How Dealing With Debt Collectors Works

Many businesses don’t maintain debt-collection departments of their own. Some smaller businesses don’t even bother with vigilant debt collection, reasoning that the effort and resources spent collecting debts could be better used to attract new accounts and customers [source: The Business Start Page]. But if you've fallen behind on payments for a major purchase -- such as a car, a kitchen appliance or that new 52-inch plasma-screen television -- it's a safe bet that most businesses will turn your account over to a collection agency in order to retrieve the money you owe them.

Dealing with a collector is seldom a pleasant experience, even if the collector is ethical and follows the guidelines of the Fair Debt Collection Practices Act. The most reputable collection agencies train their workers to be tough negotiators. What may seem like legitimate reasons to you are often mere excuses to them. Whether you lost your job, needed money to cover emergency medical expenses for your child, had to pay for major repairs on your only car, or fixed the part of your roof that collapsed under last winter's heavy snowfall, the collector has probably heard it all before. Often their dispassionate demeanor results from having heard too many fabricated tales of woe from debtors who have simply accrued more debt than they can handle.

You may be surprised to learn that sometimes collectors offer suggestions that can be of enormous help. They may accept partial payments or work out a payment plan that allows you to live within your means.

Other times, however, collectors’ remedies may be impractical, such as borrowing money from friends or relatives or refinancing your home. The better you know your own financial situation, the more effectively you can respond to such suggestions. Collectors may suggest remedies in strong wording that stops just short of being threatening. As a last resort, they will take advantage of their legal right to sue you for what you owe.

Despite being on the receiving end of such tactics, most debtors understand that collectors have a valid reason to pursue past-due payments. According to U.S. Trustee J. Christopher Marshall, "In the vast majority of cases, the debtors are honest and desperately in need and deserving of a fresh start" [source: Marshall]. Most people make major purchases with every intention of making timely payments. Nobody has foreknowledge of unexpected financial crises. Dealing with a debt collector can be stressful, but debtors know they have little room for complaint if the collector is honest and ethical.

Dealing with an unethical collector, however, presents an added list of troublesome challenges. Certain debt collectors will take advantage of the average debtor's ignorance of fair debt-collection practices. They also know that many people would rather settle a debt, even one assessed unfairly, than resort to complicated and costly legal action against the collection agency.

The easiest way to determine if a collector is operating within ethical standards is to familiarize yourself with the Fair Debt Collection Practices Act. To do that, just take a look at the next page.

The Fair Debt Collection Practices Act (FDCPA), as prepared by the Federal Trade Commission, was enacted into law in 1977. Knowledge of the FDCPA is especially useful for determining whether or not you’re dealing with an ethical collector. Below is a quick rundown of the most common concerns covered by the act. For more detailed information, see "How the Fair Debt Collection Practices Act Works," as well as the complete text of the original act.

Collectors may not contact you at an inconvenient time, specified in the act as before 8:00 a.m. or after 9:00 p.m., unless you give the collector permission to do so.

Collectors may not call you repeatedly, nor use threatening, obscene or racist language when calling.

Collectors must be honest. They must identify themselves as debt collectors and not mislead you by implying they’re attorneys or representatives of government agencies. Although they may have a legal right to sue you, they can’t use the threat of a lawsuit to coerce you into making a payment. Keep in mind that a lawsuit is a civil matter, and that the law is not concerned with civil debts. Therefore, a collector must not suggest that you have broken a law or threaten to have you arrested.

The only third party with whom a collector can discuss your debt is your attorney (if you have one). Collectors may call your friends, family and coworkers, but only to obtain your address, phone number or place of employment.

You have the right to stop debt collectors from contacting you, but you must write a letter to the collector requesting that they do so. Once a collection agency receives your letter, they may not contact you again except to inform you that there will be no further contact or to alert you to any impending legal action the agency intends to take. The letters and phone calls may stop, but you’re still obligated to pay your debt, and you could still be sued by the agency or your original creditor.

Be aware that the above applies only to debt-collection agencies; creditors who handle their own in-house collections are not obligated to follow the requirements of the FDCPA. In other words, your local auto dealer has more leeway in employing intimidating tactics if you fall three months behind on your payments. Once the dealer turns your account over to a debt collector, however, that collector must adhere to FDCPA standards.

Now that you know your rights when it comes to debt collection, read the next page for some helpful hints about dealing with debt collectors.

The best advice is simply to make every effort to pay your bills on time! But if it’s too late for that, here are some pointers.

Don't ignore the calls and letters. Ignoring collectors is not an effective forestalling tactic. It will only cause your credit rating to fall even more and may force the collector to employ more drastic means (such as lawsuits) to obtain payment from you. Even if you can't afford to make payments, it’s always better to be honest about your situation. Inability to make payments will not please collectors, but timeliness and honesty could persuade them to work out a payment plan that you can handle.

Learn the debt-collection process. In most cases, once your delinquent account has been turned over to a debt collector, it means that your debt has already been paid to your original creditor. The collection agency has purchased your debt from your creditor, probably at a reduced rate, and now owns your debt. Your original creditor has lost a little money, but not as much as they would have lost if you had defaulted entirely. The collection agency makes its profit when you eventually pay up.

Validate your debt. When you’re first contacted by a collection agency, make sure they’re legally authorized to collect your debt. Send them a letter requesting validation of your debt and confirmation that they’re authorized by your original creditor. If they fail to respond within 30 days, they’re in violation of the law. Requesting debt validation is sometimes little more than a stalling tactic, but it can often expose agencies that fail to live up to their legal obligations. It can also be a complicated procedure. DebtHelp offers some pointers.

Keep accurate records. This could provide some advantage in disputes over how much money you owe, as well as protect you in cases of identity theft. Pay only what your records say you owe. Never pay a disputed debt just to make collectors go away. Debt collectors are not infallible and sometimes encounter legal problems themselves when their own information is inaccurate. If you inform them that your records contradict theirs, or that you have been a victim of identity theft, they’re legally obligated to investigate such claims.

Write it down. Maintain an accurate record of the dates and times you receive calls from debt collectors, including instances when they leave a message on your voice mail. Note what was discussed during phone conversations. Be specific, especially if you feel you have been threatened or verbally abused. Deal with collectors via snail mail as much as possible, as this ensures an accurate record of all information exchanged. Send copies of your letters to both the collection agency and your original creditor, and request return receipts for everything sent.

Don't be afraid to complain. If you feel you have been the victim of abuse, or if the collector has violated the terms of the FDCPA, contact a consumer attorney, your state attorney general, a consumer-protection agency or the American Collectors Association. You can also contact the Federal Trade Commission or the Better Business Bureau, though these agencies often lack the resources to take legal action except in cases of extreme abuse.

Your situation may require additional means and methods to protect yourself. The not-for-profit Privacy Rights Clearinghouse offers an exhaustive list of tips. You can also access related HowStuffWorks articles on the next page.