University of Florida News

GAINESVILLE — Creditors trying to collect from debt-mired consumers often employ tactics that prove counterproductive to making a full recovery, says the author of a new book.

“Within the collections system, there is the built-in tendency not to recognize the aberrant case, the different case, the case in which the debtor really could, and is sincere in wanting to accomplish a workout,” said University of Florida law Professor Winton Williams, who draws on his more than 25 years of work with collection law and practice in his new book, “Games Creditors Play: Collecting from Overextended Consumers.”

Faced with a debtor who is months behind in payments, collectors often threaten taking him or her to court or repossessing their car in front of neighbors, when granting an extension might improve their chances of a full recovery, Williams said.

“Unfortunately, a lot of debtors are not sincere in their effort and really don’t have the wherewithal to catch up,” he said. “If they get an extension from you, they might use it to pay a little more to other creditors who won’t give them an extension, or they might just get in deeper.”

To help solve their problems, an increasing number of debtors are turning to the various Consumer Credit Counseling Services affiliated with the National Foundation for Consumer Credit, groups Williams said are a valuable intermediary in debt collection.

Creditors can rely on these not-for-profit agencies to determine whether debtors really need extensions and will use extensions to pay off claims, he said. Counselors also will determine whether creditors are “jockeying to collect more than they’re getting under a workout plan and are in danger of putting the plan on the rocks,” said Williams, who sits on the board of directors of a lending institution.

The foundation expects to counsel about 1.5 million households this year, said Durant Abernethy, president of the umbrella group for the 1,450 locations around the country.

“Eighty-six percent of the people who come in to us are eligible to file for bankruptcy because they’re legally insolvent,” Abernethy said. “Our studies show that only about 11 percent of those who come in and are counseled will file bankruptcy in the next year and a half. All of the folks leave with a good hour of counseling and a written action plan, and a good two-thirds of them follow that plan and will repay about $4 billion to credit grantors this year.”

Abernethy said Williams’ book, aimed at those who work in or have an interest in the credit industry, recognizes the serious dilemma creditors face in trying to collect from overextended consumers. Without a cost-effective means of assessing debtor’s needs and commitment to a workout — or of monitoring the cooperation of other creditors in that workout — collectors often have little choice but to continue their coercive practices.

Abernethy said he sees more lenders “trying everything they can to figure out the best way to, if nothing else, profile who it is they ought to get to us as soon as possible and who it is that’s trying to abuse the system. Or who will fail no matter how much help you give them.”

Studies show that only about half of the people who file for bankruptcy are aware of credit counseling, Abernethy said. He said about 35 percent of clients are referred to a credit counselor through friends and family, 30 percent by paid advertising and the rest through referrals from creditors. The foundation also offers programs that help people develop spending plans, determine financial options and learn about credit.

Williams said everyone could benefit from an education about credit. Many young people begin receiving offers of credit shortly after high school or while in college, typically with an initial credit limit of about $2,000.

“Some of them look upon that as having $2,000 in their pocket,” Williams said. “And then they get another card and another card. They max them all out to where they can barely meet the minimum monthly payments, which barely reduces the principal while the interest rate now is soaring at 18 to 21 percent. I know people who pay an extra 21 percent for everything they buy because they live on credit cards.”

Credits

Writer

Jim Hellegaard

Source

Winton Williams