Dealing with Debt Collectors? Know Your Rights

August 19, 2014

The news has continued to highlight the fact that U.S. households are drowning in debt – both student loan debt and consumer debt.

According to NerdWallet the average U.S. household credit card debt stands at $15,480, the average mortgage debt is $156,474, and the average student loan debt is $33,424. Those are scary numbers. Unfortunately, not everyone is current on their debt payments, and those individuals may face the debt collections process at some point.

Most creditors do not attempt to collect delinquent debt themselves; rather, the debt is turned over to a collections agency or a debt collector. A collections agency is a  company that will attempt to arrange for payment of the debt. In other words, if you default on your Visa bill, you will probably hear from Visa a few times but eventually Visa will turn the matter over to a collections agency that will attempt to get the money on behalf of Visa. The agency may buy the debt from Visa and then it will own the debt rather than Visa.

Debt collectors have a bad reputation – you’ve probably heard horror stories of collectors who are extremely aggressive, who threaten to take you to jail, or who threaten to tell your employer about your debt. Just google “debt collection horror stories” and you’ll see some bad stuff.

Last year the Federal Trade Commission shut down a Texas-based debt collector who went as far as to tell consumers that police or child protective services would take their children into government custody if the debt wasn’t paid.

So what should you do if you are faced with an aggressive or abusive debt collector? There are laws in place to protect you (both Federal law and Colorado law), so you need to know your rights.

In Colorado there is a law known as the Colorado Fair Debt Collection Practices Act, which protects you from unfair and abusive debt collection. (The caveat is that this law only applies to debt collectors, collection agencies, and companies that buy and collect debt in default. It does not apply to creditors who collect their own debts – so if you default on your Visa card and Visa is the one contacting you, this law doesn’t apply.)

The Colorado Attorney General has a comprehensive website describing all of your rights under this law, but here are the highlights:

  • The debt collector must send you written notice stating the amount of money due and the name of the creditor who referred the debt to the collector. This notice must be sent within 5 days after you are first contacted.
  • You have the right to dispute the debt within 30 days after the first notice. You must object in writing. If you do dispute the debt, they must cease the collections process until the dispute is resolved.
  •  If you ask the collection agency to stop calling you (at work or at home), they must comply with your request. They may continue to contact you in writing. You may then ask them to cease all communication – and that request must be in writing. The collector is permitted to send you one final notice, or sue you. If you are sued, you have the right to defend yourself in court.
  • Debt collectors cannot use obscene language, threaten violence, accuse you of committing a crime, or threaten you with arrest.
  • Debt collectors cannot make repeated phone calls to annoy or harass.
  • The debt collector is permitted to refuse partial payment of the debt unless you have a payment agreement with the debt collector and are complying with it.
  • The debt collector is permitted to add information about the debt to your credit report.

If you live in Colorado and believe that your rights under this law are being violated, then you can file a complaint with the Colorado Collection Agency Regulation, which is part of the Colorado Attorney General’s Office.

No matter what state you reside in, you are also protected by federal law – the Fair Debt Collection Practices Act. Many of the protections under this Act are the same as those that are in Colorado law, above. The Federal Trade Commission enforces the Act, and has comprehensive information on its website. Some highlights:

  • A debt collector may not contact you at inconvenient times or places – such as before 8am in the morning or after 9pm at night – unless you agree to it.
  • Collectors may not contact you at work if you tell them that you’re not allowed to get calls there.
  • A collector may contact other people about you – but only to get contact information for you. They are generally not allowed to talk about your debt with anyone other than you, your spouse, or your attorney.

Now that you know something about your rights in debt collection, here are a few other helpful hints for navigating the debt collection process:

  • Keep copies of everything. If you are sent a notice, or if you respond in writing, keep a copy in your file.
  • Get a receipt for any cash payments you make.
  • Create a log where you can track the dates and times you are contacted by a collector and take notes of the conversation. As soon as you answer the phone, ask for their information – “Please give me your name, your company’s name, and your telephone number” – and include that information in your log. The collections process can be quite lengthy and it is important to have a record of your conversations.
  • If you know you owe the debt (i.e. you aren’t going to dispute that you do not owe it), work to resolve the issue with a reasonable payment plan. It is a good idea to know ahead of time what amount you can pay every month until the debt is paid in full. Be pleasant but firm – “I really want to resolve this debt and work with you on this, but I simply cannot afford to pay more than $XX per month.” If you come to an agreement, get it in writing and signed by both sides. Before signing, read it and be sure that it says what you agreed to.
  • If you are sued, show up at court and file written responses by the deadlines. If you do not show up or respond, the court may enter a default judgment against you and the debt collector can begin garnishing your wages and taking other steps to collect the debt.

The best way to avoid this issue is to pay your debts on time – but if you end up in this situation then try to remain calm and remember what you learned about your rights.