It’s bad enough to get a call from a debt collector or find a collection account on your credit reports. But it’s even worse when you didn’t even know you owed a bill in the first place. Here are just a few comments we have received on the Credit.com blog:
- I was never sent a bill because of the hospital was sending the bill to an address in which I never lived at. I happened to check my credit report and I had (2) two $2,500 bills sitting in collections for my daughter(s) bill
- So what if a collection agency reported a debt to Credit Bureau without even sending me a notice. How can I proceed then ?
- I received a bill from a collection agency that is over 5 years old and I was never sent a regular bill. What’s going on with this?
- More than 3 years after getting rid of my cellphone, I all of a sudden got a call from a collections agency stating that I owe money to the cellphone company – no idea why they’d wait 3 years if I was truly delinquent. The cellphone company hasn’t been in touch with me in more than 3 years, and never sent any notices of outstanding debt.
They are all asking essentially the same question: “Can I be sent to collections if I never got a bill or a notice?”
Some creditors “aren’t required by law to send you a statement before they send you to collections,” says consumer protection attorney Jeremy S. Golden. He’s received similar complaints, especially when medical bills are involved.
In fact, there’s a name for this practice. It’s called “parking” the debt. Here’s how it is described in a report by the National Consumer Law Center about medical debt collection:
Many times a debt collector will furnish information about a medical debt on a credit report without actually engaging in any proactive steps to collect it, such as telephone calls or written communications. Instead, the collector will wait to collect the debt until the point in time when the consumer needs to get a mortgage or other credit. This practice is sometimes referred to as “parking” a debt. “Parking” benefits the debt collector because the collector never needs to expend the effort, time, and resources to dun the consumer, especially if the debt is a small one
The problem is that even if you pay one of these accounts as soon as you learn of it, the damage is probably already done. Paying a collection account that has already appeared on your credit reports as in collections typically doesn’t result in its removal, and under most credit-scoring models used today, and resolving it doesn’t often help boost your credit scores either.
Isn’t There a Law Against That?
The answer often is, unfortunately, no. The Fair Credit Reporting Act requires certain lenders to send a notice before reporting negative information to credit reporting agencies. Specifically, it says:
In general, if any financial institution that extends credit and regularly and in the ordinary course of business furnishes information to a consumer reporting agency…furnishes negative information to such an agency regarding credit extended to a customer, the financial institution shall provide a notice of such furnishing of negative information, in writing, to the customer.
However, the FCRA goes on to say that this notice “may be included on or with any notice of default, any billing statement, or any other materials provided to the customer,” though it “must be clear and conspicuous.”
Note that this requirement only applies to financial institutions that regularly extend credit, so presumably in the case of a delinquent cellphone or hospital bill that winds up in collection, it wouldn’t even apply. When it is required, a notice on a prior billing statement may suffice.
And there’s one more thing. The FCRA says this notice “shall be provided to the customer prior to, or no later than 30 days after, furnishing the negative information to a consumer reporting agency.” So it’s possible the notice could come after the damage has been done.
It’s Not Your Fault
But not so fast, says attorney Richard Alderman, director of the Center for Consumer Law, University of Houston Law Center. The credit report reflects your payment history, and “If you never received a bill, you haven’t defaulted or paid late.” A creditor isn’t generally required to send you a bill right away, though, he explains. They can delay billing, as long as doing so doesn’t violate any law or your agreement.
His view is this: “If they delay sending you a bill and you get the bill and you pay it immediately,” you are not in default and did not pay late. Nothing negative should appear on your credit report. He adds, however, that if you don’t receive a bill in a timely manner you always should contact the creditor to prevent any problems in the future. Avoiding negative information on your report is always easier than correcting it.
What Can You Do?
NCLC has recommended that the CFPB “prevent parking by requiring that debt collectors provide consumers with notice before a negative item is placed on a credit report.” In the meantime, here are steps you can take if you find yourself in this position.
The first, of course, is to review your credit reports on a regular basis. (In addition, you can keep an eye on your credit scores for free at Credit.com). If you find a collection account that you don’t recognize listed, you can dispute it with the credit bureau(s) reporting it, preferably in writing. If the credit reporting agency cannot confirm it with the source (the company reporting it), within 30 days, in most cases, it must be removed.
“Disputing a debt directly with the debt collector does not trigger a consumer’s rights under the FCRA — only a direct dispute to the credit bureaus will do that,” says Southern California consumer law attorney Robert Brennan.
If it’s not removed, you can dispute it directly with the collection company that is reporting it. They too, have 30 days to respond. You can also request verification of the debt and if you determine the debt is valid, you can try to negotiate with them to remove it if you pay it. It is not an unreasonable request if you were never notified of the debt in the first place. (If they agree, get it in writing before you pay.) If they refuse, you may need to talk with a consumer law attorney with experience in credit reporting cases. Either way, it may be a good idea to share your experience with the Consumer Financial Protection Bureau, which discussed parked debts in a December 2014 report on debt collection, noting that it “could also harm the consumer if the tradeline is reported without his/her knowledge, and/or if the consumer did not have prior knowledge of the debt.”
More on Managing Debt:
- The Credit.com Debt Management Learning Center
- Understanding Your Debt Collection Rights
- Top 10 Debt Collection Rights