Last week, ABC’s “The Lookout” aired my follow-up report about Diana Mey, the woman we first profiled in 2012 who won a $10 million judgment against a debt collection company. Like the original story, it garnered thousands of page views, zooming to the top of ABC’s most viewed list.
I mention this not to pat myself on the back, but because I think the viral nature of the story is a story itself. Clearly, people out there are struggling with debt collectors. In fact, debt collectors remain the No. 1 subject of consumer complaints to the Federal Trade Commission. And not just any collectors. The subset of debt collectors that really riles people up are called “debt buyers.”
Once a bank, credit card company or other lender gives up trying to collect a debt itself, it often sells the account to a debt buyer for a tiny fraction of the amount owed. That debt buyer either tries to collect it or re-sells it to yet another debt buyer — or both. Consequently, consumers are often hounded by the original creditor, that creditor’s hired-gun collectors, the first debt buyer and a string of subsequent ones.
And when a debt buyer purchases a debt, what exactly do they get? Not a fat file full of detailed information about the account. Not at all. They get an electronic file with the bare-bones details: maybe name, account number, amount, date. Using that vague information, they try to collect.
Because their information is incomplete, debt buyers often go after people for debts they’ve already paid. Or they go after the wrong people altogether. God forbid your name is “John Smith” and you live in a densely populated zip code! Consumer complaints about mistaken debtor identity have skyrocketed, according to the FTC.
Worse yet, some citizens have disputed a debt with one company and gotten the matter resolved, only to find that the company sold their debt yet again and didn’t pass along the paperwork showing it wasn’t their debt. So the entire process begins again.
That’s why Consumers Union, the policy arm of Consumer Reports, says reforms are needed to protect consumers:
Require proper documentation. Consumers Union says debt collectors should have to show they are collecting from the right person, for the right amount and on a debt they have a right to collect.
Create “sell by dates.” After seven years, bad debts can no longer be reported on consumers’ credit reports. The group says similarly it should be illegal to try to collect a debt after that same time period. Currently, debt collectors can attempt to collect a debt indefinitely, even if it no longer affects your credit rating.
Require more documentation for lawsuits. Debt buyers often sue consumers to recover debts, a timely, expensive problem if the debt isn’t even yours or you’ve already paid it. That’s why Consumer’s Union wants debt buyers to have to provide information about the debt to the court in order to prove that it’s a legitimate case.
Make courts notify defendants. Debt collectors are notorious for what’s called “gutter service,” where instead of serving a consumer with a lawsuit, they throw the summons “in the gutter.” When the consumer fails to show up in court, the collector automatically wins. Consumers Union says courts need to notify consumers of collection lawsuits themselves to prevent this from happening.
So what should you do if you’re contacted about a debt you don’t owe? Pay it? NO. Ignore it? No again. Here’s a better battle plan:
Write a letter. Send it to the debt collector stating that you do not believe the debt is yours and demanding proof. Send it certified so you have a paper trail. Here are several sample letters created by the Consumer Financial Protection Bureau that get the wording right for you.
Check your credit report. If you are wrongfully pursued by a debt buyer, you should get a copy of your credit report to find out whether the debt buyer has reported the debt to the credit reporting agencies. To obtain your free credit report, go to the FREE website mandated by Congress: www.annualcreditreport.com.
Answer lawsuits. If a debt buyer goes so far as to sue you over a debt you don’t owe, don’t ignore the lawsuit. Instead, be sure to file an answer with the court. You may be able to do this yourself if you can’t afford an attorney. Alternatively, contact the National Association of Consumer Advocates, a group made up of consumers lawyers, for help finding a low- or no-cost attorney.