What to do If a Collection Agency is After You
I recommend never buying anything on credit unless it’s a student loan or a house (and the house only because people don’t usually have that much money lying around). The hassle of credit is usually not worth whatever short term gain you think you’re getting. Collection agencies are good examples of the aggravation that comes with debts. I know a bit about collection agencies because I used to send delinquent customers to them. Then I’d have to deal with sobbing phone calls about how I didn’t give them a chance to pay (even though I sent multiple letters and waited 6 months). Once the debt was at collections and verified, there was no amount of whining that ever changed it. I never liked giving contracts over to a collection agency because it meant I would get just 50% of whatever debt the agency was able to collect. Thankfully, I worked with a good company; they never tried to cheat anybody, and they always stayed within the rules. Nevertheless, my preference was always to work it out with the customer first. I would wait until I was sure the debt was not going to be paid (6 months past due was my rule). But, what do you do if you encounter a bad collection agency? How do you combat some of the worst techniques in the business?
Two Kinds of Agencies
Legitimate: These guys keep 25% of whatever debt they collect and the rest goes to the original lender (Mine was 50% because I was a little guy). They work directly for banks, retailers or whomever. You’ll know them when you encounter them because they’ll send official letters from their agency or letters from lawyers as first attempts and when phone calls don’t work. The only thing you, as a debtor, have to worry about with these people is making sure there is no case of mistaken identity and that they have recorded the right amount for the debt. They’re professionals, and they’re simply doing their jobs.
The Bad Guys: These people deal in what are known as zombie loans. The original lender has written off the debt and bulk sold a bunch of them for pennies to a collection agency. The lender no longer has any stake in the debt. Thus, whatever the collection agency can get belongs to them. Many of these debts are so long gone that the original creditor thinks the chances of collecting are slim enough that they write them off completely. Some of the people working at these agencies are really terrible human beings. Whatever they get is profit, and some of them make a sport out of squeezing as much as they can, in many cases going way too far.
Wage Garnishment: Wage garnishment can only happen when the original creditor takes you to court and wins. Chances are that you don’t have a debt important enough to worry about it. And if an unscrupulous collector threatens you with it then it’s an outright lie. Remember that they bought your debt for pennies. There’s no way the original creditor even cares anymore.
Jail: There’s no debtor’s prison here. Don’t worry about it; it isn’t a criminal offense to owe money.
Being Really Annoying: Collectors are only allowed to call you between 8 A.M. And 9 P.M., and if you put your request to stop calling in writing, they have to stop. In that case they can only contact you in writing to say they’re taking you to court (which they won’t bother doing). Some creditors will even call third parties such as parents, coworkers or whomever in an attempt to collect. They’re only allowed to call 3rd parties to ask for a phone number or address; they are not allowed to discuss the debt. If you’re being harassed by a debt collector, file a complaint with your state’s Attorney General. The collection agency is required to tell you who they are (another way to tell if they’re dirt bags is when they won’t fully identify themselves).
“Mistaken” Identity: Some credit agencies don’t care who pays the debt as long as somebody pays it. It’s not uncommon for them to randomly pick on as many Keith Wilcox’s, say, as they can in the hopes that one of them will pay up. They’ll say it’s a case of mistaken identity if you dispute it and win, but the truth is that they were just trolling for someone to pay. The sad reality is that they’re quite often successful. It isn’t fair that it happens to innocent people, but the only thing to do is to waste your time and dispute the debt in writing (and perhaps report the agency to the Attorney General’s office).
Bad Credit Rating: Your credit can take a hit if you don’t pay a debt. This one’s true. But, if you dispute the debt in writing with the agency they must report it to the three major credit bureaus. Also, say you have an old debt, a very old debt, that a collector is trying to get (a lot of zombie loans fall into this category). Sometimes they’ll try to get you to pay right before the statute of limitations runs out (7 years), and if you make a payment, that 7 years starts over again. Never pay an old debt without checking first.
New Rule Starting this Year
You’ll all be happy to know that there is one interesting new rule going into effect this year for creditors. Starting in July, Businesses will have to do their own research when a dispute arises. Instead of you, the customer, having to do the footwork, the creditor will have to research your dispute and respond within 30 days. Now, I don’t know if that means the creditor will simply wait a few days and then respond “we were right all along.” Or if they’ll have to give proof of good faith. I’ll wait to see how specific the FTC has been with that.
Some collectors are outright criminals. Yesterday I read about a collector who threatened to burn down a man’s house because the homeowner hung up on the collector (you can read about it here). Fittingly, the homeowner turned around and sued Verizon (the company for whom the collectors work). You don’t have to put up with harassment and abuse. Check out the laws in your state, and The Fair Debt Collection Practices Act. The FTC website has an informative FAQ for anybody really interested in reading about collection agency rules.