Return a video late? You may not get a mortgage
A debt collector is dinging customers' credit over unpaid late fees, which many say they don't owe. Montana has sued, and Kansas calls the effort a 'possible scam.'
It's hard to believe that returning videos late could hurt your ability to get a mortgage. But former customers of two defunct video-rental companies are finding negative information on their credit reports because of unpaid late fees -- which many say they don't owe.
Sheila Oliver of Minnesota told Jeff Baillon of Fox 9 that her credit score had dropped 70 points over $222 in fees she said she doesn't owe. "If I had owed Hollywood Video legitimately, I would have paid them," she told the TV station.
Oliver is one of thousands of people nationwide who have suffered black marks on their credit from National Credit Solutions of Oklahoma City. Some say the first they heard of the alleged debt is when it showed up on their credit reports. Other say they have been threatened with negative credit reporting if they don't pay not only late fees but debt collection fees of $75 to $300. Many say they never owed any late fees. Post continues after video.
Montana Attorney General Steve Bullock filed a lawsuit (.pdf file) against National Credit Solutions this week, saying that more than 12,000 Montana residents, or about 1% of the state's population, had been affected. The attorney general of Kansas is calling the collection efforts a "possible scam."
The lawsuit alleges that National Credit Solutions violated Montana consumer protection laws by not notifying the customers of the alleged debts, not allowing them to dispute the fees, and charging them "exorbitant" collection fees of up to $300. Bullock said at a news conference:
It's our belief that this debt collector -- who made no attempts to contact consumers -- has blatantly violated our laws and bullied Montanans. We will hold them accountable. It's crazy to think that a Montanan would be prevented from refinancing their house or buying a new car simply because they returned "Caddyshack" two days late.
Kansas Attorney General Derek Schmidt said the collection effort "appears to be a scam." In a news release, he advised: "Consumers should not pay or give any information to this organization over the telephone. Instead, they should gather whatever information they can about the alleged debt and the caller and then report that to our office. We're here to help."
National Credit Solutions has defended its actions, saying that the debts are legitimate and that Movie Gallery told the company it had notified customers of late charges before turning the accounts over to collection.
A former Hollywood Video assistant manager in Minnesota told Fox 9 that the company didn't keep good records, and that the corporate customer account records and the local records often didn't match. He said that even he has had his credit dinged for late fees, though as an employee he got all his rentals free.
The case points out once again the problems of the debt collection business and the issue of "zombie debt," old debts that are sold to collection agencies for pennies on the dollar. The debt collectors then add a fat fee and try to collect.
Here's how MSN Money columnist Liz Weston explained the problem in 2006:
Aggressive companies can buy charged-off credit card accounts from the original lenders for pennies on the dollar or less. Then, they use credit scoring and other new technologies to identify which debtors are most likely to pay. The players in this "junk debt" market range from fly-by-night outfits to well-established companies funded by Wall Street investors.
The Federal Trade Commission has a new video about consumer rights in debt collection, a booklet (.pdf file) on the Fair Debt Collection Practices Act, as well as advice online. Montana also has posted advice for consumers, including a sample letter to send to the collection agency demanding proof of the debt.
Rather than talk to the agency at all, start with that letter, consumer advocates advise.
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