Capital One Auto and OwnerGuard

State-CA In Aug 2006 I borrowed money from Capital One Auto Finance to buy a used car. In Oct 2006, that car was totaled in an accident. My primary ins paid their share but there was still a balance on the loan. I immediately received a collection letter from Capital One giving me 10 days to pay up. I called their customer service line and got a rude rep who would not listen to me explain that I had gap ins. He told me that if I did not pay, Cap One would contact my employer, my neighbors, my friends, my relatives to collect. He then hung up on me because I would not quietly listen to his spiel. I immediately complained to Cap One. No response.

I received a letter a few days later offering to settle the loan for 55% of the loan balance and notify the major credit reporting agencies. I paid that (by borrowing on a credit card figuring that my gap ins would come through to cover that), noting on the check that the loan was "paid in full" and including a copy of their letter with the payment. The check was cashed and I have a copy. I then received another letter asking for 65% of the balance. I sent them a copy of the canceled check and original letter and asked them to comply with their agreement as outlined in the letter. I also asked for a response to my customer service complaint. No response.

I just received a third letter giving me 10 days to pay another percentage on the loan. Still no letter confirming the loan is paid nor have the credit reporting agencies been notified. I filed a complaint with the FTC. Their harassment has caused me great personal stress and my credit report still reflects a large unpaid balance on the loan hence lowering my credit score because I had to borrow money to get a new car.

Since then the gap ins has denied my claim because I refinanced with Capital One. I have appealed that decision because the gap contract does not mention a specific lender. It also mentions the contract as being transferable. I am at a point that I am ready to pursue legal actions against both of these entities!!

What should be my next step?

You have legal recourse if any creditor threatens to notify (or in fact does contact) anyone except the credit bureaus in regards to your loan. The Privacy Act of 1974 prohibits agencies (that does include a financial lending institution) from releasing your financial information without your express written consent. Any creditor who even alludes to contacting either a private individual, your employer or even another lending institution is in clear violation of that Act and subject to federal fines. That isn't easy to prove unless you happen to have written threats on their letterhead .. it's your word against theirs.

On the other hand, you entered into a binding contract and received the fair market value of the car. It's not Capital's fault that the car was totalled, or that the insurance company didn't pay the full amount. If you've received written notification of the company's willingness to settle for a percentage (normal procedure) and you've paid that amount, your monetary obligation is done. However, the creditor is also legally entitled to enter the entire amount on your credit report and to report that defaulted account for as long as 7 years, depending on your state's limitations.

You may wish to contact an attorney to review the original settlement letter, to have the demand letters stopped and to see if the conditions listed in your gap insurance apply in this type of situation. You can also contact the corporate headquarters of the creditor and complain in writing about the multiple requests for payment and extremely unprofessional behaviour of their collections department (state names, dates, telephone numbers, etc.) Unfortunately, you'll have to live with the stress and the credit history .. your loan (for whatever reason) went into default according to the terms of your original contract.