Home > 2014 > Managing Debt

6 Things Debt Collectors Wish You Knew

Advertiser Disclosure Comments 1 Comment

I’m a debt collector whose job it is to work on behalf of creditor clients to recover rightfully owed debts from consumers. The work debt collectors do is not popular, and has become increasingly derided by those who don’t like what we do or simply don’t know the facts about debt collection. Too often, debt collection is painted with a broad brush to create a portrait that isn’t accurate, and doesn’t properly educate consumers.

There are countless resources for consumers to help them know their rights should they ever be contacted by a creditor or debt collector (e.g., the Consumer Financial Protection Bureau and the Federal Trade Commission) and they’d be well served to know what can and cannot be done. To begin, any debt collector who has violated consumer law and causes actual damages should be held accountable for their actions. However, consumers who are considering suing a debt collector need to first be wary of unscrupulous plaintiff attorneys whose “protecting consumers” mantra may mask the real goal of exploiting them for their own profit. Here are a few points to separate fact from fiction when it comes to suing a debt collector.

Myth: Consumer Attorneys Sue to Protect Consumers

Some consumer attorneys take advantage of the fact that state and federal laws governing debt collection are ambiguous and out of date by filing repeated lawsuits instead of productively working with the debt collectors to modernize the laws. This has created a cottage industry of attorneys looking to exploit both the debt collectors and consumers. In fact, the majority of these lawsuits are either frivolous or technical, and in almost all cases no actual damages have been incurred. In my 15 years of being a debt collector, I have found the majority of lawsuits filed against debt collectors are based on debt collectors leaving a consumer a voicemail to call them back or debt collectors sending a consumer a letter in which the consumer attorney claims the content of the letter somehow violates the Fair Debt Collection Practices Act. These lawsuits are filed because of Catch-22 provisions within the FDCPA.

WebRecon, which tracks litigation filed against companies in the credit and collection space, identified 60 consumer attorneys who account for 46.6% of all consumer litigation filed so far in 2014.

Myth: Consumers Benefit When Suing a Debt Collector

Consumers gain very little as it’s the attorneys who profit. In fact, because damages against a debt collector for violating the FDCPA are capped at $1,000 per incidence, consumer attorneys make a living from the volume of lawsuits they file. They depend on debt collectors seeking to quickly settle the case instead of actually going to court, which is far more lucrative for attorneys who then don’t have to put any time into executing a defense. It is not uncommon for attorneys to receive at least five to ten times more money than the consumer once everything is said and done.

Myth: Suing Debt Collectors Has No Adverse Effects on Consumers

When suing a debt collector, all information becomes a matter of public record. The residual impact is that it could impede a consumer’s ability to work directly with a creditor or debt collector in the future to resolve a financial matter if a consumer has a history of legal action. So instead of trying to work with the consumer many creditors and debt collectors will simply forgo direct communication to resolve the issue and simply seek a judgment in order to garnish wages, freeze bank accounts, get a lien on your property or seek another legal remedy (depending on what is allowed under state law).  In addition, any judgment against a consumer may remain on their credit report for up to 10 years.

Myth: Monies Received From a Legal Action Do Not Have to Be Reported to the IRS

All monies over $600 received as a result of suing a debt collector may have to be claimed as taxable income. The agreement in which money is paid to a consumer is between the consumer and the debt collector, therefore a 1099 may be required to be filed with the IRS to account for the income. To avoid confusion, consult with a tax professional to understand your potential responsibility.

Myth: Suing a Debt Collector Resolves a Debt

Most consumer debt is not owned by the debt collector, they are working on behalf of a creditor client. So, in resolving the case with the debt collector (e.g., technicality, FDCPA violation, etc.) the consumer hasn’t resolved the issue with the creditor and therefore likely still owes the debt. In fact, a common misconception is that when a consumer sues a debt collector their debt is forgiven, but this couldn’t be further from the truth. In the majority of lawsuits filed, forgiveness of the debt is rarely requested because the consumer attorneys understand the request is rarely granted by the creditor.

Myth: It Doesn’t Cost Money to Sue a Debt Collector

While in some instances this may be true, more and more consumers are finding out the hard way that most of the time it isn’t.  Debt collectors are no longer rolling over and settling lawsuits filed against them as they are now investing the time and resources to defend the cases brought against them. When a debt collector takes a case to court and prevails, the debt collector will have the court grant their request in accordance with federal and state laws to be reimbursed for the attorney fees and court costs they incurred. Once this happens, the consumer who lost the case may be held solely responsible to reimburse the debt collector their legal costs, which can cost the consumer upwards of $10,000.

Increasingly, consumers with an account in collections are turning to the courts at the advice of attorneys seeking to exploit technicalities. As a result, the attorneys win, but consumers may unfortunately end up the losers. Consumers generally don’t want to talk to a debt collector, but it’s the best course of action to directly communicate with a creditor or debt collector, and work to resolve the matter at hand. While a consumer has a right to avoid contact or request that a debt collector not contact them, it never makes the debt go away, as it forces alternative actions such as credit reporting or potential lawsuits against the consumer.

In the end, consumer protection laws are in place to protect consumers, but they don’t serve their purpose when certain consumer attorneys exploit these laws in search of their own personal gain. It has and will always be best for consumers to attempt to work out a resolution of their debt directly with the creditor or debt collector. If attempting to resolve their debt directly with a creditor or debt collector fails, or they feel their consumer rights have been violated, then seeking legal advice and potential legal representation is a viable option.

More on Managing Debt:

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

Image: Pictac

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

  • V

    This article seems biased and clearly written to discourage consumers from using lawsuits to protect their rights. I have no doubt that some lawsuits are frivolous and without merit. Until the debt collection industry actually upholds ethical standards and legitimately self-polices, people will turn to the courts for aid. I appreciate the writer acknowledging his connection to the industry, but he would have been more helpful writing a legitimate (read that as unbiased) article on how debt collection works, consumers’ rights, and advice on how to negotiate a debt down to a manageable amount (rather than not paying it all).

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team