You expect to hear from a debt collector when you don’t pay your bills. But what do you do when you get calls or letters from a collection agency for a debt you don’t owe?
You might want to contact the Consumer Financial Protection Bureau (CFPB). The consumer agency started accepting complaints about debt collections in July of 2013, and in the first six months, it received more than 11,000 of them.
Mistaken identity – trying to collect a debt from the wrong person – was by far the most common complaint, according to an analysis of CFPB’s complaint database by U.S. PIRG, a consumer advocacy group.
The PIRG report (Debt Collectors, Debt Complaints) also found that debt collection, the newest category in the CFPB database, is already a major source of complaints, second only to mortgages during that time period.
Other top complaints about debt collectors:
- Frequent or repeated calls
- Not being given enough information about the debts owed
- Attempts to collect a debt that’s been paid
“I know it’s a complicated industry, but a lot of debt collectors have really sloppy practices and that’s just not acceptable,” said Laura Murray, consumer associate with the U.S. PIRG Education Fund, who co-authored the study.
Mark Schiffman, vice president of Public Affairs at ACA International, the Association of Credit and Collection Professionals, said the industry takes complaints very seriously and they will analyze the data to see what’s really happening.
“A complaint doesn’t mean there was bad behavior in every instance and we caution people who look at this information to keep that in mind,” Schiffman said. “Somebody may not like something, the definition of a complaint, but that doesn’t mean something wrong was done. Nor are the complaints to CFPB verified for wrongdoing or unlawfulness.”
The business of debt
Debt collection isn’t what is used to be. This is now a multibillion-dollar industry. The CFPB estimates there are more than 4,500 debt collection firms in the U.S.
Old debt often doesn’t go away anymore, as it did in the past. It’s now a commodity that is bought and sold and sometimes resold.
“Creditors are selling really old debt for pennies on the dollar and they often provide these debt buyers with very, very, very little information,” said Ira Rheingold, executive director of the National Association of Consumer Advocates. “They’re not providing the contract or a breakdown of principal and interest, and they’re not providing any verification of the debt except to say this person in this location owes this much.”
The debt collection industry agrees that it can do a better job of identifying those who truly owe the debt. But ACA International’s Schiffman says the problem doesn’t lie solely with the collector.
“We need to get better documentation from the creditor. That’s where the information is gathered that is passed on to a debt collector,” Schiffman said. “We want to make it better, but this is a group effort.”
Is more regulation the answer?
The Consumer Financial Protection Bureau (CFPB) is expected to issue new rules for the debt collection industry later this year. U.S. PIRG would like to see the CFPB:
- Require debt collectors to stringently verify that they are collecting accurately-owed debts from the correct consumers, before they start;
- Clarify that the debt collection laws give consumers the right to sue to stop unfair practices and to collect multiple penalties for multiple violations;
- Require additional disclosures about the effect of paying debts, such as: “Paying this debt will not remove it from your credit report.”
You have rights
Debt collectors have a tough job. No one wants to talk them, so calls go unanswered and letters are ignored. That makes it difficult for a collector to verify the limited information they might have.
Don’t expect the calls to stop simply because you don’t respond.
If you receive a phone call from an unknown collection company, tell the caller you won’t do anything until you receive a “validation notice” as is required by law.
The Fair Debt Collection Practices Act requires debt collectors to send you that validation notice within five days of their first contact with you. They must provide the name of the creditor to whom you supposedly owe the money, and how to proceed if you don’t think you owe the debt.
“You should do that in writing as soon as possible, preferably within 30 days of your first contact with the debt collector,” explained Christopher Koegel, an assistant at the Federal Trade Commission. “Once they get that letter, the collector is not supposed to continue collection attempts until it can verify that you are the right person.”
Some collectors will have that debt added to your credit report, which could dramatically lower your all-important credit score. You can get a free report every 12 months at annualcreditreport.com. If you find an erroneous debt in your file, dispute it in writing with the credit reporting agency.
Debt collectors can be very persistent. You can make the calls stop. Just tell the collector you don’t want any more calls and by law they must stop. Again, this is best done in writing. This won’t make your debt go away, if you truly owe it, and the collector could decide to take the matter to court – but the calls should stop.