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Debt Validation: The ultimate weapon against the collection agencies

You could try to use debt settlement methods with a collection agency, but you might want to try debt validation first. Why? Because they may not even be legally entitled to collect the debt from you. Think of it in these terms: Even if you suspected you might owe Joe (original creditor) some money, and Bob (collection agency) came up to you and asked for Joe's money - would you just hand over the cash? No. No one would. These might be some of the thoughts you would have: 1. How do you know that Bob is actually collecting for Joe? What legal documents does Bob have to prove that he is legally authorized to collect? 2. How much is the actual debt? What payments have already been made on the account? Where is the accounting of the debt, including all interest and fees? Are these fees and interest amounts legit? 3. Do you really owe Joe the money? Or was it actually a third party, Sam? Where is the contract showing that you made a deal with Joe and not Sam? If you keep all the legalese out of it when thinking of legal proof, you'll have an easier time figuring out what to ask a collection agency (Bob) for to validate a debt. (If you are wondering how a collection got on your credit report in the first place, read this).

Applicability of the FDCPA - It matters if the listing is from the original creditor or collection agency
The FDCPA does not cover collection tactics employed by original creditors (like credit card companies who issue credit cards). It only governs the actions of a debt collector (collection agency). Let's look at the definition of these two groups as defined by the FDCPA. TITLE VIII - DEBT COLLECTION PRACTICES [Fair Debt Collection Practices Act] 803. Definitions [15 USC 1692a] As used in this title -(4) The term "creditor" means any person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another. What does that mean? It means that, as far as the FDCPA is concerned, a creditor is the original entity which loaned money to a consumer. It is not a collection agency. The definition of a debt collector is as follows: TITLE VIII - DEBT COLLECTION PRACTICES [Fair Debt Collection Practices Act] 803. Definitions [15 USC 1692a] As used in this title -(6) The term "debt collector" means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. So when a collection agency is assigned, or has purchased, your debt, they are NOT the creditor. They are the debt collector and the actions they take are all governed by the FDCPA.

What if "Bob" is a lawyer?

Under the FDCPA, even if Joe hires a lawyer or law firm to collect a debt from you, the lawyer or law firm is still considered a collector and must adhere to the FDCPA.

What does a debt collector need to provide as debt validation?

Proof that the collection company owns the debt/or has been assigned the debt. (Bob is legally entitled to collect this particular debt from you.) This is basic contract law. It is very difficult to get a judgment without a direct contract between collection agency and the original creditor. At a minimum, some account statements from the original creditor. If you really want to get sticky, you can pin them down on the amount of the debt by requiring complete payment history, starting with the original creditor. (How the heck did Bob calculate this debt? What fees/interest Bob has tacked on to this debt and how he determined these fees?) This requirement was established by the case Fields v. Wilber Law Firm, Donald L. Wilber and Kenneth Wilber, USCA-02-C-0072, 7th Circuit Court, Sept 2004.. Copy of the original signed loan agreement or credit card application. (Your contract with Joe establishing the debt between you.) However, account statements from the original can fulfill these requirements.

What Bob gets out of the deal

It use to be that in most cases, creditors assigned, not sold, its debts to a collection agency. But not any more. Creditors hire collection companies (like Bob) to collect debts for them, because they simply don't have the time or resources to chase down all of their severely overdue accounts. Collection agencies have cheap labor and a streamlined system to pursue such 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. This is starting to be the norm, and several of these companies, called Junk Debt Buyers (JDBs), are now being traded on Wall Street. The companies do not spend much money at all for these debts, sometimes paying less than 1 cent on the dollar. Even if the debt is not a large debt, they often hire attorney to send out mass formletters to debtors in the hopes of collecting. As you can see, even if they get a small percentage of the debtor to pay, profits are enormous. For more on JDBs, you can read our article here.

Assigned or purchased debt (How do you know Bob is the right guy to pay?)
Why should you care 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 because there is only an assignment of the debt and not a contract between you and the creditor. One loophole: 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 and if they can provide you with a copy of a contract that states this (with your signature!), you are pretty much stuck and need to negotiate.

What if the collect tion agenc (Bob) pr cy roves they purchased the debt? Is he now d ? w the orig ginal credit and no longer sub tor bject to the FDCPA? e
If they do purchase the debt, this do not make them the original creditor. They are still a debt collector e oes g l red DCPA. and cover by the FD Continue to treat any collection agency, junk deb buyer or law firm who sa they own t debt as a c bt w ays the ect CPA. You can still request validation an proof of the purchase, n t nd e collection agency subje to the FDC alidate it, the collection agency can't pro you owe the debt. Ofte a JDB will tell a ove en because if they can't va r hey d ey simply not true consumer that since th purchased the debt, the are not subject the the FDCPA. It's s

The Rig to Validate You Debt ght ur

Under the FDCPA, you are allowed to validate th debt, and t creditor (in this case, th collection e u his the he agency) m must show you proof that y owe the d you debt to the col llection agenc (not to the original creditor.) cy i The speci section of the FDCPA: ific FDCPA Sec ction 809. Va alidation of d debts [15 USC 1692g] C (b) If the consumer notifies the debt collector in wri iting within the thirty-day period e described in subsection ( that the de or any po n (a) ebt, ortion thereof, is disputed, or that , the consumer requests th name and address of th original cre he he editor, the deb bt collector sha cease colle all ection of the d debt, or any d disputed portion thereof, until the debt collecto obtains ver or rification of th debt or any copy of a jud he y dgment, or th name he and address of the origin creditor, an a copy of s s nal nd such verificat tion or judgme or ent, name and address of the original cred a e ditor, is mailed to the consu d umer by the d debt collector.

Plus, they must show proof positive that you owe them this de It's not en y p e ebt. nough to send you a computerd generated printout of th debt. Ther is an opinio letter from the FTC to back this up: d he re on http://www w.ftc.gov/os/s statutes/fdcpa a/letters/wollm man.htm Nor can th ask you to pay for digg hey ging up record of your debt: ds http://www w.ftc.gov/os/s statutes/fdcpa a/letters/krisor r2.htm So, if a cr reditor can't ve erify a debt: They are not allowed to coll a lect the debt, a ntact you about the debt, a and They are not allowed to con o der Credit Reportin Act (FCRA Doing so is a ng A). They are also not allowed to report it und the Fair C iolation of the FCRA, and t FCRA sta e the ates that you c sue for $1,000 in damages for any can vi vi iolation of the Act. e

The opinion letter from the FTC which clearly spells out that a collection agency CANNOT report a debt to the credit bureaus which has not been validated: http://www.ftc.gov/os/statutes/fdcpa/letters/cass.htm It also states that you can sue in federal or state court. So if you have them on a violation, then you have damages of $1,000 for the incident plus damages. Small claims court, anyone?

When a collection agency responds to your request for validation with a summons to appear (meaning they are trying to get a judgment against you)
1/17/2002: These sneaky collection agencies are starting to catch on to the debt validation concept. (No doubt there is some kind of collection agency newsletter going around telling these folks about the whole process.) I've heard from my readers that some collection agencies are starting to respond to validation requests with summons to appear in court. There is precedent which says that a collection agency cannot even file suit against you if they haven't validated the debt within the initial 30 day period. If this happens to you, you may cite the case:

Spears vs. Brennan The appeals court determined: "Brennan (plaintiff collection agency attorney) violated 15 U.S.C. 1692g(b) when he obtained a default judgment against Spears (defendant) after Spears had notified Brennan in writing that the debt was being disputed and before Brennan had mailed verification of the debt to Spears." This means that you have an absolute defense in court to deny them judgment if they still have not validated the debt. Once you get your FDCPA dispute letter in, the collector cannot even get a judgment until they satisfy the FDCPA law. The appeals court overturned the default summary judgment in part because the collection agency lawyer did not meet the rules of the FDCPA. This could be grounds for getting a default judgment vacated. It's also another violation of the FDCPA and you can collect $1,000 from them.

The Debt Validation Strategy

It might be helpful to look at our illustration of the process before you get started. You might also want to read this, sort of our own "validation" of the process given here. 1. Send a letter requesting validation to the collection agency (our buddy Bob in the preceding example). 2. If you don't know the address of the collection agency, here is a tip to help you find it. 3. Dispute the collection with the credit bureaus. 4. 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: o Proof that the collection company owns the debt/or has been assigned the debt, o Complete payment history, starting with the original creditor, and o Copy of the original signed loan agreement or credit card application is satisfactory.

5. If they haven't sent you satisfactory proof, send a copy of your receipt for your registered mail, a copy of the first letter you sent 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 report or you are going to file a lawsuit because they are in violation of the FDCPA, section 809 (b). 6. Wait 15-20 days to hear back after this second letter to the collection agency. They will either remove it or not respond. 7. If they do provide a contract with a signature from the original creditor showing that you owe the debt, there is one more thing you can try: see if they are legally licensed to collect the debt in your state. Here is a good site to begin your search. Not all states require licensing, however. Here's a little cheat sheet (Word Doc) to see what the collection licensing laws in your state are. It's got other handy dandy state law information as well. If you believe that they are not licensed, and licensing is required in your state, write them another letter and tell them they are in violation of your state's collection laws and are subject to prosecution and fines. Cite your state's fines and procedures in the letter. This is a last ditch effort, but has worked in some cases. 8. Typically, your work will stop here, as most collection agencies will bow down to your demands and send you a letter agreeing to remove the listing. Now all you have to do is send a copy of the letter to the CRAs. If the collection agency did not agree to remove the listing, then you need to continue to the next steps. File a lawsuit in small claims court against the collection agency on the basis of violating the FDCPA. Have the papers served to the collection agency. (You can find a paper server on the internet for about $25). Here is a good link. And here is another: http://www.1-800-serveem.com/servicemap.html In the meantime, in a parallel effort with your lawsuit against the collection agency: If the collection comes back as "verified" from the credit bureaus, you now have proof of further collection activity from the collection agency. (The assumption is that the credit bureau contacted the collection agency to verify the debt.) Since the collection agency did not validate the debt, further collection activity is a violation of the FDCPA. Contact the credit bureaus, and tell them that the creditors did not verify the debts under the FDCPA, and send copies of your proof. Request the method of verification, which is your right under the FCRA. It is crucial to contact the credit bureaus before filing a lawsuit. Make sure you state that the collection agency did not respond to your request for debt validation. You can try sending them this letter to see if they will budge. They may tell you that the request needs to come from the creditor. This is baloney. If they can't give you reasonable information on how they verified the information and the collection agency has provided you none, you can conclude there was no reasonable investigation performed. Theyare teetering on the edge of "willful non-compliance" under the FCRA. Tell them so. File a suit in either small claims, state or federal court. The basis of the lawsuit should be that the credit bureaus could not provide a satisfactory method of verification, or did not conduct a reasonable investigation. Have the papers served. (You can find a paper server on the internet for about $25). Here is a great link where you can search for the local office of the credit bureau near you. http://www.llrx.com/columns/roundup14.htm Notify the bureaus that you are suing them. You can use this letter. The credit bureaus will call the creditors and find out that there is a question about whether the debt is legitimate. They should delete it immediately. If you want more legal ammo, you might also try looking up similar cases to cite. We have a list of online resources here.

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