As the New York Times recently reported:
“The same problems that plagued the foreclosure process — and prompted a multibillion-dollar settlement with big banks — are now emerging in the debt collection practices of credit card companies.
As they work through a glut of bad loans, companies like American Express, Citigroup and Discover Financial are going to court to recoup their money. But many of the lawsuits rely on erroneous documents, incomplete records and generic testimony from witnesses, according to judges who oversee the cases.” Problems Riddle Moves to Collect Credit Card Debt, by Jessica Silver-Greenberg, New York Times, August 12, 2012
The Fair Credit Reporting Act (FDCPA), requires that the original creditor must 'Charge-Off' which means, it must act as if your account is non-collectable no later than 180 days from the date of your last payment. At the point of 'Charge-Off’ the account is usually turned over to an outside collection agency and/or law firm that collects debts. The information that your account is non-collectable is also then forwarded to the three credit bureaus for insertion into your file. These damaging entries in your credit record remain for up to seven years from the date of first place in your file. If you subsequently make any payments, the seven-year clock starts over!
As far as the FDCPA is concerned, a creditor is only the original entity that loaned money to a consumer. So when a collection agency is assigned, or has purchased, your debt, they and their lawyers are NOT the creditor, they are debt collectors and their actions are governed by the FDCPA
The first tool in the debtor’s toolbox is debt validation.
Under the FDCPA, the collection agency must show you proof that you owe the debt to the collection agency not to the original creditor.
What does a debt collector need to provide as debt validation under the FDCPA?
· Proof that the collection company owns the debt/or has been assigned the debt. It is very difficult to get a judgment without a direct contract between collection agency and the original creditor. In an assignment, there is no contract between you and the debt collector , and therefore you do not technically owe them any money. Some contracts have the wording "debtor agrees to be responsible for payment of this debt to creditor OR ITS ASSIGNS." This is a contract between you and the debt collector as well as the creditor.
· All, account statements from the original creditor including a complete payment history, and information about how interest and fees were calculated.
· Copy of the original signed loan agreement or credit card application. However, account statements from the original creditor can fulfill these requirements.
Under the law the debt collector must show proof positive that you owe them this debt. It's not enough to send you a computer-generated printout of the debt. Nor can they ask you to pay for digging up records of your debt. So, if a creditor can't verify a debt:
They are not allowed to collect the debt,
They are not allowed to contact you about the debt, and
They are also not allowed to report it to a credit agency.
Putting all this together as a strategy to get rid of a debt claim.
Send a letter by registered mail return receipt requested, requesting validation to the collection agency.
Dispute the collection with the credit bureaus.
Wait 30 days to hear back from the collection agency. Most likely they will not respond or they will respond saying that they received your letter. Only a letter which includes the following is satisfactory:
Proof that the collection company owns the debt/or has been assigned the debt,
Complete payment history, starting with the original creditor, and
Copy of the original signed loan agreement or credit card application
4. If they haven't sent you satisfactory proof, send a copy of your receipt for your registered mail, a copy of the first letter to the debt collector and a statement that they have not complied with the FDCPA and are now in violation of the Act. Tell them they need to immediately remove the collection listing from your credit
5. Wait 15-20 days to hear back after this second letter to the collection agency. They will either remove it or not respond – it is less likely they can or are willing to go through the expense of complying. Even if they take you to court they must provide this information and you are better prepared to defend yourself for having it. If you are sued never default, if you can’t afford a lawyer go to the court clerk and ask for assistance in filing an answer and a demand for the validation documents – most courts have a pro se clerk to assist defendants representing themself
6. If the debt collector does not make a satisfactory response demand the credit bureaus remove the claim from your credit report.
While no one can legally remove accurate negative information from a credit report, the law does allow you to request a reinvestigation of information in your file that you dispute as inaccurate or incomplete. It is perfectly legal to challenge anything on your credit report. Given the banks’ history of poor record keeping and undecipherable interest and penalties you have a duty to challenge or deny every claim that hasn’t been substantiated to your satisfaction. There is no charge for requesting an investigation.
The whole key to the credit repair process is to deny claims and demand that the credit bureau remove those that are not verified. If a credit bureau cannot contact a collection agency or the agency does not reply, the credit bureau cannot verify the information, and they must delete the entry. As many consumer debts have been sold and resold there is a very good chance the collection agency will not or cannot reply and the claim must be removed from your credit record. You have no duty to acknowledge any part of a debt , if the collection agency wont validate their claim to your satisfaction. Deny, deny, deny and put them to their proof.