How can I stop a collection agency when I don't owe?

April 30, 2004 7:05 PM

If someone has a collection agency after you for money that you believe you do not actually owe, what can you do about it? I'm specifically concerned about how to stop letters and phone calls, and how to avoid credit report smears.
posted by bingo to Work & Money (7 answers total)

Look into the Fair Debt Collection Practices Act. The "Federal Citizen Information Center" says:

Can you stop a debt collector from contacting you?
You can stop a debt collector from contacting you by writing a letter to the collection agency telling them to stop. Once the agency receives your letter, they may not contact you again except to say there will be no further contact or to notify you that the debt collector or creditor intends to take some specific action. Please note, however, that sending such a letter to a collector does not make the debt go away if you actually owe it. You could still be sued by the debt collector or your original creditor.

posted by Zonker at 7:21 PM on April 30, 2004

Response by poster: I was prompted to ask this question after talking with a friend about her longtime dispute over a doctor bill. But I am interested in the quesiton in general.

Zonker, that's interesting, but suppose (and this isn't about a specific current situation, but it's something that I've wondered at various points in the past)...suppose that you're not worried about getting sued.

Suppose that you believe that you would win in court, but that you don't want to go to the trouble and expense of hiring a lawyer? Suppose that you believe the other party knows they're full of shit, and would never take it to court anyway? Can you file some kind of legal document that says "Look, I call your bluff, I hereby refuse to pay this supposed debt. Permanently. Forever. I double-dog dare you to take me to court, and any document I receive from you that is not a subpoena is harassment."

And then, of course, there has to be mechanism through which you can protect yourself against them filing a report that hurts your credit. Can you file a retaliatory report that hurts their reputation as a creditor? I mean, if not, all things being equal, can anyone with a letterhead just call a collection agency and say so-and-so owes me $100, and then when you don't pay it, report it as a bad debt? I know that you can file a response to the bad credit filing, and both go on your record, but I want something with a broader scope. That sort of system still seems biased against the alleged debtor. I guess you can file a report with the better business bureau...
posted by bingo at 7:58 PM on April 30, 2004

If you are concerned about your credit reporting company (experian or whomever), then you file a dispute with the credit report and then work with the creditor to resolve the dispute.

This involves contacting the creditor and asking for all documentation proving you owe said monies. Then you produce evidence why you do not owe said monies.

It is advisable to get an attorney for this process since they are familiar with the law and the process of dispute resolution based on contracts which is what you have in the first place if you owe anyone money.

Like said above, you can get them to stop contacting you, but resolving the actual debt is altogether different
posted by jopreacher at 8:17 PM on April 30, 2004

The legal action you describe is an action for declaratory judgment. Generally speaking, a "dec" action asks the court to hear evidence and resolve a matter before it leads to extended litigation. If you file such an action (lawsuit), it will require the creditor to come into court and actually prove that the debt is valid. If the creditor fails to respond after a certain period of time (probably around 3 to 6 months) or can't prove the validity of the debt, the court will issue a judgment indicating that there is no debt. The judgment could then be used to clear things up with collection agencies and credit reporters. Depending on the amount of the debt, it probably wouldn't be too difficult to handle the issue in small claims or city court, with only minimal legal assistance and/or diligent library research.
posted by ajr at 8:19 PM on April 30, 2004

Long story, short...I had a (very reputable) bank start a very questionable account for for me that I did not authorize. I wrote them a letter saying I was surprised that they were doing business like this and I was going to report them to the State's Attorney. A few weeks later they sent me a statment totally out of the blue that said that I owed hem nothing. FWIW
posted by jaronson at 9:18 AM on May 1, 2004

Speaking as someone who has worked in debt collection before:

Write a dispute letter and demand proof that you owe what they say you owe. "Put up or shut up". Of course, if it turns out you actually do owe it, pay it.

Not all debts are created equal. The size of the debt is important. Who the creditor is is important. And whether there is collateral, a UCC filing, etc. is important.

When a debt goes out to a collection agency, the effort spent to collect on it should be proportional to the size of the debt. Let's say the agency gets to keep 25% of whatever they collect. If the debt is for $4000, the agency won't want to spend over $1000 in personnel time, court filing fees, etc. to collect on it--or they will lose money. (Note that $1000 could be a lot of two-minute phone calls and/or 37-cent letters, before it even gets to court.)

Now, in theory, it's not worth anyone's time to chase after a $25 debt. However:

Many agencies, big retailers, etc. have ways of consolidating big reams of little debts into single court actions. I've seen packs of hundreds of less-than-$100 bad debts get a single pound of the gavel from a judge and turn into actual judgments against the debtor. So, just because it's small, doesn't mean it will necessarily go away.

Many collectors/companies will be agressive about reporting small debts to credit bureaus, because it's their only viable resource for getting any sort of action against the debtor. "I couldn't collect on it, but at least I've marked them in case they come around again."

Small companies should be much nicer about reporting or pursuing disputed debts, because it's much more in their interest to keep a customer and maintain an overall "friendly" reputation. Then again, some small companies are run by rat bastards.

You should probably get a copy of your credit report right away, and then check it again regardless in a few months. See if anything has shown up. If nobody knows about the debt, there will be no effect. If it does get reported to a credit bureau, then dispute the debt at the credit bureau. This should elevate things a level beyond your original dispute letter with the agency.

Banks, large retailers, medium-to-large collection agencies report to credit bureaus automatically--they used to deliver big spools of magnetic tape back in the day. The creditors and the credit bureaus depend on each other: both depend on the other for information. If a small collection agency gets a reputation for providing bad info to the credit bureau, that's a problem for that collection agency. If the company reporting you to the bureau cannot provide proof to disprove your dispute, the bureau is required to drop the reported collection activity from your credit report. And presumably, there also would not be enough proof to take you to court and get a judgment against you.

However, remember that the judgment process can be mostly automated, too. If you get a court summons in the mail, you should do one of these things immediately: pay off the debt, call and beg for terms to pay off in installments, or hire a lawyer and fight. (Or, sit back and do nothing...) You will have to decide the cost of paying a debt, versus paying a lawyer, versus damage to your credit for having a judgment against you. For a small debt, you might be able to show up just before court and pay off the debt "in the hallway". (Not giving legal advice here--I'm just sayin'...)

Court judgments and collection activity will remain on your credit report for several years (seven?) before they age off, even if paid. One thing to be careful about: the credit bureau may allow you to make a statement of your own in your credit report. Sometimes those statements last longer than the bad debt item they're referring to! More than once I've seen credit reports with an "It wasn't my fault!!" statement in them, where the original bad debt had disappeared. Really, what wasn't your fault, hmmmm?

If the debt involves a bad check, be aware that it could be a criminal offense in your jurisdiction, and could have greater consequences, even if it is a small amount. A lawyer in your area could tell you if this is involved.

If I think of more later, I'll come back and post it. Some overall things to keep in mind:

--the system is about MONEY. For the most part, it's pretty amoral. It's not about who's "right", it's about who has proof and who doesn't. And for the collectors, it's primarily about running a business, not "punishing" people. A collector who says "Boy, I made twenty people cry today", but never collects anything from them, is a total failure. (Or, annoying people is one means to an end, not an end in itself.)

--the system is about keeping agreements. If you do owe the money, and the creditor is willing to accept installments to pay it off, and you stick to the agreed installments, you're much better off than you would be by being obstinate.

--the system is NOT perfect. If it's a significant amount of money, and it feels like things are breaking down, by all means get a lawyer if you can. (And if I haven't made it clear yet, I'm not a lawyer, and none of these observations should be construed as legal advice.)
posted by gimonca at 11:48 AM on May 1, 2004 [1 favorite]

When I was in big-dept.-store-retail years ago, there was a standing policy where I worked that judgments that were obviously medical would NOT be held against a person, unless they were so enormous the person was obviously in very deep financial trouble. Your mileage MAY vary! A mortgage broker, for example, might be much more anal about it.
posted by gimonca at 11:52 AM on May 1, 2004