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Debt Validation - The Ultimate Weapon Against the Collection Agencies

Finn: Sol

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 form-letters 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 collection agency (Bob) proves they purchased the debt? Is he now the original creditor and no longer subject to the FDCPA?
If they do purchase the debt, this does not make them the original creditor. They are still a debt collector and covered by the FDCPA.
Continue to treat any collection agency, junk debt buyer or law firm who says they own the debt as a collection agency subject to the FDCPA. You can still request validation and proof of the purchase, because if they can't validate it, the collection agency can't prove you owe the debt. Often a JDB will tell a consumer that since they purchased the debt, they are not subject the the FDCPA. It's simply not true.
The Right to Validate Your Debt
Under the FDCPA, you are allowed to validate this debt, and the creditor (in this case, the collection agency) must show you proof that you owe the debt to the collection agency (not to the original creditor.)
The specific section of the FDCPA: FDCPA Section 809. Validation of debts [15 USC 1692g] (b) If the consumer notifies the debt collector in writing within the thirty-day period described in subsection (a) that the debt, or any portion thereof, is disputed, or that the consumer requests the name and address of the original creditor, the debt collector shall cease collection of the debt, or any disputed portion thereof, until the debt collector obtains verification of the debt or any copy of a judgment, or the name and address of the original creditor, and a copy of such verification or judgment, or name and address of the original creditor, is mailed to the consumer by the debt collector.
Plus, they must show proof positive that you owe them this debt. It's not enough to send you a computer-generated printout of the debt. There is an opinion letter from the FTC to back this up:
Nor\ can\ they\ ask\ you\ to\ pay\ for\ digging\ up\ records\ of\ your\ debt:
So,\ if\ a\ creditor\ can't\ validate\ 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\ under\ the\ Fair\ Credit\ Reporting\ Act\(FCRA\)\.\ Doing\ so\ is\ a\ violation\ of\ the\ FCRA,\ and\ the\ FCRA\ states\ that\ you\ can\ sue\ for\ \$1,000\ in\ damages\ for\ any\ violation\ of\ the\ Act\.
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:
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\ givenhere\.
1\.\ Dispute\ the\ collection\ with\ the\ credit\ bureaus\.
2\.\ Look\ up\ the\ Statute\ of\ Limitations\ \(SOL\)\ on\ the\ debt\.\ If\ the\ debt\ is\ past\ the\ statute\ of\ limitations,\ send\ them\ a\ letter\ informing\ that\ they\ are\ trying\ to\ collect\ "zombie\ debt"\.\ This\ is\ debt\ which\ is\ too\ old\ to\ have\ any\ legal\ liabilty\ for\ a\ consumer\.\ Here\ is\ a\ sample\ letter\ for\ this\.
3\.\ If\ the\ collection\ agency\ does\ not\ remove\ the\ listing\ after\ you\ point\ out\ the\ SOL,\ sometimes\ your\ only\ remedy\ is\ to\ sue\ them\.
4\.\ If\ the\ debt\ is\ not\ past\ the\ statute\ of\ limitations,\ send\ a\ letter\ requesting\ validation\ to\ the\ collection\ agency\ \(our\ buddy\ Bob\ in\ the\ preceding\ example\)\.\ If\ you\ don't\ know\ the\ address\ of\ the\ collection\ agency,\ here\ is\ a\ tip\ to\ help\ you\ find\ it\.
5\.\ 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\ one\ of\ the\ following:
o\ Proof\ that\ the\ collection\ company\ owns\ the\ debt/or\ has\ been\ assigned\ the\ debt,
o\ Copies\ of\ statements\ from\ the\ original\ creditor
o\ Copy\ of\ the\ original\ signed\ loan\ agreement\ or\ credit\ card\ application
is\ satisfactory\.
6\.\ If\ they\ haven't\ sent\ you\ satisfactory\ proof,\ and\ are\ still\ reporting\ this\ on\ your\ report,\ 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\ \(b\)\.
7\.\ Wait\ 15\-20\ days\ to\ hear\ back\ after\ this\ second\ letter\ to\ the\ collection\ agency\.\ They\ will\ either\ remove\ it\ or\ not\ respond\.
8\.\ 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\ siteto\ 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\.
9\.\ 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\.
10\.\ File\ a\ lawsuit\ in\ small\ claims\ court\ against\ the\ collection\ agency\ on\ the\ basis\ of\ violating\ the\ FDCPA\.
11\.\ 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\-serve\-em\.com/servicemap\.html
12\.\ In\ the\ meantime,\ in\ a\ parallel\ effort\ with\ your\ lawsuit\ against\ the\ collection\ agency:
13\.\ 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\.
14\.\ 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\ themethod\ 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\.
15\.\ 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\.
16\.\ 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\ satisfactorymethod\ of\ verification,\ or\ did\ not\ conduct\ a\ reasonable\ investigation\.
17\.\ 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\.\
18. 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.
I hope these tips have encouraged you.

 Good luck on pursuing financial freedom!