You don’t have to look far to find consumers who have been tricked by debt collectors. Time and again, collection agencies resort to tactics that either skirt the legal line or cross the line altogether, and that violate the federal Fair Debt Collection Practices Act. Today, we’ll look at one way in which consumers are duped, namely resetting the clock on an old debt.
To understand the tactics that are used, we first need to take a look at the debt buying market. In a nutshell, there are two types of collectors. The first are those who work for original creditors. So, for example, if you’re behind on your dental bill and the dentist’s office calls you, that’s an original creditor. Likewise, financial institutions that issue credit cards have their own internal collection departments.
The second type of collectors consists of third-party debt collectors. These collection agencies are hired by original creditors to collect payments. So, for example, if your dentist turned your account over to the XYZ collection agency, that agency is considered a third-party collector, and must abide by the provisions of the Fair Debt Collection Practices Act.
Some third-party agencies act only on behalf of their clients (such as your dentist), others are primarily debt buyers, and others are a hybrid of the two. Debt buyers typically purchase debt that’s been written off as uncollectible by the original creditor, and then try to collect on that debt. They buy the debt very cheaply, so they don’t have to collect much in order to reap a profit. A subset of debt buyers are those who buy very old debt, namely debt that’s beyond the statute of limitations. You see, after a certain number of years (which varies from state to state, but is generally between three and ten years), a debt collector can no longer sue a consumer in court to try and collect the debt. When that’s the case, the statute of limitations has run out.
This “out-of-statute debt” is legally uncollectible – unless the collector can proverbially reset the clock. If a debt collector can get you to make a payment on an out-of-statute debt – even if the payment is only a few dollars – then a new transaction has occurred and the debt is considered current. At that point, the collector can take you to court and get a judgment against you.
This type of debt buying is a numbers game, pure and simple. An agency can buy $1 million of debt for $10,000 (sometimes much less). It’s easy to see, then, that debt collectors only have to convince a small number of people to make a small payment in order to then take them to court and, ultimately, reap a huge profit.
What does this mean for you? If you’re contacted by a collector, you should demand that the agency validates the debt. This means that they must provide you with documentation about when the debt was incurred, along with information about the original creditor. If the debt is old, you should determine your state’s statute of limitations and see if the debt is considered uncollectible. By no means should you make a payment on a debt that you’re not sure about, nor should you succumb to a debt collector’s threats or harassment? Instead, you should understand your rights under the Fair Debt Collection Practices Act, and fight unfair debt collection practices.