DennisBeaverNovember 11, 2006 (Original publish date) • By Dennis Beaver

I am receiving phone calls and collection notices from a New York collection agency on a checking account that I closed years ago. When the account was still open, it had Overdraft Protection. I purchased a monthly subscription for products from a company back East and signed an authorization for direct deductions from the account.

But the products never came. Even though I informed my bank in writing of what clearly appeared to be a scam and told them to reverse those deductions – the company continued to charge the account – and the bank kept on paying under my Overdraft Protection. When I disputed the charges, the bank claimed that as I signed an automatic withdrawal order, they had to honor it. Of course, they insisted that I re-pay them, but I refused. There the matter stood for five years and I thought it had been just dropped by the bank.

Recently this “debt” was reported to a Credit Reporting Agency and this collection agency is bothering me. Isn’t it too late, anyway, because of the Statute of Limitations? What do you suggest? Thanks for any advice you can provide. Steve, from Avenal.

An extremely common problem

If you or anyone you know is in a similar situation – or if you have authorized an automatic deduction on a checking account or credit card – get out your scissors and keep this column as it could save you money and grief.

Automatic deductions – dangerous

Automatic deductions contracts – from a checking, debit or credit card account – are potential nightmares. Many credit counselors and financial advisers strongly suggest avoiding the so-called “ease” these transactions appear to offer. If things go right, everyone is happy. But if they do not?

In the news not long ago were the huge problems America On Line subscribers had in ending their subscriptions, many of which were via the automatic deduction formula. Just getting AOL to stop billing was a real problem for an unknown, but assumed large, number of people worldwide.

So, if you can somehow avoid the temptation to enter into these transactions, you will be far better off.

Critical time limits

First of all, Steve did precisely the right thing in providing written notification to the bank. That’s exactly what the law requires. Do more than just call! Send a letter outlining the problem briefly, telling them to stop further charges and to reverse those to date, if your situation is like Steve’s. Assume written notification to the bank or credit card company is required.

Recall that Steve’s problem with his checking account was many years ago, and yet just recently discovered that his credit report contained the old information, and that Plaza Recovery Associates, a New York based national collection agency, is now after him.

In discussions with Steve, I learned that he had a pretty good grasp of the Statute of Limitations, which is the law that prevents stale claims from being successfully brought to court. “I asked a collector if this six-year-old debt wasn’t beyond California’s four-year statute. He answered, Oh, that starts running when we, the collection agency, get your claim, so it is perfectly valid now.”

In fact, when I called Plaza, some creep there told me the same thing. It is absolute gold plated nonsense. In California, your bank has four years from the date of your last payment on a contract to file a suit, or they are too late, even if you owe the money. But you must raise that defense!

But how about the credit reporting bureau? Why did they suddenly get the account, and how long could it remain on his records?

The answer is that at some point the bank “charged off” the debt, and released the information to credit reporting agencies. They can keep a valid bad debt on there for seven years, but an invalid debt must be removed, and I instructed Steve to contact the agencies and do the following:

(1) Tell them in writing that the debt is not valid and ask that they obtain verification from the bank and collection agency. They have 30 days in which to do so, and if they do not remove it, there are penalties should the debt be found invalid. (2) Advise he wants that entry removed, and he has that right under the Federal Fair Credit Reporting Act. (3) Finally, if, for some reason they object, or if the credit bureau concludes the debt is valid, he needs to submit a 100 word statement to all the credit bureaus explaining the problem and clearly stating that it is barred by the California Statute of Limitations.

I told Steve that he needs to also contest this charge with Plaza, asking them to provide proof that it is a valid debt. While it is unclear if they’re working for his bank (Bank of America) or merely purchased an old, stale account, pressure on Plaza Recovery Associates may cause them to lose interest.

I placed two calls to Plaza as well as taking a look at their Web site. It’s worth the time to see how these collection agencies portray themselves. I don’t like people who lie for a living and far too many collectors find absolutely nothing wrong at all in telling the often scared, poorly informed public, anything to extract money that they might not legally owe. As my reader gave me authorization to speak with the collector, I can tell you the conversation was amusing to say the least. Amusing and brief. Their arrogant attitude merited little of my time.

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.