Debt Collection: Don't allow Yourself Obtain Prosecuted It would seem that human instinct is to hide from collection agencies. We don't answer the phone when they call and we fail to respond when they file suit against us. As natural as it seems, hiding from the problem is the worst way to deal with it. And quite honestly, responding to a lawsuit could be the fastest way to make it all go away. That's because in many cases, they don't even have the right to sue you! This is a problem the industry created for itself and I doubt anyone will feel sorry for them. Just the same, let's take a look at how debt collection has grown in recent years and how all the selling and trading of debt from one company to another can actually benefit the consumer. The Debt Business is Booming The debt collection industry has grown tremendously over the last decade. In the late nineties, the debt purchasing industry was in the range of $10 billion. Today the debt purchasing industry has grown to more than $115 billion. Debts are typically sold or assigned to third party debt collectors when the original creditor feels the debt is no longer collectible. The original creditor is the party with whom the debtor receives an extension of credit or to whom the original debt is owed. These include credit card companies, banks, and mortgage companies, just to name a few. The original creditor sells the debt in portfolios or in bulk to third party collection agencies for around four cents on the dollar. The debt collection agency will then attempt to collect on the debt for the full amount allegedly owed to the original creditor.
The collection agency purchasing the debt generally acquires merely an electronic file containing the debtor's name, account number, personal contact information,
and any personal or professional references the collection agency may have utilized in their efforts to collect the debt. However, what's often not included in those files is essential information necessary to prove the debt is owed or providing the collection agency with "personal knowledge" of the account. This information is required by law in order to sue on the debt. Nonetheless, it is generally not purchased as part of the debt portfolio. This information includes, for example, the original contract, terms and conditions, account statements, charge slips, etc. The more times the original debt is sold, the less likely the collection agency holds the documents necessary to file suit. Further, the more times a debt has been sold, the more likely errors have occurred. Most of the time the third party debt collector lacks personal knowledge necessary to sue on the account. In other words, without all that paperwork, they can't sue you successfully. Which isn't to say they can't file suit – they can and sometimes do. But we'll come to that shortly. First, let's consider the matter of statute of limitations. Collection suits are typically filed based on the legal theories of breach of contract or account stated. If the original signed contract and terms and conditions are signed, and the creditor or collection agency has possession of the contract (not likely), they have ten years from the date of charge-off (or default in, some cases) to file a collection suit. If the creditor or collection agency does not hold the original contract, they are filing the collection suit based on an account stated theory (majority of collection cases utilizing mostly billing statements to prove up the debt). A collection suit file based on an account stated theory must be filed within five years of the date of the chargeoff or default. What if They Sue Me Anyway? Knowing all of this, some collection agencies won't even attempt to sue the debtor because they don't have the necessary information or the statute of limitations has passed. In fact, some collection agencies purchase old debt knowing it is passed the statute of limitation to sue and rely on aggressive collection tactics to scare you into paying the debt. In those instances when collection agencies due file suit, they win an overwhelming majority of the time by default judgment. This means that the debtor failed to respond to the suit by filing an answer and appearing at the hearing. Sadly, many times these suits should not have been brought in the first place. Had the debtor merely responded, the creditor or Debt Collection Company would have been required to appear in court and present evidence that they properly owned the debt and that it is legal that they brought the suit. Or, the debt collection suit may have been dismissed for being filed passed the statute of limitations period.
Unfortunately, once a judgment is entered – even a default judgment – it is difficult to undo the damage. The creditor or collection agency will attempt to collect the judgment through wage garnishment, bank account levy, or other measures. You Have Rights What many consumers do not realize is that original creditors and third party collection agencies alike are required to conduct their debt collection practices within the regulations of the the Federal Fair Debt Collection Practices Act (FDCPA) and any state laws that apply. Keep in mind that collection agencies do not care about "customer service." They are not attempting to hold onto you as a customer. The object is to collect on the debt in the most effective, affordable possible way. Many times the debt collector's business model does not involve being in compliance with the FDCPA because very few consumer protection attorneys file suits against creditors and collection agencies for violating consumer's rights. In addition, it is unfortunately known that the penalties collection agencies face for failing to comply with the regulations are extremely low. Since the penalties are not severe, many collection agencies continue to utilize illegal collection practices including threat, coercion, and humiliation (contacting third parties). In other words, dealing with lawsuits is cheaper than making sure that the business is in compliance with the law.
I do cautiously state that not all creditors and collection agencies engage in illegal debt collection practices. It is my opinion, however, that companies that do operate legally are the minority in the industry. It is important to remember that, as a consumer, you have rights and you should require a creditor or collection agency prove it owns the debt and that you owe the debt. If you think you are a victim of any type of illegal collection practice, you should seek the advice of a Iowa consumer protection attorney or contact your Attorney
General's office. A suit may be brought against a creditor or collection agency for even one debt collection violation. Many states even have laws that compel the creditor to pay your attorney fees and court costs if they are found to have violated your rights.