Bad Debt? Or Unfair Collection Agencies?

Bad Debt

Do Collection Agencies Play Fair?

Most would say no!  In fact, one consumer made the observation that collection agencies are like a “Debt Thrift Store”.  They receive their “commodity” for next to nothing, just like thrift stores receive donated shoes for free.

The difference is that thrift stores benefit the community and are a relief to poorer consumers who can furnish their homes and clothe their children on a tight budget. Collection agencies, on the other hand, are considered by many to be bottom feeders who take advantage of poorer consumers who have bad debt or difficult times financially.  These companies compose a billion dollar industry, one that often uses underhanded marketing protocols and even illegal activities. It has gotten so bad in fact, that the CFPB, (Consumer Financial Protection Bureau) is looking at ways to change the way it enforces the Fair Debt Collections Practices Act.

Debt Laundering

One reason is due to a tricky practice called “debt laundering.” Debt collectors call it “withdrawal.” The strategy is simple, but troubling: If at first you don’t succeed at collecting on a bad debt, try, try again – by sending it to a different collector.

The practice is simple:  As soon as a consumer uses legal means to stop the collection, the collection agency in turn uses illegal means to keep the debt alive. It’s also called “aging the debt”.  What they do is sell the debt to another company, who in turns sells it to yet another company and so on. What could have been an unsubstantiated account ends up staying on a consumer’s credit report for years and years.  Each time the debt is sold, the last buyer makes money.  Each time a consumer gives in and pays the alleged debt, a large and unethical profit has been turned.

This unfair, unethical sequence of events leaves the consumer in a financial warp that prevents future financial endeavors such as home ownership at a reasonable interest rate. And more often than not, a credit report with these types of entries will prevent the consumer from ever qualifying for a home loan at all.

Defend Yourself

So, what can be done?

  1. Take a look at your credit report and examine the dates that are presented by the collection agency.  If the original debt has been written off, and has been sold to a collection agency, who in turn has sold it to another collection agency, all the dates should be the same.  If they are not, then the collector is suggesting that the debt is newer than it is, and they are in violation and can be sued.
  2. When a violation has been identified, an attorney’s call to the violator will make your day.  The collectors know they are in violation, (they act with impunity) and play the odds that the consumer will not know the difference.  Typically consumers do not know the difference and is why the collectors are comfortable violating the law to begin with.
  3. With a call from your attorney, the collector’s response will be; “let’s avoid court, how much do you want?”  If the right attorney is representing you, this will result with an end of the re-aging, the removal of the derogatory entry on your credit report, and could mean a cash award for you as well.  This is also the quickest way to credit restoration.

If the debt is not being “re-aged” and there appears to be no violation, it doesn’t mean you have no recourse.  There are no fewer than 14 areas on a credit report that typically have errors on them.  This is due to the fact that as an account moves from one collector to another, accurate information concerning the account and the account holder do not move along with the account. In fact, our findings are that once the account leaves the original creditor, correct data concerning the account is highly unlikely to go even to the first collection agency, let alone one that is three or more removed.

Remove Errors on Your Credit Report

Utilizing this type of credit report analysis can expose not only typical errors, but can also uncover statute violations other than the re-aging discussed earlier, which will take us back to a law suit against the perpetrator that will absolutely work to the consumers’ advantage.

Even if a different violation isn’t found, there is still about a 95% chance that errors will exist on your report in one or more of the 14 different areas due to the lack of good record keeping.  This is in the favor of the consumers.  Once identified, the error(s) can be used to dispute the derogatory entry and can then be removed legally and permanently from your credit report without the fear of the debt being sold again.

Utilizing a combination of both pre-legal analysis and checking for the 14 areas of typical credit reporting errors can mean the difference between having poor credit and good credit and qualifying for a loan or not qualifying.

To learn more about how this might work to your advantage, visit our Debt & Collections page and watch our informative video below.