Most people don’t realize that debt collectors can’t cross a line set by federal law. For example, they can’t threaten you with physical injury; claim to be a lawyer if they are not; harass you or use foul language; nor claim to have arrest powers. The list is extensive. The Federal Trade Commission has published examples of prohibited actions by debt collectors. If the debt collector steps over that line, you do have the right to sue them.
The Fair Debt Collections Practice Act (FDCPA) is a federal law that stops debt collectors from using abusive, unfair or deceptive practices to collect from you. It was passed in 1977 when Congress determined that there was a need for federal regulation of debt collectors. The combination of an explosion in available credit and a downturn in the economy usually results in an increase of unpaid bills as consumers focus on priorities.
When a debt goes delinquent, most creditors will attempt to collect it themselves first. Usually that will mean a phone call to your home or a letter reminding you that you’ve missed a payment. After all, everyone makes a mistake or forgets sometimes. It’s something that happens. If the payment is not made and/or more payments are missed, typically you will incur a late charge or penalty of some sort. When the default in payments continues for a longer time things get dicey. Typically, the creditor will hire an outside company to collect the debt or just outright sell it off as a bad debt. Either way, you will see action from a debt collector.
‘Charged Off’ Doesn’t Mean ‘Paid’
Since credit reports have become widely available, the term “charge-off” has joined the consumer lexicon. When a debt goes unpaid for a long enough period of time, the creditor may decide to charge off the debt from its books. In very basic terms, that means the creditors got a tax deduction. If money is later recovered on that debt, that money becomes taxable income to the creditor even if it was the creditor’s money in the first place. However, that does not mean you do not owe the money. So if you see a charge-off on your credit report, you still owe the debt. Even if a debt collector violates the FDCPA in trying to collect a debt, the debt does not go away if you owe it. (You can get your credit reports for free once a year, here’s how.)
Some States Also Regulate Debt Collector Activity
In addition to the federal law, some states have also passed laws regulating debt collectors. While many of the laws are near mirror images of the federal law, some are a bit broader. For instance, Connecticut’s law not only covers the debt collection company, but the original creditor as well.
Important Tips on Lawsuits
If you plan to sue a debt collector, you need to act fast. Federal law only gives you one year from the violation to file the lawsuit. Since it takes time to get things started, don’t wait. Keep in mind that not everything you think is abusive may be covered by the law. Some additional tips:
1. Know who you are suing. Debts get traded more often than injured baseball players. Just because you got a letter from one company yesterday, it does not mean that the abusive phone call today is from the same company. If you are talking to a collector over the phone, get the details; name of the company, address where you might send payments (if you were going to pay), which creditor originally owned the debt if it was transferred and any other information you can get to identify the party. It is important that you keep detailed notes of every telephone conversation. It may become evidence later.
2. Communicate in writing whenever possible. When you talk to anyone, the details of that conversation become subject to the “he said/she said” game. But when you write it down and mail it out, the communication becomes a record. The same is true for everything the collector sends to you. Save it all. Remember that you are building evidence of abuse.
3. Keep good records. Not only do you want to communicate in writing, but you want to keep everything you have regarding the debt. All the original bills if you have not already thrown them out; all of your payment records, phone records, doctor bills, receipts of any expense that you paid while dealing with the issue. All of that is hard evidence of your claim.
What About Damages?
If the judge in the case determines that there is a violation of the law, you will get only $1,000 unless you can prove that you have been actually damaged. If you can prove you suffered damages like lost wages or medical bills because of the illegal collection practices, the judge can order repayment by the debt collector. You can also be reimbursed for attorney’s fees and court costs if you win.
Other Laws to Protect Consumers
An elderly married couple in Florida recently received a judgment of $1 million for abusive practices in violation of the Telephone Consumer Protection Act, another federal law designed to protect consumers. In short, it prohibits harassment by telephone or fax. The Consumer Finance Protection Bureau will investigate complaints against debt collectors. Your state attorney general may also have a department set up to deal with consumer complaints.
In addition to other federal laws to protect consumers, the individual states may have statutes that give added protection to consumers. For example, Connecticut has a fair debt protection statute that applies not only to debt collectors, but also the original creditors. You would have to check for the law in your specific state.
Finally, there is the prospect of a class action lawsuit. Even if your particular damages are not large, but a debt collector injures a large group of people by abusive practices, they can band together to sue a debt collector as a class and recover money for damages up to $500,000, or 1% of the collector’s net worth, whichever amount is lower. You should talk to a qualified attorney about the specifics of your claims.
More on Managing Debt:
- 5 Tips for Consolidating Credit Card Debt
- The Best Way to Loan Money to Friends & Family
- Top 10 Debt Collection Rights