How to Handle a Dispute with a Credit Card Company or a collection agency

By now I consider myself an expert on handling disputes with credit card companies. I recently had a dispute with HSBC and after some wrangling arrived with a settlement with the company that was fair and just. I’ve learned a lot. Here are two things you can do:

1. File a complaint with the Consumer  Financial Protection Bureau. It’s impossible to get a reply from a national bank. But the CFPB  is empowered specifically to demand a response from the lender within a set period of time. You should do that as soon as you think there’s a problem. (They also have an outstanding FAQ). See also this summary of how to handle a credit card dispute. Note: if the credit card is issued directly  through  a retailer (and not through a national bank like HSBC or Chase), you may need to file a complaint with the FTC. Check this site to find out where to make your complaint. (3/2012 Note: Before 2011 these complaints were handled by  the Office of the Comptroller of the Currency, but now the  new CFPB  bureau is handling these things).
2. (if a collection agency is handling the debt), you can send a written demand to provide verification of the debt. This is required under the Fair Debt Collection Practice Act. According to a wikipedia article, if a consumer sends a written dispute or request for verification within 30 days of receiving the §1692g notice, then the debt collector must either mail the consumer the requested verification information or cease collection efforts altogether. Someone wrote a form letter requesting this, and apparently it gets the collection agencies off their backs.

More humorously, on  a radical site, I see this debt strategy:

Back 25 years ago, in Grad School, a friend/mentor/prof i knew advocated that anyone worthy of credit exploit their credit-worthiness, and extend their credit purchases as far as possible because, when the crunch comes, the banks will be so busy trying to repossess their really RICH clients, they’ll be too busy for your petty shit…

(My only disagreement is that during recession, creditors have every incentive to nickel and dime oblivious customers, so watch out!)

I’m more philosophical about debt; I don’t regard it as evil per se, although it is like playing with fire ( avoid it  if you can). Having lived in two countries without any consumer lending to speak of, I see that access to consumer debt is a great advantage for Americans.  Obviously, you can abuse consumer debt if you’re not careful, and it allows you to avoid facing reality (a common problem these days). But credit cards are neither good nor bad, just a business and a service.

Overall, for credit cards I recommend Amalgamated Bank of Chicago. I also have really been impressed with Discover Card and Chase. Both have good web interfaces and notification services. HSBC (which is the bank for the branded credit cards you see at Best Buy, etc), is by far one of the worst, and so is Citibank (if they are still around).  I have no experience with Bank of America or Capitol One (although I’ve heard that Capitol One is good for handling currency conversions while travelling). I’ve also heard that credit unions offer extremely good terms for credit cards, something I have not looked into.

Right now, it’s important that you never make a mistake on paying your credit cards. People  do not know that most credit card agreements give banks the right to impose “default rates” (which means punitive rates…usually 30%) for 6 months if a single payment is as much as a day late.  Typically they don’t invoke this clause but merely impose a one time late fee. In other words, this trigger goes off at the company’s discretion. It is not in the company’s interest to flip the switch to activate the default rate, but they certainly will do so if the company perceives that you are a serious risk. If anything, putting an account into default is a negotiating tactic to extract immediate response.  But remember: if you make one late payment, you may unwittingly be giving the bank to jack up the rates for 6 months.

This year I started doing more of my bookkeeping on Google Docs and I keep track of things like credit cards. One shock came last year when I learned that certain extra fees were being added to my credit card without my knowledge. If I received print statements, I certainly would have spotted these things immediately, but because I no longer receive print statements, these nasty details were hidden on page 2 of a PDF I had to download. To avoid this kind of scenario from happening again, I started noting every month  how much interest charges are being added to my account every month. It’s an extra step, but at least it gives me a sense that I know everything going on with that account.

July 10, 2010. I am sorry to report that Chase is now on my Bad Guys  list.  I recently went over my credit limit, and so Chase sent me a notice informing me that they are  raising my interest rate from 14.5 to 21.5 percent. Gee thanks! I guess I won’t be using a Chase credit card anymore.

Defendyourdollars.org is a site backed by Consumer Reports about knowing your credit card rights and using credit cards properly. Here is a summary of the recent credit card law and a description of the new banking regulations about credit cards published by the Federal Reserve which is scheduled to take effect on August 15, 2010.

March 23, 2012 Update. Last year I had major problems with the Chase card and asked several times  for Chase to fix the problem. They refused to do this, and I filed an appeal to CFPB. I got a response from Chase within 2 months and a very favorable outcome. Perhaps the specific details (which I won’t go into) were unusual, but when national bank  has to respond to a CFPB complaint from a regulating body, they take it a lot more seriously. I should add that because of the Chase response, Chase is no longer on my bad guys’ list — although I won’t forget the aggravation it caused me.

August 13 2012. Credit card disputes don’t often reach the litigation stage, but this article discusses how 90% of the bank-initiated lawsuits against deliquent borrowers could be thrown out of court due to lack of evidence.