Tuesday, November 30, 2010

You Might Want to Check Your Friends' Credit Reports

Posted By on Tue, Nov 30, 2010 at 11:13 AM

Let's say something terrible happens, and one of your close friends passes away. According to some experts on the debt-collection industry referenced in The Washington Post, you might be getting a few unpleasant phone calls:

The Federal Trade Commission is seeking to revise the protocol surrounding two of life's touchiest subjects: debt and death.

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 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.

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.

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.

To be clear, someone might call you to track down your dead friend's money, and they might imply you should help cover some of those debts, but you're not actually legally responsible to do so.

Still, you never can be too sure. I think I might running credit checks on people I meet from now on.

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