Debt collection: the Wild West (or worse)

It’s estimated that there are around 9,600 debt collection agencies in the United States, all trying to make money off consumer debt. Some are legitimate, but many aren’t. For those that are above-board, there’s no issue: the company buys the debt from the original holder, like a credit card company, and does its best to get the consumer to pay it off in full. However, the debt can then be sold off to another, less reputable agency – and this is where the problems begin.

Debt collection is like the Wild West. Once a debt is sold, it can be re-sold many times, sometimes to multiple collectors at once. Some companies never even buy the debt, but try to collect on it nonetheless. And some companies simply obtain consumers’ credit reports and call at random, hoping to be paid for another’s debt. Agencies can’t verify the amounts of the debts, and may inflate them to include phantom interest, fees, or costs beyond the stated debt.

At their worst, debt collection agencies are abusive. They may call many times a day, threatening a debtor with immediate lawsuit or imprisonment. They may even threaten to tell a debtor’s employer about the debt, or threaten to take away the debtor’s kids. Those companies are often fly-by-night, disappearing after a threat of a consumer protection lawsuit and restarting under another name. This makes it extremely difficult to pursue an abusive agency for its actions.

Clearly, the best way to avoid being scammed is to only pay the company owning your claim, and only pay the amount legitimately owed. But can you ensure that you’re paying the right entity the right amount? Here are a few steps to take:

  1. Demand documented proof of the debt. Ask for a copy of the credit card agreement, account statements, or an itemization of principal, interest, penalties and fees. A company that cannot provide the information cannot establish the amount of the debt, making a lawsuit extremely unlikely. If the agency tells you to ask the original creditor for the information, the agency likely doesn’t have access to it and therefore has no legitimate claim to payment.
  2. If a lawsuit is threatened, ask for additional information. If the debt collector threatens suit, or says that a suit has already been filed, ask where the lawsuit has been filed, and for the docket number. It’s unlikely that the caller will provide any information. Also, if you have your original agreement, review it to see where a lawsuit would be, and whether the dispute would be arbitrated instead of resolved by a court. Any discrepancy between the caller’s story and the agreement indicates a scam.
  3. Demand a payoff letter. If the debt collector cannot show a consumer that the debt will be paid off in full once the consumer pays that collector, it is possible that the collector doesn’t own the debt.
  4. Check the Better Business Bureau and Consumer Financial Protection Bureau websites. Consumers are able to post reviews of debt collectors, and you might get a better idea of whether the collector is legitimate or not.
  5. Contact your state Attorney General. Attorneys General also keep records relating to collection agencies, and you may be able to either lodge a complaint or verify information for an agency trying to collect a debt.
  6. Determine how old the debt is. Depending on the age of the debt, the statute of limitations may make the debt uncollectable; however, sometimes, payment in any amount may re-validate a debt. Check the rules of your state to see whether a consumer debt, or a debt based on breach of contract, would be enforceable based on the age of the debt.
  7. If you know the collector is not legitimate, avoid interactions. If the debt collector can’t speak to you to discuss the debt, it will likely move on to an easier mark after a while. 

Getting collection calls or letters can be extremely stressful. However, standing up to unscrupulous collectors by doing a bit of legwork can make the difference between making unnecessary payments and avoiding paying a debt the collector doesn’t own.

Video Podcast with Jake Halpern: The Underworld of Debt Collecting (describing his book “Bad Paper: Chasing Debt form Wall Street to the Underworld”), available at The American Bankruptcy Institute, (last visited Dec. 9, 2014).

Published by nellabloom

I help small-business owners with their legal needs – from startup to shut-down and the issues in between.

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