC's, the terms "harassment" and "inconvenient times" can be interpreted very differently by consumers and creditors, said Detweiler.

Do you owe money for the deceased's debt?

Often mourners don't have enough time to grieve their loss, let alone assess the debts owed by the deceased -- and whether or not they're on the hook to pay for it.

Some debt collectors make family members feel responsible for debt owed by the deceased by asking them questions about whether they were the one who paid for the funeral or took care of other business related to the person's death, said Detweiler.

"They don't necessarily state that you are liable for the debt, but they blur the lines to make you feel like somehow you are responsible for it, even if it's just a moral responsibility," she said.

Three signs you're headed for extreme debt

Most people won't have to pay for their deceased family member's debts unless they co-signed on the loan or it is a debt from a joint account. However, those who live in community property states, where property and assets acquired during a marriage are considered jointly owned, are liable for the debt, said Detweiler.

"If you don't think there's a reason you should be legally liable, you'll need to look at money in the estate -- but don't start payments until you figure out whether there's enough money in there to pay it," she said.

As the executor of the estate, you can request the credit card balance of the deceased's account. Under a provision of the new CARD Act, the issuer has 30 days to provide the balances and can't charge any penalty fees or interest if you or the estate pays off the balance within 30 days after it provides that information.

If the estate doesn't have enough money in it to pay the debt, the creditor is often out of luck.

First Published: September 1, 2011: 12:55 PM ET

http://money.cnn.com/2011/09/01/pf/debt_death/index.htm

Let's not forget the collectors who flatly come out and tell relatives of deceased debtors they are in fact responsible for their deceased relative's debts.     It seems the pressure to "get there first" and collect pushes many a collector over the line of legality..., which I'm sure will surprise many. ;)

This is hardly a new phenomenon. We have entire agencies specializing in vulture debt collection. Some like to turn up the violins and imply that your dead Granddad will never find peace until you find a few thousand to hand over.

Their real motivation is that they don't want to wait in line like everyone else for a probate or estate process. So much the better if they can capture a confused and vulnerable surviving relative before better judgment returns.

The FTC is the king of throwing fifty feet of rope to a drowning person a hundred feet away, then declaring, "We met you halfway". To the law-dodging collector, "Momma just died" is another of hundreds of cheap excuses to "avoid responsibility" and probably a lie. They will not be told what calling "times known to be inconvenient" are without a terse letter and six dollars in USPS fees. Unless a person is already trained in consumer defense, grief and anxiety are likely to overrule a calm and targeted response to post-death collection.

Please note the article's "debt specialist" informant joins the chorus of "How Do I Pay" and neglects to first make the vultures prove someone owes. It's not a bad idea for a trusted family member to secure a limited financial power of attorney for an aging or seriously ailing relative. In an emergency that custodian could take over the task of sending validation demands to third party collectors and generally defending someone against lender predators.


Aside: If articles are going to be quoted wholesale here, possibly in violation of copyright, it would be best to carefully clip out all the text of links to other articles which some sites love to bury between paragraphs.

"The FTC is the king of throwing fifty feet of rope to a drowning person a hundred feet away, then declaring, 'We met you halfway'".

No---it's more like them throwing the person equvalent of a two-ton anchor, as these vultures look on, high-fiving each other.

Almost three years ago, Senator Charles Shumer wrote a letter to the chairman of the FTC following an article written by the NY Times expressing his outrage regarding this very issue:

March 11, 2009

Chairman Jon Leibowitz
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580

Dear Chairman Leibowitz:

I am dismayed to learn from recent media reports that some debt collection companies have made it a practice to attempt to collect unpaid credit card balances – and perhaps other types of unsecured debts – from the families of the deceased.   According to numerous reports, these companies call surviving relatives, often shortly after the death of a loved one, to coax or cajole them into making payments on the deceased relative’s credit card.  To say the least, this practice is distasteful and unethical.  Moreover, this practice may very well violate the Fair Debt Collection Practices Act.  I am hereby requesting that the Federal Trade Commission investigate whether debt collection companies are violating the law when they engage in this practice, and exactly what information they are conveying to surviving relatives who are under no obligation to pay off their loved ones’ credit cards.

The Fair Debt Collection Practices Act, among its many prohibitions, prevents debt collectors from contacting anyone other than the credit card holder without the prior consent of the holder.  Specifically, the Act provides that “a debt collector may not communicate, in connection with the collection of any debt, with any person other than the consumer, his attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector.”  “Consumer” is defined in the Act as a “natural person” who owes a debt.  If this language does not apply to a situation in which the consumer is deceased, I would like to know the basis for such an opinion.  

I find it shocking that a debt collection company would determine that it is worth causing profound anguish and embarrassment in order to collect debts that are sometimes as low as $50, or which result in a payment of $15 a month from a widow or widower who is struggling to make ends meet.   If a debt is large enough to be worth collecting, there are legal ways to obtain payment.  First, if a surviving family member has also signed for the card, that family member will be obligated to pay the debt.  Second, an unsecured creditor such as a credit card issuer can obtain payment from the estate of the deceased through a routine probate proceeding, after the holders of secured debt – such as mortgagors– are paid.  This practice of harassing living family members for upfront payments results in putting credit card issuers in the front of the line to get money from an estate, rather than after those who hold secured debt.

Given the current economic situation, in which millions of honest, hard-working Americans are struggling to meet their obligations, this practice is opportunistic and destructive.

In addition to opening an investigation into these practices, I would like the answers to the following questions:

·        Which debt collection companies (“collectors”) are engaging in the practice of collecting credit card debt from widows, widowers, children, and other relatives of the deceased?

·        Which credit card issuers are hiring these collectors, or selling their debts to these collectors?  Have the issuers endorsed this practice, either by turning a blind eye toward it or by specifically encouraging it?  

·        Does the practice of trying to collect unsecured debts from the living relatives of debtors who have passed on violate the Fair Debt Collection Practices Act’s prohibition on communicating with third parties?  If not, why not?  What measures could be taken to make sure that these practices are stopped?

·        If these practices are currently legal, are these collectors uniformly making sure that they tell living relatives that they have no legal obligation to pay the debt?  Further, are the collectors informing the living relatives of the statute of limitations for collecting these debts?   Are the collectors informing the living relatives that any credit card debt would be paid from the estate only after other secured debts, such as mortgage and car payments, are paid?

Given that the FTC receives more complaints about debt collection companies than any other American business, I hope and expect that you will be thorough in your investigation of this matter.

Sincerely,

Charles E. Schumer
United States Senator

http://schumer.senate.gov/new_website/record.cfm?id=309474

WHAT investigation? Did Chairman Leibowitz bother to do anything with Senator Shumer's letter other than read it in the can then wad it up and throw it into the trash along with his used paper towel? I doubt it--as I continue to seriously doubt the effacacy of the FTC, who seems content with doing nothing more than collecting fines from the hordes of chronic lawbreakers in a pathetic exhibition of window dressing.

This subject hits home for me, for my late father was threatened, coerced and humliated by a collector working for MBNA into paying my mother's credit card debt when she was barely cold in the ground--a debt I discovered years later he was NOT legally responsible for, and it makes me fighting mad every time I think about it.

Quote: "Does the practice of trying to collect unsecured debts from the living relatives of debtors who have passed on violate the Fair Debt Collection Practices Act’s prohibition on communicating with third parties?"

It would seem to blatantly violate that very provision of the FDCPA.    I suppose they would use the old card of "Try in to locate the debtor," as a rationale for  harassing family members, as they do in almost all cases of their harassing third parties in pursuing debt, but the answer here to "debtor location" would seem conclusive and irrefutable, yet they will not stop.    To the debt collection industry, the law is merely an impediment to be circumvented--a joke really.    

Your anger about how your father was treated by these greedy sociopaths is justified.   There is a special place in hell for such people.

The FTC and other regulatory government agencies are woefully underfunded, even more so when Republicans (part of the "government should keep their hands off business" crowd) hold a majority in Congress, gutting the FTC, EPA, etc.

The FTC continues to talk but do nothing about debt collection reform. As the old saying goes: "Talk is cheap". They know who their "masters" are:

Making you pay
Still no reason for abusive debt collectors to fear regulators

BOSTON (MarketWatch) -- Let's see if I get this right. If a big financial institution gets into trouble, the government is ready to step in and bail it out and make the little guy pay for it.

But if the little guy gets into trouble, and the big financial institution comes demanding its money back, not only does the little guy get no relief, but he gets little to no real government protection when the lender applies strong-arm tactics to collect its debt. And for all of the talk of meaningful change in Washington, abusive collection actions won't be stopped any time soon.

Last week, the Federal Trade Commission issued a report saying that the debt-collection legal system must be reformed and modernized "to reflect changes in consumer debt, the debt collection industry and technology." The idea is to put more bite into the Fair Debt Collection Practices Act, and the problem is that the moves being discussed are more like a wink and a smile than a growl at the bad guys.

The FTC took in roughly 105,000 complaints about third-party and creditor debt collection in 2008, according to numbers released last week. That makes it the subject generating the second most complaints -- identity theft is No. 1 -- about one in every 11 that the agency receives.

The Fair Debt Collection Practices Act was enacted in 1977 to protect the public from abusive, unfair and deceptive practices by debt collectors, with the FTC made the primary enforcer of its rules and regulations. The rules have been tweaked over the years, but the premise has always held steady: Debt collectors are entitled to do their job, but not by badgering, pestering, brow-beating and intimidating the debtor.

Judging from the complaints -- and FTC officials have long acknowledged that few people who have any problem go to the trouble of filing a complaint -- a multitude of consumers believe they're not being treated within the spirit of the law.

The trade commission recommended last week that collectors need to use available resources to both obtain better, more accurate information about their targets, while also giving those people more information. To that end, the agency suggested the following changes to the Fair Debt Collection Practices Act:

•"Validation notices" that the collectors are required to send must disclose the name of the original creditor; break down the debt by principal, total interest, and total fees; and inform consumers of certain rights they already have under the FDCPA. Currently, consumers get a notice from a collector and may not know who that collector represents, which makes it hard to determine what they owe, what additional fees or charges have been thrown in there or how to properly proceed if they want to fight the collection effort.

•Modernize the law to reflect changes in technology -- so that debt collectors can contact consumers on cell phones and by text message -- but only in cases where the consumer does not incur any charges for these contacts. In other words, they want to put an end to the abusive practice of a collector using up the consumer's minutes or texts, or even threatening to run up the communications bill -- so that service might get cut off -- in an effort to get the delinquent credit bills paid up.

•Further, under the proposed changes, collectors should only be able to use cell phone or text message with prior consent. Expect this to be a fine-print addition to credit applications, where the firm consumers sign up with will ask for the information and for permission to contact the consumer in the event of any "problems" with the account; while the customer thinks "they'll call my cell phone if they see problem activity on my credit card," the card issuer is thinking "get that information in case this account goes bad."

•Finally, when collectors are given access to a customer's other accounts to pay a bill, they will need to obtain "express verifiable authorization" from consumers before using electronic transfers to reach in and get their money.

Also in the FTC's suggested changes to debt-collection laws is a request for Congress to let the agency have the authority to change the act going forward, allowing it to keep pace with changes in the financial world.

It all amounts to a baby step's worth of progress, largely because there's still nothing in the Fair Debt Collection Practices Act to give it teeth.

Congress wrote this legislation in such a way that it expected civil lawsuits rather than law-enforcement actions to be the primary means of making sure the industry complies with the rules. The FTC can pursue cases, but it is extremely limited in the way it can punish an abuser.

While civil suits have resulted in some victories for consumers, the truth is that collectors aren't scared. They're not going to jail, they're not losing massive profits; the worst offenders are often down the line from management, and it's usually the company -- and not the bad actor hounding a consumer -- which takes the hit.

Few consequences
Dealing with debt collectors for a column last year I encountered a variety of behaviors that appeared outside the lines of the law, but where the collector suggested they were within their rights and basically dared the customer to sue. See previous Chuck Jaffe.

Collectors understand that they are dealing with people for whom the collection issue is just one problem; arranging for an attorney to represent them in a consumer case is not necessarily realistic.

With that in mind, collectors know they can flout the laws or live on the edges, knowing that their behavior may result in better results, returns so good that they can afford to pay any fines or problems they encounter. What's more, collectors can -- and do -- buy a database of consumers who have filed suits, helping them to avoid hard cases.

"We need some real teeth behind the regulation, and we didn't get that here," says Gerri Detweiler, co-author of "Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights." "People can file civil suits to protect themselves and they might even be able to put really abusive collectors out of business, but that doesn't stop the ongoing abusive collections practices. ... There are not enough enforcement actions against debt collectors; the changes are positive, but they won't really change that, and until collectors really fear the regulators, they'll keep doing whatever they can get away with that helps them collect the debt."

http://www.marketwatch.com/story/weak-regulatory-changes-wont-stop-abusive

if a person dies owing a debt, the debt still has to be paid. I would take a day or so to grieve and then it is time to take resposibility and start writing checks. Should the world shut down because your son just died? Creditors have to get paid. You think you are the only one to lose a loved one? They gave you money when you needed it. Now it's your turn.

"if a person dies owing a debt, the debt still has to be paid".
Only if the estate has sufficient funds, halellujah-to-the-lamborghini.

well in that case, why dont we all just make huge debts then kill ourselves to get out of paying them? Make a debt, pay a debt. Death should not be an escape from responsibility.

That is besides the point and you KNOW it. Deceased family's relatives are being hounded for debts they are NOT legally responsible for.

Begone. You have long since worn out your welcome here.

That IS the case, my friend. You can rant all you want.

DNFTT.  Hallelujah-to-the-Scam has a low credit rating and bills out the wazoo.

Discover is the worst when it comes to pushing the envelope and, outright, crossing the line.  I'm not surprised that they went after the survivors like this.  Take a peek at this:

http://creditsuit.org/credit.php/blog/C90/

Apparently, they don't like acknowledging permanent bankruptcy stays either.  I've heard (but as yet am unable to find a link to a news article) that they've been known, upon receiving a bankruptcy notice, to send out a preapproved credit card application to the debtor.  Once the card is issued, they immediately charge a balance on it equivalent to the amount that was discharged with the bankruptcy!  I guess they figure that the amount taken in by people too beat down to fight it is greater than the amount that they pay out in legal fines for the violations for those people who do (fight it).

As criminal as this seems, they do have a right to pursue the debt.  What they're supposed to do is to claim some asset (i.e. a bank account) of the deceased to satisfy the debt, not employ smoke-and-mirrors tactics to try to trick a survivor into assuming the debt.  It's these sleazy, less-than-truthful tactics that get me...but at least this is the original creditor and not some flea ridden, toothless 3rd party collector.  Although, from what I've heard, Discover likes to 'play it both ways,' sometimes treating the debt as though it belongs to someone else and at other times claiming that it belongs to them or an assignee, whichever brings them the most profit.

Somewhere else here, in another thread, someone made a comment about how original creditors don't worry about defaulted/discharged debts, that once they are written off, that is the end of it - the reason for arguing this was to play down the importance/benefits of working out debts with the original creditor instead of a third party collector.  I've been arguing that it's better to avoid a third party collector.  The above link and this particular case of Discover and deceased customers prove my point in a way since even death doesn't remove a credit card file from the original creditors' records - where there's even the faintest whiff of a buck to be made, never overestimate the lengths, oops, I mean depths to which creditors will sink to get it, including burning up the phone lines of the survivors of a deceased Discover card user.

You first.