Credit, pt. 3

(In pt. 2, we discussed the economic stimulus check)
I’ve had to deal with some debt collectors in the past. Mine were typically dental/medical bills that I forgot about, or perhaps a phone bill that got lost in the shuffle during a move. I’ve helped some of my friends out with their debt collection issues though, and have learned a lot about dealing with Debt Collectors in the process. 

Please note that the content below mostly deals with collectors for credit-line debt, rather than medical debt. I don’t know much about dealing with medical debt. Lawyer consultations are typically $100-$200, and well worth it if you have a substantial amount of debt. Always consult with a professional if you are unsure.

Here are some MUST KNOW tips for dealing with debt collectors:

1. You are covered under the Fair Debt Collection Practices Act (FDCPA)

Read about it here, if you want to know the gritty details. Essentially, this is a legislative act that provides stipulations about HOW a debt collection company may go about collecting their debt.

You may not know this, but some debt collection firms simply get lists of bad debts (without ACTUALLY owning the debts) and seek collection for those debts!

If you were to pay them, you would be out $$$ and still owe on the original debt!

The FDCPA also protects you against debt collectors making illegal threats (which they sometimes do anyways), badgering you over the phone (which they will do), and other unfair practices.

2. ALWAYS dispute the debt

Never admit to a collector “Oh yeah, that’s all me.” Doing so immediately waives your rights to have the debt validated (as you yourself just validated the debt) — at that point all you can hope for is to settle for a lesser percentage (good luck at this point). 

A collector must give you 30 days to dispute the debt in writing. As soon as you receive the initial debt notice, immediately respond to it in writing asking for the debt to be substantiated (more details on how to do that shortly). 

You may know by looking at it immediately that it’s valid – but don’t throw away your consumer rights. The FDCPA only works for you if you put it to work. 

3. The statute of limitations on credit debt is TYPICALLY around three to five years

This varies state-to-state, so you’ll want to find out what your state is. 

The statute of limitations basically determines how much of a window a collector has to collect your debt. Once the statute runs out, they can no longer collect it. 

IMPORTANT: If you acknowledge a debt is valid, the statute is RESET!

4. Under the FDCPA, a Collector must establish that they have a LEGAL RIGHT to collect the debt

A collector that purchases a bad debt probably did so as part of a bulk purchase. Maybe $100,000 of bad debt purchased for $5,000-$10,000. (Seriously) But they should also have some intimate knowledge of the debts that someone just perusing your credit report would NOT. 

The FDCPA, and the case Coppola v. Arrow Financial Services allows you to require, in writing, that the debt collector provide you with:

  • The original contract between you and the creditor, with your signature
  • The source of a debt and the amount a bad debt buyer paid for plaintiff’s debt
  • Documentation showing the generation of the debt up to its final collection number
  • Documentation that they have the AUTHORITY to collect the debt on behalf of the original creditor
  • They have someone in their firm that is LICENSED to collect in your state

In other words:

The original contract shows that they are in touch with the original creditor. They MAY also send you EVERY SINGLE STATEMENT for the account (but are not required to — a single signed contract is enough). 

The documentation showing the generation of the debt shows that the collector is (a) not padding it, and (b) that it follows state / federal usury laws. 

Believe it or not, they have to be licensed to collect your debt. Chances are, they probably ARE licensed, but make them spend the man hours proving it anyways. 

If you submit a request for these things in writing (be sure to send it certified with return receipt!), some collectors will just give up.

Acquiring this information takes time, which means man-hours. I don’t imagine they pay their clerks very much, but if something takes 2 or 3 hours, and the debt is only $2,000 – $3,000, they may just decide it’s not worth it.  If you’re a bigger fish, they may do it after all. Either way — it’s worth it to at least throw it up there.

Don’t feel bad about doing this. If this dispute went to court, they have much more money to throw at lawyers than you do, so right now is when you get to work the clock to your advantage. 

5. You may request that they only contact you in writing, and they may NEVER contact you at work

If they do call you at home, and they might, politely inform them that you are invoking your right under the FDCPA to have them only contact you in writing, and then say goodbye. They will probably try to keep you on the phone (I think they get training for these situations), insist that anything they wish to say should be said in writing, or said to your lawyer. 

If they are being persistent still, just hang up. 

They are NOT allowed to contact your employer, nor harass you at work. If you are being harassed, inform them that they will hear from your lawyer for violating the FDCPA. 

With that in mind, do be polite. I think debt collectors may be some of the few people that fall below “telemarketers” in public opinion, so if you are polite to them, they will be more apt to cooperate with your request. You may also suggest to them that their requests in writing be sent with return-receipt.

6. Send ALL correspondence with return receipt, and keep all correspondence received in one place

I said it before, but it bears repeating. Most importantly, KEEP THE RECEIPTS. These things can drag on for months, and it’s helpful if you have a full transactional record of your correspondence. Heck, even track call times and dates. If this did ever have to go to court or arbitration, you’ll be glad you have the documentation ready.

7. If they provide everything you ask for, ask to settle for less.

Like I said earlier — they buy these debts for pennies on the dollar, so make them an offer. If you made them jump through a lot of hoops, you may have to offer tham a bit MORE than pennies on the dollar :) 

Most places I’ve read typically say to start around %20 of the value of the amount owed, and negotiate IN WRITING from there. 

You may also want to get in writing something stating that they will remove the “bad debt” from your credit history. 

Regardless of what you pay, you SHOULDN’T have to pay full price. Bargain it out. 

More Resources

http://www.creditinfocenter.com/ is by far the best resource for this if you are actively disputing a debt.  They have sample letters, court case information, and intimate knowledge of the big collection firms (W&A, Arrow, etc.). It’s helped me help many people.

That’s it for my mini-series on credit. If you have any questions or comments, leave em below!