Monday, May 10, 2004

What Is Proper Validation of Debt?

What Is Proper Validation of Debt?

As of March 2010, American consumers collectively held an outstanding balance of $852 billion worth of credit card debt. As a consequence of the recession of the past couple of years, Fitch Ratings places the current rate of credit card defaults at 13 percent.



In these tough times, it is in your best interest as a consumer to become knowledgeable about your rights regarding defaulted debt. The two laws that protect consumers from abusive debt collectors are the Fair Debt Collection Practices Act of 1977 and the Fair Credit Reporting Act.



Knowledge about the debt validation process provides you with leverage should you ever end up on the business end of a collection call.

How Collections Agencies Operate

    The debt collections industry is now a $90+ billion industry. According to the Bureau of Labor Statistics, the debt collections industry is expected to grow by 23 percent between now and 2016. Debt collection companies operate by purchasing debts that are delinquent from the original creditors. After a debt has been delinquent for 180 days, banks are required to write these bad loans off of their books and sell these debts for cents on the dollar.

A Consumer's Right to Validation

    Many consumers are not aware that they even have rights when a collections agent calls them. Understanding your protections as a consumer will go a long way in helping you deal with collections agencies.

    The Fair Debt Collection Practices Act (DCPA) outlines debt collector rules and consumer protections. The FDCPA also provides you, the consumer, with the right to request validation of any debt that a collections agency is calling about.

    To properly validate a debt a collections company must provide proof that it is legally entitled to collect on this debt and also provide proof that the debt is yours.

Validation of Debt

    Imagine that you borrowed money from Mike and one day Dave called you to say that you should now pay him the money you owed Mike. You would want proof that Dave has the right to collect this money. Proper debt validation is a lot like this.

    FDCPA states that a debt collector "shall cease collection of the debt, or any disputed portion thereof, until the debt collector obtains verification of the debt or any copy of a judgment, or the name and address of the original creditor, and a copy of such verification or judgment, or name and address of the original creditor, is mailed to the consumer by the debt collector."

    When an original creditor sells a delinquent debt to a third-party collector, you have the right to request information that establishes that the debt is yours. You also have the right to request proof that you legally owe this debt to the collections agency.

Validation Requirements

    The debt validation process protects a consumer against being misidentified by a debt collector. Proof of the validity of a debt is the responsibility of the debt collector. A collections agency has to provide, at your request, written proof that they have the legal right to collect a debt from you. That means that a debt collector is required to produce a contract between themselves and the original creditor showing that they are now entitled to collect on this debt.

    You can request account statements from the original creditor or a copy of the original signed contract between you and the original creditor. You can go as far as to request the complete history of the account in question in order to validate that the amount of the debt is also correct.

Validation Process

    A creditor is not allowed to attempt to contact you or collect on this debt until they validate the debt. If they can't or won't validate the debt, you can request that the credit bureau removes the collections account from your credit report until validation is provided.

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