Debt Collectors Hounding You? Know your rights...and their Secrets!

Recently a guest blogger,  Scott Taylor, offered an insightful view of the credit card industry based on his inside knowledge. If you missed it see; A Credit Card Industry Insider Shares Truths; Why He Left After 20 Years here. 

Today Scott is offering another informational blog "The Dirty Little Secret Debt Buyers do not want you to know.  Debt Buyers are companies that purchase delinquent or charged-off debts from creditors, for a fraction of the actual debt due, and then turn around and do all they can to collect on it.

Scott is not offering legal advice. His insight is based solely on his experiences working in the credit/debt industry and is offered for informational purposes only. As always, contact an experienced attorney (helpful links below) for your specific situation.

The Dirty Little Secret Debt Buyers do not want you to know
By Guest Blogger, Scott Taylor

As a former credit card industry insider, working with 5 different credit card companies, during my 19 years, I learned a lot of things about the industry -whether or not I wanted to.There is a key -but little known fact that many debtors don't know about -but should.  Many consumers don't realize there is only a window of time during which the original creditor can actually bring legal action against the customer for non-payment of a debt.

Once an account ages past that time frame- the debt is sold to a debt buyer. This window can be from 3 to 4 years and varies by each state's statute of limitation laws. The statute of limitation refers to the period after which creditors cannot sue you to collect the debt. Click here for SOL by State

Now, the urban legend that has been propagated throughout the internet is that the dreaded debt clock restarts at the time the debt is purchased by the new company.

Here's the little known secret; That is not the case.

Do you think for a second that credit card companies would not wait until the very SOL date (by state) before they sold the debt? The fact is that the 7 year clock, for which debt is allowed to remain on your credit report, starts at the point that your account first became delinquent and eventually led to the charge off or your actual charge off date. The sale of your account should not change the "expiration date" of the bad debt. It is critical that you know the exact date that your debt did in fact charge off. Keep copies of your hard copy credit reports, for just this reason.

Companies that specialize in buying debt do one thing very well, they prey on the fact that you, the average consumer, have zero understanding of how collections actually work. This is why they will lie to you and pressure you to pay your account at all costs. Remember one thing above all; Collectors are paid on commission for the dollars they collect...No dollars = No paycheck.

Also understand that there are balance criteria and other variables that would determine whether or not to pursue an account through legal channels. For example, if you owed $250 it was universally accepted that legal action would not be pursued because of the costs involved in legal collections.

My recommendation to anyone that has their debt sold to another company is to follow the steps below:

Immediately send a debt validation letter to the new company. This letter should always be sent via Certified Mail.  If you are looking for a convenient or time saving way to send a certified letter, you can order an online certified letter here (The cost is about $8 but in my view well worth it)

In your letter state that you are disputing the validity of the debt and that you are requesting proof of this debt. 

Also disclose in the letter that you are requesting no phone calls be made to you until further notice.

Upon receipt of the Debt Validation letter, the company must then provide you with proof of debt. In most cases, the document they send you will be one statement or a printout that they complete showing the balance that they have purchased and from whom. There are a multitude of resources readily available on the web that will provide more specific steps on debt validation, their duties and your rights under the FDCPA.
 
Now, let me be perfectly transparent here- I do not support or advocate that people shirk their debts or responsibilities, however, I do support educating consumers on their rights as it relates to collections. Unfortunately, most consumers do not understand the laws designed to protect them. (Google FDCPA for more information)

It is also important to understand how debt buying/selling works. Here is my explanation of the process:

1. Original Creditor bundles $1 million dollars in debt to be sold
2. Debt Buyers bid or flat out buy the debt (usually for anywhere from 1 cent to 20cents on the dollar
3. The Original Creditor provides the required documentation for the sale (applications, statements etc)
4. Debt Buyers send out the required collection letter and begin making collection calls on the newly purchased debt.

The price of the debt is often driven by the "freshness" of the account data, whether or not there are applications and original documents available.  Keep in mind that if a Debt Buyer buys $1 million dollars in receivables for 5 cents on the dollar they then spend $50k (thousand dollars). That means they only need to liquidate or collect in 10% of the cases (by balance) to have doubled their money. The lower they pay for the debt, the more money they can make.

As a point of clarification, all of my experience is with credit card companies. There may be different processes in place for other industries.

Please feel free to read my blog GoodWithScott.com for other collection related information. The information provided here is based solely upon my 19 years working in the credit card industry.  Any recommendations or advice offered is purely for informational purposes and is not intended to be used as legal advice. Please consult your attorney or accounting professional for your specific circumstance.

Guest Blogger: Scott Taylor

****************************************************************************

Are debt collectors harassing you about a bill you supposedly owe?

The FDCPA is very clear on what is required of the debt collector, once a debtor asks for validation of the debt;

809.  Validation of debts   [15 USC 1692g]

(a) Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing --

(1) the amount of the debt;

(2) the name of the creditor to whom the debt is owed;

(3) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector;

(4) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and

(5) a statement that, upon the consumer's written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.

To find  experienced consumer attorneys visit NACA.net.

To find answers to your questions on Debt Buyers -see; Facts About Debt Buyers.

For more information on abusive and illegal debt collection practices, see a few earlier blogs:

Debt Collectors Gone Wild

How to deal with abusive Debt Collectors -Do you Know your Rights?

Appeals Court Rules Aggressive Debt Collector Violates Consumer Rights

Lawsuits Filed against Debt Collection & Debt Resolution Company

Abusive and Illegal Debt Collection Practices lead to Federal Lawsuit...