Definition
A debtor may pursue private mediation, which involves a neutral third party that resolves differences with a creditor.
Analysis
Private mediation is specifically listed under the Fair Debt Collection Practices Act (FDCPA) as an option for debtors that are in dispute with a creditor. Private mediation is sometimes used when a debtor disputes the validity of all or a portion of a debt outstanding. When the creditor and debtor are unable to agree on the validity of the debt, then mediation may be used to resolve the situation. The mediator would determine how much, if any the debtor owes to the creditor.
Private mediation may also be used if the debtor believes that the creditor violated his/her rights under the FDCPA or any other consumer protection law. The creditor may be liable for any violations that have harmed the debtor. In situations where multiple claims of unfairness are brought forward, a mediator may rule that a “net” amount is owed.
Example
For example, a debtor may owe a lender $5,000, of which $1,000 consists of accrued interest and fees resulting from a lowered credit limit that contributed to the client going over-the-limit. The debtor may admit to owing $4,000 while disputing the additional interest and fees. It is possible that a mediator may decide that the lender has the right to lower the credit limit, and that the debtor is liable for that additional $1,000 in interest and fees that were disputed. However, the mediator may reduce this amount if there is proof that the debtor’s rights were violated. Perhaps the creditor harassed the client or repeatedly called the debtor at work despite numerous requests to stop calling the employer. A mediator could rule that the creditor may be liable for $3,000 in damages due to documented violations of the debtor’s rights. The net result would be a $2,000 obligation that the debtor is confirmed to owe and is payable to the lender.
This example is a hypothetical situation that shows how the “net” amount could be decided. Actual mediation results would depend on the specific details of each individual case. Private mediation is documented in the FDCPA. For more information, see the Act or seek legal advice from qualified counsel.
