The best way to start dealing with a debt collector is to understand what “debt validation” means. Let’s say you borrowed money from your friend, Mary. Mary would now be known as the original creditor. As time keeps going on, you know you still owe Mary money, you just aren’t sure how much.
Then out of the blue, a guy named Chad comes up to you and says he is collecting the money you owe Mary. Chad is acting just like a collection agency or debt collector. You’ve never met Chad before (and kind of don’t like him), so why would you just hand over the money he says you owe him? You probably wouldn’t — at least not before first asking Chad some questions.
- Is he legally authorized to collect the money?
- Does Chad have proof showing the actual debt amount? What payments have already been made to the account? Where is the accounting of the debt, including all interest and fees?
- Do you still really owe Mary the money? You remember borrowing money from someone else, your friend Sam, at the same time. You also remember paying one of them back the next day. Is this debt the one you borrowed from Sam or Mary?
Apply this very same thought process when a debt collector sends you a bill for a debt.
- Don’t Manic Panic.
If you receive a phone call or a letter from a collection agency, your first reaction may be to panic. Don’t. Stay calm and analyze the situation. Think of what you would ask Chad. If you do, you’ll know exactly what to ask a collection agency to validate the debt.
A collection agency or debt collector need only provide the following for proof of the debt:
- A credit card statement (such as a charge-off statement) that matches the balance claimed by the debt collector.
- A list of charges that total the amount claimed in the initial communication.
What is Mary getting out of this?
Creditors hire collection companies to collect debts for them because they simply don’t have the time or resources to chase down all their severely overdue accounts. When a creditor hires a collection agency, the debt has been assigned to the collection agency. If a collection agency is successful at collecting the money on the account, they usually keep a percentage of what is collected as payment for services.
- Original creditors sometimes sell debts in large portfolios to collection agencies called “junk debt buyers”. These companies do not spend much money at all on these debts, sometimes paying less than 1 cent on the dollar. Even if the debt is not large, they often hire an attorney to send out mass-form letters to debtors in the hopes of collecting. Even if they only get a small percentage of the debtors to pay, profits margins are wayyy up there.
Wait, so who am I paying?
There is a difference if a debt is purchased or assigned. In an assignment, the collection agency does not own the debt, and therefore you do not technically owe them any money. There is no way for a collection agency to prove that you owe them money in court because there is only an assignment of the debt and not a contract between you and the creditor.
LOOPHOLE ALERT: Some contracts have the careful wording “debtor agrees to be responsible for payment of this debt to creditor OR ITS ASSIGNS.” In court, this is enough to prove there is a contract between you and the debt collector as well as the creditor and if in court, they can provide you with a copy of a contract that states this, you will likely need to negotiate the debt. When asking for debt validation, a collection agency or junk debt buyer does not need to provide you with a contract to meet the requirements under the law.
It is not necessary to include any references to the FDCPA and FCRA in a dispute and validation request letter. Simply disputing and requesting validation is enough to show that you are aware of your rights. In addition, it’s not your responsibility to inform a debt collector of the debt collector’s responsibilities. If the debt collector is unaware of his responsibilities…darn.
If you’re feeling overwhelmed at the thought of dealing with credit repair, or simply don’t have the time, give us a call at ASAP Credit Repair. It’s what we do and we do it right.