Paying the debt you owe is ethical. While it may be true that paying it timely is easier said than done in some situations, it is a debt and should, if any way possible, be paid. But what happens when the person owing the debt dies? Who is responsible following the death? What if there is no estate or assets to effectively pay the debt? What happens when the creditors call?
Debt collection has become an increasingly controversial practice as more Americans default on loan payments. Government data show the charge-off rate on consumer loans spiked to 6.71 percent during the second quarter – the highest level in at least 25 years. (Five years ago, the charge-off rate – loans written off by their lenders as uncollectable – was 2.4 percent.) Meanwhile, debt collection ranked second on the FTC’s list of most common consumer complaints last year after not even cracking the top 20 two years ago.
The rise in debt collection has spawned a niche market devoted to recouping money from those who die with unpaid bills. The FTC began investigating the practice several months ago and found confusion among collectors over whom they were allowed to contact and what they could say, said Joel Winston, the agency’s associate director of financial practices.
“The debt doesn’t disappear when the person dies,” he said. “It’s still a valid debt, and the collector can still collect it.”
That is correct, the debt doesn’t just disappear or does it? Likewise, the collector would have no practical clue that the individual is deceased, so what do they do and who do they attempt to collect from? Questions like these especially at a touchy time following the death of a loved one raise significant and emotional issues.
The federal Fair Debt Collection Practices Act limits the people that collectors can contact to those with authority to pay the debt – typically a spouse or family member, and possibly a third-party executor of an estate. But in a proposed policy statement, the FTC said changes to court procedures have widened the pool of those who may be able to pay to include a host of other legal representatives.
A widened pool of people who may be contacted has come under significant attack as being too broad especially considering the emotion of the situation involved in the death of a loved one.
“Presumably we’re dealing with elderly people at the most vulnerable time that you could imagine,” said Richard Rubin, a consumer rights lawyer in Santa Fe, N.M.
Locating those who can pay the debt creates another challenge. Often, collectors may contact several friends or relatives in their attempt to find the right person. Current law allows collectors to only ask for “location information” without revealing that a debt is owed. The FTC is considering relaxing that rule for those who are deceased.
So…not only is the pool widened, but is it possible that under new rules, debt collectors could strong arm their way into convincing those connected with the deceased to pay the debt even if they are not personally obligated to do so? Some say that the FTC proposed rules open the door for unethical collection practices by folks who are paid and motivated to increase collection activities and results.
The FTC proposal states that collectors appealing to consumers’ “moral obligation” to close the debt could violate federal law. In addition, it emphasized that collectors cannot imply that those with authority to pay the debt must do so out of their own pockets. All debts should be paid out of the deceased’s estate.
But consumer groups said the language used in the FTC’s proposal is too loose and could have the opposite of the intended effect.
“The FTC should strengthen protections for grieving families and friends, not open the door to debt collection efforts that often aim to exploit the vulnerability of the bereaved,” Robert J. Hobbs, a lawyer with the National Consumer Law Center, said in a statement.
Beyond the actions of debt collectors however, lies another ethical issue – piling on debt in advance of death knowing that it would have to be forgiven due to estate insolvency. Many creditors report that they have seen an uptick in the amount of debt that is incurred within a year or within months preceding a death. The questions that they raise create interesting avenues to explore. What happens if family members or the deceased conclude that purchases on credit in advance of a pending death would be difficult to collect, and therefore, becomes the last opportunity to capitalize on a “free” loan?
Debt collections at death are difficult to say the least and provide interesting discussions both among collectors and those being collected against.
As we end this post…if you have had an experience with a debt collector following the death of a loved one, I would appreciate your comments and story. Perhaps by sharing others can find help during this trying time!
YOUR COMMENTS ARE WELCOME!