If you’ve fallen behind on your bills, there’s a good chance a debt collector may have contacted you or will be contacting you shortly. A debt collector works for a collection agency who bought a debt from a creditor to whom you owe money. Since their job is to collect the money, they may plague you with phone calls until the account is fully paid off.
Here are six steps to consider to get your debt out of collections.
1. Don’t Stress
Whether you’ve dealt with collection agencies in the past or you’re new to the process, receiving threatening calls and statements in the mail (more on this in a minute) can be stressful and scary. It is important not to stress or panic. You are not alone! Millions of debts have gone into collections before. However, it is also important to note that, unless you take action, the debt in collections will not go away. Avoiding the situation will only make matters worse. Failure to act can result in a judgement, which can lead to garnishment of your wages or a frozen bank account.
2. Know Your Rights
It is important to know your rights when it comes to dealing with debt collectors as, unfortunately, it is not uncommon for some to abuse their power. The Fair Debt Collection Practices Act states that debt collectors are not permitted to use abusive or obscene language, make any threats of violence or harm, repeatedly use the telephone to annoy and harass a debtor, call before 8 a.m. or after 9 p.m., or discuss your debt with a third party. They must also respect your request to not call you at work, if you have indicated that.
A debt collector may only contact other people regarding your debt that you have approved, such as an attorney or a family member. (Note: They can call other third parties, but only for local information and they can’t say they’re a debt collector.) If you feel a debt collector has violated your rights, you should file a complaint with the Federal Trade Commission.
3. Gather Information to Validate the Debt
Gathering all the information you have regarding the debt in question is a good start. Consider checking your credit report for any inquiries or anything that may seem like suspicious activity. (You can view two of your credit scores for free on Credit.com.) If the debt in collections is in fact yours, gather information regarding the original creditor who sold the debt, as well as any evidence of your payment history with that creditor.
Believe it or not, it’s quite common for collection agencies to make mistakes regarding debt they claim they are owed. You can verify a debt within 30 days after a collection agency has sent you a validation letter.
4. Pay in Full or Arrange a Repayment Plan
If your validation notice proves the debt is in fact yours, there are a few actions you can take. One option is to pay the debt in full. Many may decide to take this option to stop the collection calls and turn to fixing their credit. Unfortunately, this is not possible for everyone. If you are unable to pay your debt in full, consider negotiating a repayment plan with the collection agency. Creating a repayment plan that works for you can help you settle your debt while simultaneously improving your credit score.
5. Negotiate a Deal
If funds are tight and you find yourself to be a negotiator, you may be able to lower the amount you owe to the collection agency. While this may save you some money, it’s not always easy or possible. List any hardships you have that may have prevented you from making your payments. When negotiating, it’s important to be firm with your offer, keep notes of all conversations and take note of who you’ve spoken with. If you’re able to negotiate a deal, consider getting everything, including your payment schedule, in writing.
6. Seek Help
There’s no shame in asking for help. Before you take steps to pay your debt in full or negotiate a deal, consider hiring a debt-settlement law firm (Full Disclosure: I am one). These legal professionals have experience dealing with collectors and can negotiate on your behalf. Just make sure to do your research and find someone reputable.
Knowing what a debt collector can and cannot do will help protect you from unfair practices used by agencies to collect on the debt. You should also consider meeting with a financial adviser who can help you understand your financial situation so no future debts end up in collections. Understanding why your debt went into collections in the first place can prevent it from happening again.
Getting a debt collection call is never fun. Even in a best-case scenario — it’s your debt and you can pay — that outstanding account can cause a headache or two. And if the debt’s contentious, not yours or just too darn high, the situation can become (or at least feel) a lot more dire. But knowledge is a superpower when it comes to dealing with a debt collector in any shape or form.
Here are 50 things anyone who’s gotten a debt collection call should know.
1. You Have Rights
Yes, a debt collector has every right to collect on a debt you legitimately owe, but there are rules and restrictions — formally known as the Fair Debt Collection Practices Act (FDCPA) — that govern how they can go about their business.
2. Old Debts Expire
Each state also has laws specifying how long collectors have to sue you over a debt. In most states, these time limits last for four to six years after the last payment made on the account. You can consult this chart to determine your state’s statutes of limitations (SOL) — and if you get a call about a very old debt, you should really consult this chart, because …
3. Zombie Debts Are Real …
Collection accounts get resold all the time, and it’s not uncommon for someone to get a call about a debt that’s outside the SOL or no longer owed. The latter is illegal, but the former may not be: The SOL applies to how long a collector has to sue you over a debt, but, in many cases, they can still try to get you to pay.
4. … & You Can Wind Up Reanimating Them
If the old account is legit, you can unwittingly restart the clock on the SOL by paying part of the debt or even agreeing over the phone that it’s yours. If you get a call about a debt, be sure to get all the details before saying you owe. That due diligence is doubly important because …
5. There Are a Lot of Scammers Out There
That’s not to say you’re talking to one, but you’ll want to stay on guard. “Ask the caller for their name, company, street address, telephone number and if your state licenses debt collectors, a professional license number,” writes the Consumer Financial Protection Bureau (CFPB), which has more tips for spotting a debt-collection scam on its website.
6. You’re Entitled to Written Verification
In fact, FDCPA requires a collector to send a statement outlining the specifics of the debt within five days of contacting you. That notice — which is basically step one in determining whether a debt’s legit — must include the amount of money you owe, the name of the original creditor and what actions to take if you believe the information is wrong.
7. You Can Dispute the Debt
Debt collectors must investigate a debt so long as you file a dispute in writing within 30 days of their initial contact — and they’re to cease contact until they verify (again in writing) that you owe the amount in question.
8. Collectors Can’t Just Inflate What You Owe
Regarding that amount: A debt collector can charge interest, but only up to the amount stipulated in your contract with the original creditor. Most states also cap the amount of interest and fees a debt collector can charge.
9. You Can Ask Them to Stop Calling
Per FDCPA, a collector must cease contact if you send a letter requesting they do so. That letter won’t absolve you of a legitimate debt, but it can curb incessant and heated phones calls, which is important because …
10. Too Many Calls Are Illegal
Another facet of FDCPA: Collectors can’t call you too early in the morning (before 8 a.m.), too late at night (after 9 p.m.), too many times a day or at work once you tell them not to. They’re also not allowed to use abusive language — no cuss words or name-calling.
11. Collectors Can Contact Friends & Family
But only to locate you. They can’t identify themselves as a debt collector, and there are limits on the number of times they can contact a third party.
12. You Can’t Inherit a Debt
Speaking of family, you can’t inherit a loved one’s debt after they die — unless, of course, you cosigned on the loan in question. Debts owed by the deceased are generally paid out of their estate, not by friends or family, so don’t panic if you’re an executor. You can learn more about dealing with a loved one’s debt after death here.
13. Ignoring a Debt Can Have Big Consequences
It can be tempting to cut off communication with debt collectors, particularly if they’re stepping out of line. But doing so won’t make that debt go away. And a debt collection account can just lead to a whole lot of phone calls. For one …
14. That Account Can Appear on Your Credit Report …
16. Resale of the Debt Won’t Restart the Reporting Clock
If your debt changes hands, as collection accounts often do, that sale does not restart the seven-year credit reporting window. If the new collector re-ages the account, you can dispute the date with the credit bureaus. And if the same account is being reported by multiple collection agencies, that’s a violation of the Fair Credit Reporting Act (FCRA), and you can dispute the accounts listed by the agencies that no longer own the debt, too.
17. You’ll Soon Get Extra Time to Settle Medical Debts
Thanks to a settlement brokered by state attorney generals back in 2015, the credit bureaus will soon wait 180 days from the time a medical debt was first reported before adding it to your credit file, giving you more time to address bills with your insurance and health care providers. (The settlement gave the bureaus a little over three years to implement these changes.)
18. Not All Collectors Report Right Away
Some collectors will hold off on notifying the bureaus so they can use credit reporting as leverage to get you to pay. This practice is important to note, because it means …
19. You Can Owe a Debt That’s Not on Your Credit Report
Checking your credit can help you verify a debt or track down a debt collector you’re looking to pay, but don’t take an account’s absence as absolute proof you don’t actually owe. The collector just may not have reported it to the bureaus yet.
If your negotiation tactics work, be sure to get the terms the collector is agreeing to in writing — particularly if they involve skipping further adverse action against you.
22. A Collection Account Will Hurt Your Credit Score …
If it hits your report, a single collection account can cause your credit score to drop 50 to 75 points or more. The better your score, the harder the fall.
23. … For Quite Some Time …
Collection accounts, paid or unpaid, can be reported to the credit bureaus for seven years, plus 180 days from the date the original account went delinquent, though its effect on your score will lessen over time. (We’ve got more on how long stuff stays on your credit report here.)
24. … Even if You Pay …
You read that right: Paying a collection account won’t guarantee removal from your credit reports. In fact, thanks to their contracts with the credit bureaus, most collection agencies will continue to report the account for that full seven-year timeframe — though there are signs that’s changing.
25. … But There Are Reasons to Settle
If the account is sticking around, make sure it’s at least (correctly) reported as paid. Paid collections carry less weight than unpaid ones, and some newer credit scoring models even ignore them entirely. Beyond that, settling a debt can stop a collector from taking further action against you. Don’t panic, though …
26. The Debt Itself Won’t Land You in Jail
You can’t be arrested just because you owe someone money, so if a debt collector keeps talking jail time, they’re seriously out of line.
27. No Threats Allowed
In fact, they’re illegal. FDCPA prohibits dire threats of arrest, violence or even a lawsuit if the collector doesn’t intend to file one. Having said that …
28. You Can Be Sued
So long as the statute of limitations in your state haven’t expired and you legitimately owe, though there’s no guarantee a collector won’t try to get a court ruling on a debt you’re contesting or otherwise unable to pay.
29. Small Payments Won’t You Spare You
A debt collector can still move to sue you for the outstanding balance so long as it’s legit and within the SOL. That’s why, as we mentioned earlier, it’s important to get a payment agreement in writing. A signed agreement not to sue could hold up in court, but even if you have one don’t ignore a court summons.
30. Skipping a Court Date Can Cost You
Failure to appear in court could result in a warrant for your arrest, which is why confusion persists as to whether an unpaid debt can land you in prison. It’s more likely your absence will net a default judgment for the collector, which can lead to garnishment.
31. Garnishment Lets a Collector Seize Funds …
Usually they’ll garnish your paycheck or levy your bank account. In most cases, however, the collector can’t do this without a court order. (The exceptions are back taxes, outstanding federal student loans and unpaid child support.)
32. There Are Limits to How Much They Can Take
Garnishment caps are established by federal law and state law, meaning they can vary, depending on where you live. Some states don’t allow garnishment on certain types of debt at all. You can consult a local consumer attorney or call your state Attorney General’s office to get an idea of the laws in your area.
33. Certain Assets Are Safe From Garnishment
Those assets include Social Security, disability and retirement accounts, though things get tricky once those funds hit your bank account, and there are exceptions here, too, that usually involve unpaid federal debts.
Since it can be difficult to collect on a judgment, especially if your wages or assets can’t be garnished, a collector may be willing to accept a lump sum payment to put the debt to bed. Again, just make sure you get an agreement in writing before forking over any funds.
36. A Judgment Can Blemish Your Credit …
Technically, unpaid judgments can remain on your credit reports for seven years or the governing statute of limitations, whichever is longer. Once paid, a judgment must be removed seven years after the date it was entered by the court.
37. … But It’s Getting Harder
Starting July 1, the credit bureaus won’t list a judgment on your credit report unless it includes, at a minimum, your name, address, Social Security number and/or date of birth. Plus, judgments will be removed if public records aren’t checked for updates at least every 90 days.
38. Judgments Can Involve Interest
But, again, only at the rate specified in the contract you signed with the creditor. There are state-level caps and restrictions at play here as well.
39. Judgments Can Expire
The collector has a set time in which they can collect on a judgment. This SOL varies by state but is often 10 to 20 years long, and in most states it can be renewed. That’s why …
40. Judgments Are Best Avoided
It can be tempting to try to ride out your state’s SOL, but unless you’re very near or past that due date, it’s not really worth chancing a lawsuit, judgment and subsequent garnishment (with interest!), not to mention the big damage an unpaid account can do to your credit. If you do have a judgment against you, you may want to consider settling.
41. You Can Sue a Debt Collector …
Not simply as a means to get out of a debt you do owe, but if a collector is in clear violation of FDCPA, you can file a claim against them so long as it’s within one year of the date the law was violated. You’ll need proof that the collector broke the law, though, so it’s important to catalog your communications with a debt collector — even before things potentially take a turn for the worst.
42. … Even if They Have the Wrong Number
A collector shouldn’t be bothering you about a debt you don’t actually owe, so if they continue to harass you after you’ve made it clear you’re not the person they’re looking for, that’s grounds for a lawsuit.
43. Robocalls to Your Cell Are a Big No-No …
Thanks to the Telephone Consumer Protection Act (TCPA), those are illegal. Per TCPA, companies, not just collection agencies, can’t call you on your cellphone using an automated telephone system or pre-recorded message without your consent.
44. … Unless They’re on Behalf of Uncle Sam
One big exception to the rule: Debt collectors working on behalf of the federal government can autodial you, but they’re currently limited to three robocalls a month, unless you give them permission to call more.
45. Hiring a Lawyer May Not Cost You …
Attorneys specializing in debt collection cases typically offer a free consultation — and many will often represent you for free if they think a collector has broken the law. (They’ll collect their fees from the plaintiff.)
46. … & Should Cease Communications
In general, a debt collector can’t contact you if you tell them you have an attorney and that attorney is handling your debts.
47. You Can Report Rule-Breakers …
Debt collection agencies fall under the purview of the CFPB, so if you’re dealing with a debt collector who’s way over the FDCPA line, you can file a compliant with the bureau.
48. … & Scammers, Too
If they’re trying to scam you, there’s a good chance they’re trying to scam others, too. That’s why it’s important to file a complaint with the Federal Trade Commission and your state Attorney General’s office so they can investigate the callers.
49. Bankruptcy Is an Option
Collectors can’t try to recoup a debt discharged in bankruptcy, but that doesn’t mean you should rush to file. For starters, not all debts are dischargeable. Plus …
50. It’ll Wreck Your Credit
Bankruptcy is a major credit score killer. It can cause your score to drop as much as 200-plus points when it hits your file. And you’ll be stuck with the big, old blemish for quite some time. Some bankruptcies can stay on your credit for up to 10 years and can affect your ability to get a loan that entire time. If you’re considering bankruptcy, be sure to consult with a consumer attorney.
Remember, there are ways to keep a debt from going to collections. If you fall behind on your payments, contact your creditor immediately to see if you can work out a payment plan or refinance. And keep an eye on your mail: Sometimes bills, particularly medical debts, go to collections simply because you don’t know you owe.
Here’s something your may not know: Tax season is like Christmas for debt collectors.
In fact, as president of a national debt collection company, I can tell you some agencies will collect as much money from February through May as in the remaining eight months of the year. Why?
Well, the first reason is a bit obvious: Many consumers in debt will receive a tax refund and go on to use that money to pay off their delinquent debt. Second, many debt collectors are good at what they do and want to help consumers resolve their outstanding liabilities. They’re willing to work out or negotiate a payment plan the consumer now has the ability to repay. (And, yes, that means the debt collector who’s been contacting you may be willing to settle up for less than what you owe.)
So who has the upper hand when it comes to getting debt repaid during tax season? If the cards are played right, both the consumer and the debt collector come out ahead.
During this time of year, consumers are generally going to come across two types of debt collectors. The first is a debt collector who understands a consumer has access to a limited tax refund — and is potentially trying to pay off a multitude of debts. This collector will be looking to help the consumer resolve as many debts as possible with the funds they receive back from Uncle Sam. The other type of debt collector will hold their ground, knowing the consumer has funds to pay off a singular debt, and will ultimately refuse to negotiate payment for a lesser amount. Odds are consumers will run across both types of debt collectors during this time of year.
What Drives a Debt Collector’s Settlement Stance?
If you have an outstanding debt, it is important to understand the delicate balance collectors face during tax season. Several factors determine what debt collectors ultimately are able to do for consumers looking to settle a debt for less than what is owed.
The main factor is the client whose behalf they are collecting on. Settlements live and die with the requirements of a client; either they authorize the debt collector to offer a settlement or they do not. If the client allows for settlements, it is dependent upon the agency as to when, where and/or how they offer one. Some agencies may only offer settlements for accounts on file for 60 days or more, whereas other companies will offer settlements on the first day the account gets to their office.
The Odds Are in Your Favor
It is more probable than not that during tax season a debt collector has the ability to offer a settlement. Contrary to popular belief, debt collectors do not like to turn away money, especially this time of year. While one may hold firm for a while, when approached with a reasonable settlement offer, they will generally do what is in their power to get it approved. They may be willing to waive excess interest, late fees and other non-principal-related charges before tax season is up as well.
On the flip side, consumers should not expect a debt collector to take “pennies on the dollar” to settle accounts. Even if their agency did directly purchase the debt — which happens less frequently these days — the debt collector you’re dealing with isn’t the person who directly bought the debt, and they are going to be required to follow the guidelines set forth by their employer. You can find more tips for negotiating with a collector here.
The Bottom Line
Tax season can be a mutually beneficial time for the consumer and the debt collector, so if you’re hoping to shore up an outstanding account and/or are looking to strike a deal, now may be the right time to do so.
Just keep in mind, if one side tries too hard to “game” the other, an opportunity to resolve a bad debt will likely fall through and that bill will remain delinquent. At the end of the day, if consumers and debt collectors engage in a professional and respectful dialogue, it’s likely they’ll reach a resolution that benefits all parties.
[Editor’s Note: A collection account can wind up hurting your credit score. To see where yours stands, you can view your free credit report snapshot, updated every 14 days, on Credit.com.]
This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.
Paying off a debt can unfortunately be easier said than done. Usually the struggle is related to the debtor’s financial well-being. (You probably wouldn’t owe money if you could pay it back, right?) But there are times when a collector can gum up the works.
You’ll want to, of course, verify all collection accounts before paying. But if you do owe, here are a few worst-case scenarios you may run across when trying to repay a debt and what you can do.
1. They Won’t Accept Payments
There’s no specific provision in the Fair Debt Collections Practices Act stipulating that a debtee accept payment, said Troy Doucet, a consumer attorney in Columbus, Ohio — though you’ll rarely, if ever, encounter one who will give you a hard time about paying in full. “Most of them get a piece of the pie,” he said, so debt collectors will be more than happy to take the payment (and their commission).
It’s more likely you’ll run into problems when trying to pay a debt for less than you owe. And, unfortunately, “so long as the debt collector is asking for the correct amount of money, they’re not legally obligated to negotiate with you,” Doucet said.
You might up your odds of negotiating a payment plan by asking questions, taking notes, addressing issues calmly and seeking outside assistance from a reputable credit repair company. And if you are dealing with a rogue collector who for whatever reason won’t let you pay back in full, you may want to contact a consumer attorney. He or she could potentially file a claim against the party in question for violating other provisions of the FDCPA or for being in breach of contract, Doucet said.
2. You Can’t Track Them Down
Your credit report(s) should list any collection account reported to the credit bureau in question. A telephone number is also provided with each account when it’s available, so you might want to pull a copy from each credit reporting agency to start. If a number is listed, great. If not, you can try searching online for the phone number, email or address of the company on your report. You can also try contacting your original creditor, Doucet said. They may be able to verify who they sold the debt to and provide you with the proper contact information.
If the debt collector is not open to negotiating, the original creditor might still have an interest in the debt and be willing to work out or facilitate a payment plan, Doucet said. You can try disputing the information with the credit bureaus, citing your inability to pay, he added. They will kickstart an investigation and could incite the collector to settle or at the very least turn up some valuable contact information.
You just listened to the voice mail, and your heart is in your throat. A debt collector called. What now?
Your next step could be the difference between a manageable bump in the road and a years-long nightmare. So here, we’re going to walk you through these critical first few moments.
When a debt collector calls, a million thoughts race through your mind — everything from “I thought I paid that” to “I thought they forgot.” (Rest assured, very few people forget about unpaid bills nowadays.)
Ultimately, your primary goal should be to pay off your debts as smoothly and quickly as possible — as long as you have the means to do so, and the debt really belongs to you. If not, we’ll deal with those possibilities, too.
First and foremost, don’t immediately return the phone call. You have a bunch of homework to do first. But do call. Ignoring a debt collector, even one who is calling in violation of the law, is probably the biggest mistake you can make. The problem, whatever it is, will only get bigger. (Learn more about your debt collection rights here.)
Before the Call
First, take a deep breath. Next, grab a pen and notebook. Every interaction you have with a debt collector — and frankly, anyone calling about money — needs to be documented. Play the message again and transcribe it; you just never know what may be useful later. Carefully note the time, date, name of caller and any other specifics. You’ve just begun what some folks call a “collections log.”
When you are done, give it a home right near the phone so you can find it easily next time. Yes, you can do this on a digital file if you like, but only if you’re confident in your typing skills and religiously back up data. You don’t want to lose this.
Now it’s time to do some research. You want to be as prepared as you can before you talk to the debt collector. That might mean talking to family members about the debt; going to AnnualCreditReport.com to see if the debt is on your credit report; or digging through old mail. Get your ducks in a row, as you want as few surprises as possible. This will also help your brain and your heart slow down.
During the Call
There are several specific things to do (and not do) during the initial debt collector call, but before we get to that, here are two critical things to keep in mind:
Drive the call. Be active, not passive.
Say as little as possible.
Don’t call only to let a collector bully you or make you uncomfortable. When you know your rights and the truth about the debt, you can do this. Ask the questions. Remember, you don’t have to answer any at this time, but by law the collector does.
From this advice comes the second tenet: Don’t volunteer anything about income, property, or bank accounts. You can agree on a payment plan later. During this first call, you need to get all the data you can about the collector’s claims. One-word answers are fine. Don’t tell sob stories, and definitely don’t make promises like, “I’ll pay,” which could be interpreted as a contract in some cases.
As for specifics, here’s what to ask: Get the name of the firm, the creditor and the amount. Ask for a breakdown, if possible. These questions are the beginning of a process called “validation.” Then, tell the collector you want the name and address of the original creditor, along with any account numbers tied to the debt. You can also ask for other evidence the collector may have, such as a judgment. You may have to send a written request to file a formal dispute in order to obtain that information, but debt collectors sometimes offer it straight away.
Do all the above firmly but politely. Remember, you might end up negotiating with the collector. There’s no reason to be rude or hostile — just be firm and say very little.
During this initial call, don’t keep your credit card or checkbook nearby. If the collector makes threats, even veiled ones, like ‘I’m sure you don’t want me to call your workplace about this,” that’s a sign something is wrong, and it’s critical for you to get off the phone as soon as possible.
The biggest don’t of all is not being talked into making some kind of small “good faith” payment towards the debt. That’s often a trick debt collectors use to get consumers to pay debts they don’t legally owe. Any payment can restart the statute of limitations clock, re-aging the debt.
After the Call
The statute of limitations issue is one reason to hang up, digest what you’ve collected and make a thoughtful payment plan. When you get all the information you are legally entitled to, you can then make a plan of action. Again, be active, not passive. If the debt isn’t yours, you can begin the formal debt dispute process. If you feel like the debt is accurate but the late/penalty fees are unfair, you can try to negotiate with the collector or dispute the overages.
If you are ready to start paying but want gentler terms, make a budget and call the collector to make an offer. Hold firm and don’t answer questions like, “How much money do you have in your 401(k)?” Just make your offer.
This is also the time to realistically look at your family budget and decide if you can or can’t pay your bills. If you can’t, consider talking to a bankruptcy attorney before you call the collector back.
The biggest mistake consumers filing for bankruptcy make is filing too late. Many raid retirement accounts or make other foolish last-ditch efforts to pay bills, so they lose assets that could have been preserved in the process.
That debt collector call, however scary, could be a sign it’s time to admit the depth of the problem and the need for dramatic steps to make it right.
Struggling to pay off a mountain of debt can be a very stressful experience. It gets even worse when debt collectors enter the picture. The phone calls, the hounding, the past-due notices that flood your mailbox — they’re enough to make you silence your phone and ignore your mail. But burying your head in the sand won’t make the bills or the collectors go away.
What can alleviate some of that stress is knowing your rights when it comes to debt collection and exercising them as quickly as possible.
Get Written Notice
First and foremost, a debt collector can’t just call and tell you that you owe a debt. They must provide written notice within five days of contacting you, outlining the amount of money you owe, the name of the creditor and any other pertinent details. This notice also must explain what actions to take if you believe you do not owe the money.
Troy Doucet, an attorney focused on debtor rights, said the letter must also explain that a consumer has the right to challenge the validity of the debt within 30 days of receiving the notice and that not challenging it does not necessarily mean the consumer agrees it is valid.
“Also, the law requires that any communication, whether written or on the phone, includes a statement that they are a debt collector and the purpose of the communication is to collect on a debt,” he said.
It’s also important to remember that the obligation to validate the debt is on the collector, not the consumer. As such, if you do challenge the debt, the collector must verify the debt and notify you in writing before they renew collection calls.
You Can Say ‘Stop Calling Me!’
You can tell collectors to stop calling you — and you may want to, particularly if you believe the debt is erroneous. They have to stop contacting you if you send a letter requesting that they do so, and if you believe you do not owe the money, you should also say that in your letter. Be aware that a legitimate debt will not go away simply because the collection calls stop. You could still be sued by the debt collector or your original creditor for the amount that you owe.
Know the Statute of Limitations
Debt collectors are regulated by state laws, and every state has a different statute of limitations that limits how long a creditor or debt collector can attempt to collect a debt. Typically, the statute of limitations starts when you miss your first payment with the original creditor. It does not start when the account was placed for collection. You can review a state-by-state map of these statutes of limitation here.
Remember the very first person who must stand up for your debt collection rights is you. So don’t let a debt collector intimidate you or harass you with unfair and illegal debt collection tactics. If you need specific assistance and advice, contact an attorney.
Know What’s In Your Credit Report
Regularly keeping track of your debts on your credit report can help immensely if you are ever contacted by a debt collector, and can help you spot early on any bogus or fraudulent debts. You can can check your two free credit scores, updated every month on Credit.com. In general, you can fix your credit by disputing any errors on your credit report, identifying credit score killers and coming up with a game plan to address those issues — before the debt collectors come knocking.
With the Supreme Court in flux, the highest authority in U.S. law has punted a landmark case over to the executive branch, effectively asking it to decide whether debt collectors can charge interest rates so high they’re deemed illegal in some states.
In Madden v. Midland Funding, LLC., a debt collection company purchased the plaintiff’s charged-off debt, but the plaintiff resided in New York state where the usury limit is 25% annually. The complaint was simple. Midland had tried to collect 27%, two points more than the state usury laws allowed. The U.S. Court of Appeals for the 2nd Circuit decided in the plaintiff’s favor, taking the view that the two percentage points over the state usury limit violated the Fair Debt Collection Practices Act.
The question answered by the 2nd Circuit had nothing to do with whether or not debt collectors should be allowed to hunt and potentially mortally wound those who are not financially strong — but more simply what sort of weaponry they should be able to use to do so.
Bazooka or Pellet Gun: The Problem
Madden v. Midland FundingLLC is a classic manifestation of our nation’s often rudderless approach to consumer financial safeguards.
For those who follow these things, it won’t be news that the lack of steerage has absolutely nothing to do with any inherent design flaw. The basics of the banking system’s ability to extend loans and charge interest on them established by Alexander Hamilton still works fine. Having said this, that system has sustained damage on the many rocks and reefs of patchwork legislation over the years, laws and regulations aimed specifically at empowering the lender—with the exception of extreme cases like loan sharking and other RICO offenses—over the interests of the borrower.
A 1978 Supreme Court case, Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp., decided that the National Banking Act of 1863 allowed a national bank to charge the interest rate of the state in which it was headquartered, regardless the rates applicable in the state where a borrower resides.
In 1980, Congress passed the Depository Institutions Deregulation and Monetary Control Act, which exempted federally chartered installment plan lenders from state usury limits. This is the underlying reason so many lenders scurried to set up shop in states like South Dakota and Delaware. They offer the most bank-favorable terms.
Now, under the post-Marquette reading of the National Banking Act, any nationally chartered bank could charge 27% interest, so long as it wasn’t headquartered in New York State, but that “professional courtesy” proffered by various lender-friendly generations of lawmakers could not be extended to Midland Funding. The reason: It is a non-bank. Therefore, the decision found, state usury laws applied.
The decision created quite a stir, because if upheld, many folks in the financial world argued, it would create Byzantine layers of complication since states have different applicable rates. First of all: this is ridiculous. There are already countless state and local laws that govern how debt collectors, banks and non-banks operate. One more is meaningless.
Meanwhile, the fate of countless consumers in the sights of debt collectors will be decided by the Obama administration, which has been asked to file a brief “expressing the views of the United States” in the matter of Madden v. Midland Funding LLC.
Pending Justice Antonin Scalia’s replacement, four votes are needed to get the case heard before the Supreme Court. Clearly, they don’t have the votes, and they are looking for some guidance on the matter from the president, or more precisely, from Obama’s Solicitor General Donald Verrilli.
What Should the Solicitor General Do?
Is it too blunt to say merely, “Duh?” There will always be a hunter-hunted component in the world of consumer debt collection. At issue is to what extent that will be allowed. Depending on the Solicitor General’s decision on behalf of this Administration, non-bank entities will either have to fish using the catch-and-release method, or they’ll get to use dynamite.
Right now, with Madden in the balance, the prevailing interpretation of the law allows abuses to occur. The 2nd Circuit decision suggests a new, more consumer-friendly chapter in consumer financial protections. Hopefully, Mr. Verrilli will decide that the 2nd Circuit got it right.
This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.
Young people aren’t the only ones plagued with student loan debt problems. Recently, an Arizona man found a debt collection notice in his mailbox, which said he owed more than $1,900 on student loans he took out in the 1960s, reports 3TV in Phoenix.
About 50 years ago, after serving in the Navy, Ralph Caswell borrowed three loans totaling about $2,500. Caswell told 3TV he repaid the student loans decades ago, and while the collection agency shows his principal balance as zero, it claims Caswell owes about $1,400 in interest, $87 for a penalty and $362 in fees. Caswell said the agency asked him to provide proof he paid off the loans, but he doesn’t have those records. That’s not too surprising, considering how long ago he said he paid off the debt.
This situation suggests you should keep that type of documentation forever: alongside your birth certificate, Social Security card and passport, there’s your student loan statement. While that may sound a little overboard, it’s important to note that student loan debt is treated differently than other debts in many respects. These loans can generally not be written off in bankruptcy, and the consequences of failing to repay student loan debt can follow you for years. If you don’t repay federal student loans, the government can take some of your wages, seize your tax refunds or garnish Social Security payments.
There are lots of rules governing debt collectors’ actions and the timeframe of debt collection, and it’s important that consumers generally understand their rights when trying to resolve new (and old) issues.