Studies suggest that around 1 in 3 Americans has a debt in collections, making this a widespread problem. Collections accounts can result in lasting damage to credit scores, forcing individuals and families to pay extra for everything from mortgages and auto loans, to credit cards and car insurance.
Fortunately, for those who are seeking to resolve collections (and our friends here on LinkedIn: the real estate, lending, and insurance professionals, who assist clients with these matters in order to close more deals), there are several simple, time-tested strategies, through which collections can be resolved. Here, we will review one of those tools: debt validation.
Under the Fair Debt Collection Practices Act (FDCPA), a federal law which governs the collection of consumer debt, when a debt collector claims that you owe a debt, they must be able to provide proof (i.e. validation) that they in fact have a right to collect on a debt, and also, that you owe the debt. Without such proof a collector has no right to demand that you pay a debt. After all, what if the debt isn’t in fact yours? Or perhaps you already paid the debt? Or maybe, the collector has no authority to collect on the debt?
When a collector first contacts you regarding a debt, they can either include a debt validation notice in their initial letter (assuming their first contact was in writing), of, if they contacted you by telephone, the collector must send this letter within five days after the phone contact. After that time, you have 30 days, during which you can demand validation, in writing, as proof that the debt is in fact yours, and is in the correct amount. Once you send off this demand for validation, the collector cannot continue to report or collect on the debt, until they provide this form of proof.
What if more than 30 days have passed, since the initial notice from the debt collector? Under the FDCPA, the debt collector is not legally required to respond to a request for debt validation, in order to continue collecting on or reporting the debt.
However, in many cases, collectors fail to send the initial debt validation notice, or items get lost in the mail (after all, this is why certified mail exists). In such situations, it may be possible to submit a debt validation letter, on the grounds that the original notice of debt validation was never received. You’ll find that many collectors will provide you with a debt validation response anyways, particularly if you invoke the threat of pursuing legal action, under the FDCPA. Debt collectors are afraid of savvy consumers!
What sort of information must a debt collector include, in a response to a debt validation letter? The FDCPA isn’t very specific on this, and federal courts have varied in their interpretation of the law. Some rulings have merely required written confirmation that the debt was owed, with little additional proof of the underlying debt. Others have demanded a more detailed breakdown, of the original debt, as well as fees and interest. (We at Tier One are happy to offer a detailed description of which requirements apply for you or your client). Either way, at a minimum, a debt collector must provide you with the name and contact information of the original creditor, and some sort of statement of the amount and nature of the debt owed.
After debt validation, if a debt appears unfamiliar, and the original creditor is not one whom you or your client recalls dealing with, then you should demand further documentation of the debt, and dispute the debt with every credit bureau where it is reported, in writing, via certified letter. Through this process, a collector will be forced to prove that the debt is yours, which they often cannot.
Please keep in mind that the FDCPA only applies to personal (rather than business) debts, unless you or your client personally guaranteed a business debt. Also, the debt validation portions of the FDCPA, with a few exceptions, typically only apply to debt collectors (as opposed to original creditors). With that said, the Federal Trade Commission and Consumer Finance Protection Bureau are cracking down on violations by some original creditors, so you or your client may have options, if an original creditor is engaging in harassment or deceptive conduct.
If the original debt does seem familiar to you or your client, or a creditor is able to validate the debt (whether through the FDCPA, or a dispute with a credit bureau), then the best option is to settle this collection, in a manner which removes it from your credit report. There are several ways to do this.
One option is to pay some amount of the debt, in exchange for a deletion letter, from your credit report. Another method is to settle the debt with the original creditor. A third approach is to offer to settle a debt, in exchange for an agreement to not respond to a dispute that you’ll later file, and which a creditor will agree not to respond to. In the following series of articles, we will be reviewing each of these methods.
At Tier One Credit, we help settle and remove not only collections, but any other type of negative credit accounts. We are eager to be of service to you and your clients, and to learn more about your credit challenges. So, tell us, what has been your (or your clients’) biggest issues when attempting to resolve collections?
Shiva Bhaskar is an experienced consumer credit attorney, and the cofounder of Tier One Credit (www.tieronecredit.com), a credit consulting firm dedicated to helping every American enjoy the best credit score possible. Shiva can be reached by email at [email protected].
