14 debt validation

7/29/2019 14 Debt Validation

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Debt Validation: The ultimate weapon against the collection agencies

You could try to usedebt settlement methods with a collection agency, but you might want to try debtvalidation 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, andBob (collection agency) came up to you and asked for J oe'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 J oe? What legal documents does Bob have toprove that he is legally authorized to collect?

2. How much is the actual debt? What payments have already been made on the account? Whereis the accounting of the debt, including all interest and fees? Are these fees and interest amountslegit?

3. Do you really owe J oe the money? Or was it actually a third party, Sam? Where is the contractshowing that you made a deal with J oe and not Sam?

If you keep all the legalese out of it when thinking of legal proof, you'll have an easier time figuring outwhat 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 originalcreditor or collection agency

The FDCPA does not cover collection tactics employed by original creditors (like credit card companieswho issue credit cards). It only governs the actions of a debt collector (collection agency). Let's look at thedefinition 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 orto whom a debt is owed, but such term does not include any person to the extent that hereceives an assignment or transfer of a debt in default solely for the purpose of facilitatingcollection of such debt for another.

What does that mean? It means that, as far as the FDCPA is concerned, a creditor is the original entitywhich loaned money to a consumer. It is nota collection agency. The definition of a debt collector is asfollows:

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 interstatecommerce or the mails in any business the principal purpose of which is the collection ofany debts, or who regularly collects or attempts to collect, directly or indirectly, debtsowed 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. Theyare the debt collector and the actions they take are all governed by the FDCPA.
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What if "Bob" is a lawyer?

Under the FDCPA, even if J oe hires a lawyer or law firm to collect a debt from you, the lawyer or law firmis 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 legallyentitled to collect this particular debt from you.) This is basic contract law. It is very difficult to geta 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, startingwith the original creditor. (How the heck did Bob calculate this debt? What fees/interest Bob hastacked on to this debt and how he determined these fees?) This requirement was established bythe case Fields v. Wilber Law Firm, Donald L. Wilber and Kenneth Wilber, USCA-02-C-0072, 7thCircuit Court, Sept 2004..

Copy of the original signed loan agreement or credit card application. (Your contract with Joeestablishing 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, notsold, its debts to a collection agency. But not anymore.

Creditors hire collection companies (like Bob) to collect debts for them, because they simply don't havethe time or resources to chase down all of their severely overdue accounts. Collection agencies havecheap labor and a streamlined system to pursue such accounts. When a creditor hires a collectionagency, the debt has been assigned to the collection agency. If a collection agency is successful atcollecting the money on the account, they usually keep a percentage of what is collected as payment forservices.

Original creditors sometimes sell debts in large portfolios to collection agencies. This is starting to be thenorm, and several of these companies, called J unk Debt Buyers (J DBs), are now being traded on WallStreet. The companies do not spend much money at all for these debts, sometimes paying less than 1cent 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 thedebtor to pay, profits are enormous. For more on J DBs, you can read our articlehere.

Assigned or purchased debt (How do you know Bob is the right guy topay?)

Why should you care if a debt is purchased or assigned? In an assignment, the collection agency doesnot own the debt, and therefore you do not technically owe them any money. There is no way for acollection agency to prove that you owe them money because there is only an assignment of the debt andnot a contract between you and the creditor.

One loophole: Some contracts have the wording "debtor agrees to be responsible for payment of this debtto creditor OR ITS ASSIGNS." This IS a contract between you and the debt collector as well as thecreditor and if they can provide you with a copy of a contract that states this (with your signature!), youare pretty much stuck and need to negotiate.
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The opinion letter from the FTC which clearly spells out that a collection agency CANNOT report a debt tothe 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 asummons to appear (meaning they are trying to get a judgment againstyou)

1/17/2002: These sneaky collection agencies are starting to catch on to the debt validation concept. (Nodoubt there is some kind of collection agency newsletter going around telling these folks about the wholeprocess.) I've heard from my readers that some collection agencies are starting to respond to validationrequests with summons to appear in court. There is precedent which says that a collection agency cannoteven file suit against you if they haven't validated the debt within the initial 30 day period. If this happensto 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 defaultjudgment against Spears (defendant) after Spears had notified Brennan in writing that the debt was beingdisputed 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 notvalidated the debt. Once you get your FDCPA dispute letter in, the collector cannot even get a judgmentuntil 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 andyou 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 toread this, sort of our own "validation" of the process given here.

1. Send aletter requesting validation to the collection agency (our buddy Bob in the precedingexample).

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, ando Copy of the original signed loan agreement or credit card application

is satisfactory.
http://www.ftc.gov/os/statutes/fdcpa/letters/cass.htmhttp://www.ftc.gov/os/statutes/fdcpa/letters/cass.htmhttp://www.state.in.us/judiciary/opinions/archive/03260101.ewn.htmlhttp://www.state.in.us/judiciary/opinions/archive/03260101.ewn.htmlhttp://www.creditinfocenter.com/rebuild/debt_validation_workflow.shtmlhttp://www.creditinfocenter.com/legal/UsingTheFDCPAWorks.shtmlhttp://www.creditinfocenter.com/forms/sampleletter9.shtmlhttp://www.creditinfocenter.com/forms/sampleletter9.shtmlhttp://www.creditinfocenter.com/repair/How2FindACreditor.shtmlhttp://www.creditinfocenter.com/repair/How2FindACreditor.shtmlhttp://www.creditinfocenter.com/forms/sampleletter9.shtmlhttp://www.creditinfocenter.com/legal/UsingTheFDCPAWorks.shtmlhttp://www.creditinfocenter.com/rebuild/debt_validation_workflow.shtmlhttp://www.state.in.us/judiciary/opinions/archive/03260101.ewn.htmlhttp://www.ftc.gov/os/statutes/fdcpa/letters/cass.htm


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5. If they haven't sent you satisfactory proof, send a copy of your receipt for your registered mail, acopy of the first letter you sent and a statement that they have not complied with the FDCPA andare now in violation of the Act. Tell them they need to immediately remove the collection listingfrom your credit report or you are going to file a lawsuit because they are in violation of theFDCPA, section 809 (b).

6. Wait 15-20 days to hear back after this second letter to the collection agency. They will eitherremove it or not respond.

7. If they do provide a contract with a signature from the original creditor showing that you owe thedebt, there is one more thing you can try: see if they are legally licensed to collect the debt in yourstate. 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 thecollection 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 themanother letter and tell them they are in violation of your state's collection laws and are subject toprosecution and fines. Cite your state's fines and procedures in the letter. This is a last ditcheffort, but has worked in some cases.

8. Typically, your work will stop here, as most collection agencies will bow down to yourdemands and send you a letter agreeing to remove the listing. Now all you have to do is send acopy of the letter to the CRAs.

If the collection agency did not agree to remove the listing, then you need to continue to thenext steps.

9. File a lawsuit in small claims court against the collection agency on the basis of violating theFDCPA.

10. Have the papers served to the collection agency. (You can find a paper server on the internet forabout $25). Here is a good link. And here is another: http://www.1-800-serve-em.com/servicemap.html

11. In the meantime, in a parallel effort with yourlawsuit against the collection agency:12. 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 contactedthe collection agency to verify the debt.) Since the collection agency did not validate the debt,further collection activity is a violation of the FDCPA.

13. Contact the credit bureaus, and tell them that the creditors did not verify the debts under theFDCPA, and send copies of your proof. Request the method of verification, which is your rightunder the FCRA. It is crucial to contact the credit bureaus before filing a lawsuit. Make sure youstate that the collection agency did not respond to your request for debt validation.

14. You can try sending themthis letter to see if they will budge. They may tell you that the requestneeds to come from the creditor. This is baloney. If they can't give you reasonable information onhow they verified the information and the collection agency has provided you none, you canconclude there was no reasonable investigation performed. Theyare teetering on the edge of"willful non-compliance"under the FCRA. Tell them so.

15. File a suit in either small claims, state or federal court. The basis of the lawsuit should be that thecredit bureaus could not provide a satisfactorymethod of verification, or did not conduct a

reasonable investigation.16. 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

17. Notify the bureaus that you are suing them. You can use this letter. The credit bureaus will callthe creditors and find out that there is a question about whether the debt is legitimate. Theyshould delete it immediately. If you want more legal ammo, you might also try looking up similarcases to cite. We have a list of online resources here.
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