Banks are moving at the fastest pace possible in the foreclosure and short sale arena.  The banks will write down the debt that is not collateralized by real property.  Loan modifications are being dragged by the banks to boost the interest on the debt.  Because the banking rules are above and separate from the credit reporting rules and the laws within the Fair Debt Collections Practices Act banks can internally hold the non-purchase monies tied to real property and charge interest and penalty for up to 4 years.

Case in point, the Fed is pumping money into the banking system to encourage the banks to write off the debt, but the banks are having nothing to do with it.  For the first time since the depression era banks can borrow from the Fed at a discounted rate.   The interest rate cut, which is what is most prevalent in the news, is to encourage banks to borrow from one another instead of the Fed Bank.

At some point the banks will, as they are now beginning to capitalize on by bringing the debt to the Fed Bank for reimbursement or writing this debt off to balance the books, but it will be streamed in so that the balance sheets are not mired in red ink.  This write off will ultimately make its way to the secondary market of collections and litigation for consumers and profits for the buyers and investors of these notes.

This is real exposure to the abusive practices already permeated throughout the industry.  It is unfair to the consumer as the 7-year statute for negative information could be lengthened.  Once the debt is placed into collections the 6-year statue for a lawsuit begins.  This falls within the 7-year statute already in place.

Debt that meets this criterion becomes “zombie” debt and is one of the fastest growing industries.  It is forecasted that the amount of bad debt purchased will exceed 110 billion dollars this year alone.  With the new technology available through credit scoring and other identifiers collection companies and the banks can determine which bad debt has the likelihood of repayment by the consumer.

Consumers everyday pay off old debt that can no longer be adjudicated or is subject to a lawsuit.  If there is any question as to the debt, consumers may request and collection companies are required under the Fair Debt Collections Practices Act to provide documentation that created the debt.  If they fail to provide the documentation the account cannot be reported to the bureaus.

Understanding the calendar that applies to the practice of collections helps consumers that wish to negotiate with creditors.  With opportunity comes abuse and collections agents cannot be trusted.  The more they collect, the higher the commission!  The amounts that are collected most often include penalties and interest that does not apply and falls under the abusive tendency to collect more than is legally allowed.

Check out this video:

http://www.thinkbigworksmall.com/mypage/player/tbws/23088/1157575