What is the maximum interest and fees a buyer of old credit card debt can charge?

October 13, 2015 19:47 by Consumer Ed

Dear Consumer Ed:  

I have some outstanding credit card debt from seven years ago. I was recently contacted by a debt collector, who is not the actual creditor, attempting to collect this debt. They want me to pay fees and interest that have nothing to do with the original debt. Can you tell me what is the maximum percentage of interest and collection charges that a buyer of old credit card debt can charge the debtor in the state of Georgia? 

Consumer Ed says:  

It’s critical that you consult the original credit card agreement to see what (if any) additional fees, interest or other expenses would be collectible.  If the original agreement (or the agreement between the originator and a collector) permits such costs, a debtor may be required to pay reasonable costs associated with collecting the debt, such as court costs and credit report fees; however, debtors are entitled to an explanation from the debt collector as to what is being charged and why.  If you’re the debtor, you should make a written request to the debt collector to provide such an explanation in writing; the collector is obligated to comply. 

If the credit card agreement does not say anything concerning collection costs and interest rates, Georgia law allows pre-judgment interest to be collected at a rate of seven percent.  Post-judgment interest can be collected at “a rate equal to the prime rate as published by the Board of Governors of the Federal Reserve System, as published in Statistical Release H. 15 or any publication that may supersede it, on the day the judgment is entered, plus 3 percent.”  

It’s also important that you understand the limits on what’s known as “old debt” (i.e., time-barred debt).  In Georgia, the statute of limitations on credit card debt is six years. After six years of no payments, the debt is considered time-barred.  Keep in mind that debt being time-barred doesn’t mean it can’t be collected, only that the debtor can’t be sued on it.  

Purchasers of debt that is “old” (i.e., time-barred or already in default) can be considered “debt collectors” who fall under the purview of the Fair Debt Collection Practices Act (“FDCPA”).  The FDCPA prohibits debt collectors from using any unfair or unconscionable means to collect or attempt to collect any debt. That includes the collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt, or permitted by law.  

If you are certain the statute of limitations has expired, you can use that fact as justification that you do not have to pay the debt. But, be careful not to restart the statute of limitations. You can take many actions with an account, perhaps even inadvertently, that will trigger a restart of the statute of limitations. For example, making a payment, making a promise of payment, entering a payment agreement, or making a charge using the account are all actions that can restart the statute of limitations on an account. And, when the clock restarts, it restarts at zero, no matter how much time had elapsed before the triggering activity.

Also note that old debt is not a credit card balance that you may have racked up years ago but are still making minimum monthly payments on. In this case, you will not be considered to have defaulted on the debt.

In addition, be aware that some debt collectors knowingly file lawsuits to collect on expired debts. Many people who are sued on a debt they know is very old simply don’t answer the lawsuit, because they believe the statute of limitations has run. THIS IS A BIG MISTAKE. The statute of limitations is an affirmative defense that must be pled in answer to such a suit. Therefore, if you are sued and do not answer the lawsuit, the debt collector will be able to get a judgment by default against you – even though, had you gone into court and asserted that the debt was time-barred, the case would have been thrown out! If you are sued on any debt, never ignore the lawsuit.

If you have further questions about this subject, you should visit the Federal Trade Commission’s website at www.consumer.ftc.gov/articles/0149-debt-collection, and the website of the Georgia Department of Law - Consumer Protection Unit at www.consumer.ga.gov/consumer-topics/debt-collectors

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How will new chip-and-PIN technology for credit/debit cards affect who is liable for a fraudulent transaction?

June 24, 2015 20:22 by Consumer Ed

Dear Consumer Ed:

I heard that the magnetic strip on debit and credit cards is going to be replaced with chip-and-PIN technology. How will that affect who is liable (consumer or merchant) in the case that a fraudulent transaction occurs?

Consumer Ed says: 

The financial responsibility for fraudulent credit card transactions currently lies with either the merchant or the issuer (the bank or the credit card company), depending upon the card’s terms and conditions.  However, this will change after October 15, 2015, which is the deadline for card issuers and merchants alike (with the exception of gasoline retailers, which have until October, 2017) to switch from magnetic strips to chip-and-PIN technology, also referred to as EMV (Europay, MasterCard and Visa). 

EMV is a joint effort conceived by Europay, MasterCard and Visa to ensure better security of card payments for those companies’ users.  Adoption of EMV cards and EMV-compliant terminals will purportedly result in a reduction of fraud stemming from counterfeit, lost and stolen cards. EMV cards, which have an embedded microprocessor chip that stores data and information, will rely on the embedded chips and compatible terminals to complete transactions, rather than swipe-and-sign methods currently used. 

Further, unlike magnetic-stripe cards, every time an EMV card is used, the card’s chip will create a unique transaction code that cannot be used again.  After the October 15, 2015 deadline, liability for fraudulent credit or debit card transactions that still use magnetic stripes will be shifted to the party that has not switched to EMV technology; note that this shift in liability won’t fall on the consumer, but is between the card-issuer and the merchant. 

The change in technology is unlikely to have much of an effect on consumers’ liability for fraudulent debit and credit card transactions.  This is because under the Federal Fair Credit Billing Act, your liability for unauthorized credit card charges is capped at $50. However, once the suspected sham transaction is reported, consumers aren’t held responsible for any further amounts fraudulently charged to their cards.  It’s a bit different for debit cards:  if an ATM or debit card is reported missing before someone uses it, the holder isn’t responsible for any unauthorized transactions; but, if someone uses the ATM or debit card before it’s reported lost or stolen, the amount the holder is liable for depends on how quickly the loss is reported. 

Debit card losses fall along the following scale:  Consumers aren’t responsible for any amounts if the missing card is reported before any unauthorized charges are made; for missing cards reported within two business days after the holder learns of the loss or theft, the amount is capped at $50; for unauthorized charges reported 2 business days after the holder learns of the loss/theft, but less than 60 calendar days after the bank sends its statement to the cardholder, amounts are capped at $500; and for unauthorized charges reported after 60 calendar days, the cardholder is responsible for all charges.

To limit any liability you may have for purchases you didn’t make, or for transactions that may get charged to a card that has been lost or stolen, make sure you report the suspect purchases (or the loss or theft of the card) as soon as possible to the card’s issuer.  Follow up with a letter to your issuer to further document the report, and make sure you update your records to keep track of the issuer’s actions taken to nullify the transaction.  You can learn more about how to protect yourself by visiting the Office of Consumer Protection’s website at http://consumer.georgia.gov/consumer-topics/identity-theft-what-to-do-if-it-happens-to-you.

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Will my debit card be rejected if there are insufficient funds in my account?

April 30, 2015 20:20 by Consumer Ed

Dear Consumer Ed:

Are banks obliged to reject attempts to use a debit card when there are insufficient funds in the account?

Consumer Ed says: 

When you use your debit card to make a purchase or other electronic payment for an amount greater than the balance in your checking account (thus creating an overdraft), the bank can choose to make the payment, or not.  In 2010, the Federal Reserve issued new rules regarding fees banks charge for overdrafting debit card and ATM transactions.  Under the old rules, banks were permitted to automatically enroll their customers in their standard overdraft practices.  These overdraft practices typically involved charging customers a fee to provide the additional funds.  However, under the new rules, the bank must obtain the customer’s permission to apply its overdraft practices to the account before charging a fee, which the customer typically provides by agreeing to a notice sent by the bank. 

If you don’t opt in to overdraft procedures and you attempt to make a purchase or withdrawal which would overdraft your account, the transaction will typically be declined, but you won’t be charged an overdraft fee.  However, if you’ve opted in to overdraft protection, your account can be overdrafted, and the bank can then charge you the fees set under the terms in your opt-in agreement.  Be aware that these fees can mount up quickly, so make sure you know what you’re agreeing to.

When setting up new accounts, pay careful attention to the documents you sign.  If you prefer your card to be declined and your account not to be overdrafted, don’t sign the opt-in form that will enroll you in the bank’s overdraft protection plan.  If you’d like the overdraft protection, then sign the form.  If you’ve previously enrolled in the overdraft program but no longer wish to be, you can contact your bank and opt-out of their overdraft policy.

Again, these rules apply to debit card and everyday transactions; they don’t cover checks and automatic bill payments.  Banks can still automatically enroll their customers in standard overdraft procedures for payments made using those methods.

In sum, to avoid overdraft charges, remember:

  1. Do not sign an agreement with the bank authorizing overdraft charges.
  2. Keep track of the money in your account by keeping your check register up to date.
  3. Make sure to record your electronic transactions as well.
  4. Make sure to take into account automatic bill payments.
  5. Review your account statements each month.
  6. If you do overdraft your account, deposit money into the account to cover the overdraft and any fees in order to avoid any additional charges.
  7. You can link your account to a savings account. You may be charged a transfer fee when overdrafting your checking.
  8. You can link your account to a credit card you have with the bank.  You may be charged a cash advance fee when overdrafting your checking.

If you have a complaint about the fees charged by your bank, you can try to resolve the problem directly with your bank.  If you make no headway on your own, you may want to file a complaint with a federal or state agency that enforces consumer banking law.  If your complaint involves a Georgia state-chartered bank or credit union, you can file a complaint with the Georgia Department of Banking and Finance (http://dbf.georgia.gov); otherwise, you can contact the Consumer Financial Protection Bureau to file your complaint (http://www.consumerfinance.gov/complaint).

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