Has an unfamiliar debt collector called or written to you, or even filed a lawsuit against you, to collect money you don’t believe you owe? If so, you may be the target of a debt buyer. More and more these days, individual citizens report being pursued by debt buyers they have never heard of, sometimes for collection of money they do not owe. In some cases, the debt buyer may pursue the wrong person altogether, while in other cases the debt buyer may pursue the collection of debt that was already paid or that was in dispute (e.g. where the customer was a victim of identity theft).
Last month, the Attorney General’s Office took legal action against a debt buyer — Midland Funding/Midland Credit Management — for pursuing people for payment of bills they did not owe.
What is a “debt buyer”? In today’s economy, many creditors — including credit card companies, utilities, phone companies, banks, and lenders — regularly sell to debt buyers old debts that they have been unable to collect. The creditors package these old debts into portfolios, which they sell to debt buyers for pennies on the dollar. It is not uncommon for a debt buyer to pay less than five cents per dollar owed. The debt buyer purchases from the creditor an electronic file, or “datastream,” of information about the portfolio of debts. The debt buyer usually does not purchase copies of individual contracts, account statements, etc. to substantiate that the individuals whose names are included in the portfolio actually owe the money.
Once the portfolio of old debt is bought, the debt buyer either aggressively pursues an individual for payment of the supposed underlying debts, or re-sells the portfolio to another debt buyer. When collecting, debt buyers often cast a wide net to find people who owe money. Some citizens report being targeted by debt buyers for debt that isn’t theirs. Others report being pursued for debt that was long-ago paid or for which they were a victim of identity theft, which had previously been reported to and resolved with the original creditor.
The debt buying industry. The debt buying industry has seen explosive growth over the last 20 or so years. In 1993 an estimated $6 billion in old debt was sold to debt buyers, but by 2005, that figure spiked to $110 billion. Debt buyers are often financed in part by large national banks and Wall Street private equity funds. In other words, many of the credit card companies and banks that sell their old debt to debt buyers partially fund the debt buying industry.
What makes debt buyers different? There are several facts that make debt buyers somewhat different than original creditors in their collection efforts.
First, when purchasing a portfolio of old debt, a debt buyer generally only purchases an electronic file of information that contains names of supposed debtors, amounts owed, etc. The debt buyer usually does not purchase any documents or other evidence that shows that individual citizens owe the money, such as account statements, charge slips, etc. These electronic files are often rife with errors.
Second, the debt that is purchased is often very old. This debt is often called “zombie debt” because it is so old. Some citizens report being pursued for collection efforts by a debt buyer for debt that originated 10 or more years ago. To make matters worse, debt buyers often take the position that they will continue to pursue an individual citizen for payment of a debt unless and until the person can prove they don’t owe the money. Many people, however, don’t keep cancelled checks, account statements, etc. that go back that far and therefore have a hard time coming up with the proof that they paid the bill. Further, individuals are often unfairly stuck attempting to prove a negative (i.e. that they don’t owe money), when under the law a collector is not supposed to pursue a citizen for payment of a bill unless the collector has substantiation that it is owed.
Third, debt buyers are often particularly aggressive in their collection attempts. It is not uncommon for a creditor to sell a debt portfolio to an initial debt buyer, who pursues collection for awhile and then sells the debt to another debt buyer, who may sell it to yet another debt buyer. As a result, some citizens report that they thought they fixed a problem with a debt buyer who wrongly pursued them for money they didn’t owe, only to later be pursued by other debt buyers for the same debt.
What are your rights? Some citizens who are incorrectly pursued by a debt buyer for money they don’t owe simply ignore the collection efforts. After all, the person doesn’t owe the money, and it is unfair to ask them to spend time resolving a problem that isn’t their fault. In order to fully protect yourself, however, the Minnesota Attorney General’s Office recommends that you exercise your rights under the federal Fair Debt Collection Practices Act (FDCPA). If a debt buyer pursues you for money you don’t think you owe, you should dispute that you owe all or part of the debt under the FDCPA in writing. To do so, you should write to the debt buyer within 30 days after you receive an initial call or letter about the debt. Your letter — which you should send by certified mail so that you have a record of its receipt — should tell the debt buyer that you dispute that the debt is owed and ask the debt buyer to substantiate the debt. You may wish to request the following substantiation in your letter, as applicable: (1) name and address of the original creditor; (2) date on which the alleged debt was incurred; (3) an itemization of the debt (e.g. total principal, interest, fees, other charges); (4) a summary of your payment history on the debt; (5) copy of the applicable contract giving rise to the debt; (6) copy of the underlying account statement and other written validation and explanation of the debt. While it takes time for you to write such a letter, it may save you time and headaches down the road — and may prevent the debt buyer from wrongly suing you, reporting the debt to a credit reporting agency, or reselling the debt to another debt buyer.
Check your credit report. If you are wrongfully pursued by a debt buyer, you should obtain a free copy of your credit report to find out whether the original creditor or the debt buyer has reported the debt to the credit reporting agencies. To obtain your free credit report, go to www.annualcreditreport.com, or call 877-322-8228. If there are inaccuracies on your credit report, you have certain rights under federal law to correct the mistakes.
