As you're maxing out your credit cards and ignoring your bills, you might not realize the effect it's going to have on your credit. Credit card payments and level of debt have the most impact on your credit score. Mess up in these areas and your credit score will plummet. "What's the big deal with a low credit score," you might ask. Since so many businesses now judge you based on your credit score, having bad credit can make life extremely difficult from getting a job to getting a place to live. Here are some of the most common side-effects of bad credit.
People go into debt. The businesses that own that debt want their money. This is why the world needs debt collectors. But what the world doesn’t need are debt collectors who harass, lie, and threaten to take debtors’ children and pets away.
CNN Money has a round-up of recent debt-collection horror stories. Here are some choice examples that highlight why the debt collection industry has a bad name:
Accountants typically record a company's revenue when it is collected, even if it is in the form of credit and not cash. Bad-debt allowance is an important accounting treatment used by companies to estimate the effects of unpaid debt during the same period in which the associated revenue was recorded. Failing to account for bad debt can create misleading impressions about a business's condition.
2013 was the year the federal government resolved to take serious action against bad actors in the debt collection industry. 2014 should be the year that everyone in ARM makes some New Year’s resolutions of their own to avoid pricey compliance headaches.
Selling uncollectable or “bad” debt has become a new and exciting prospect for many utility companies. Sale of such debt can free-up workers, provide instant income for the company, and create more financial certainty. It could also, in theory, alleviate the need for controversial rules like Texas’ “Switch-Hold Rule”, because the utilities and the State would be unburdened by the collection costs.1 Further, it may simplify the work needed for utilities in tracking bad debt expenses in states which require such record keeping and analysis.2
The Consumer Financial Protection Bureau (CFPB) has been accepting debt collection complaints from consumers for about four months. Just last week, the regulator released some of the complaints data to the public. So how are collection agencies doing with their handling of the complaints?
Judging by the data provided so far, pretty well. The caveat here is with the data provided. The volume of debt collection complaints released by the CFPB is considerably lower than volumes previously reported, notably by the FTC’s Consumer Sentinel annual report.
The Federal Trade Commission Tuesday announced a settlement with revenue cycle management and healthcare business services firm Accretive Health over patient information security concerns. But the FTC also issued a closing letter noting that it would not be pursuing enforcement actions related to debt collection, an issue that grabbed a lot of attention in 2012.
Under the settlement, Accretive (NYSE: AH) must establish a comprehensive information security program designed to protect consumers’ sensitive personal information. In addition, the company must have the program evaluated both initially and every two years by a certified third party. The settlement will be in force for the next 20 years.
A majority of consumers using the Consumer Financial Protection Bureau’s (CFPB) complaint intake tool claim in one way or another that debt collectors are chasing an account the consumer does not think they should pay. And the numbers are growing.
When a consumer begins a debt collection complaint on the CFPB site, they are given six broad debt collection issues used to classify the nature of their complaint. The most common issue, accounting for 41 percent of all complaints, was “Continued attempts to collect debt not owed.” Communication tactics accounted for another 20 percent of complaints, followed by “Disclosure verification of debt” at 18 percent.