Debt Validation and Collection Agencies

Bad credit is an inevitable consequence of unpaid bills. However, many consumers know from personal experience that the woes of charged off accounts don’t end there. Charged off accounts are almost always sold or assigned to collection agencies who attempt—sometimes illegally—to recoup the money owed. While it may be tempting to settle your debt, it won’t do anything to help your bad credit. In fact, reactivating old collections can, in some cases, hurt your credit score by “re-aging” the account with a fresh credit report notation. Further, not all collection agencies are lawfully able to collect your debt. Before jumping into a rash decision, read the tips below about debt validation and how to deal with collection agencies and their tactics.

Who Can Collect My Debt?

You may be wondering, “Why is a collection agency telling me to pay a debt originally owed to another creditor? Can they do this?” Under the federal Fair Debt Collection Practices Act (FDCPA) and related state laws, the simple answer is yes, but with conditions. Only your original creditor can lawfully collect your outstanding balance without worrying about the additional restrictions imposed upon third-party debt collectors. For example, standalone collection agencies often must be bonded in your state in order to collect debts there, while original creditors don’t have to meet such bonding requirements. Feeling confused about who you’re dealing with? There are ways to find clear answers.

How to Validate Debt

Phone calls and emails about collection accounts can be scary, but keep in mind that not every voice on the end of the line is entitled to collect your remaining balance. Before signing a check, demand that the collection agency provide you with debt validation, which will prove whether they have the right to collect your debt—or not. Ask for the following:

    • Written proof that the collection agency owns the debt or has been assigned to the debt by your original creditor. Note: buying your debt does not free the agency of FDCPA guidelines.
    • Written account statements from your original creditor, outlining:
  • The amount you currently owe
  • A complete payment history
  • Additional calculations such as fees, interest, and penalties
  • A copy of the original agreement or application between yourself and your creditor.

If the collection agency cannot provide all of the items above within 30 days, you have the right to refuse payment. Moreover, since credit reporting has been deemed by courts to be a type of collection activity, a collection agency that can’t validate the debt must almost always rescind any information reported to credit bureaus as well.

Protecting Yourself

Sometimes refusing payment is easier said than done. Agencies can be relentless in their pursuit of collection accounts, often harassing and threatening consumers at work and at home. Don’t let the scare tactics intimidate you. Under federal law, collection agencies cannot:

  • Seize your assets, bank accounts, or paycheck without a judgment in their favor
  • Publicly announce or disclose your debt unless it is to the credit bureaus (and, legally, not even to them if they can’t validate)
  • Get you fired from your job
  • Threaten or harass you in any way
  • Call you before 8:00 a.m. or after 9:00 p.m.
  • Call your work if they are told to stop
  • Contact anyone else about your debt (with the exception of your spouse or attorney)

Note: If you want to stop receiving phone calls, send a letter to the collection agency stating that all communication must be in writing. Send the letter via U.S. Certified Mail and request a return receipt.
Dealing with collection accounts and bad credit can be scary, but paying a third party for a charged off debt won’t raise your credit score. If you are committed to coming clean and building a stronger payment history, consult a credit repair firm or contact your creditor directly to resolve the situation. Remember that a credit repair law firm may be able to assist with unfair credit reporting, irrespective of its payment status. Skip the collection agency middle-man.