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How to Fight Debt Collectors

Ylan Mui

Forget the cute intro on this one. I'm just gonna give it to you straight because I'm really irritated.

I got a letter this week from a debt collection agency claiming that I owe a cable and internet company $40. The letter also claimed it was the third time the agency had contacted me. Neither is true -- if anything, the cable company owes me money after the five (yes, five!) times I had to call to discontinue my service after I moved. A cheery "PAY NOW!" was stamped in red on the front of the envelope.

I'm not the only one in this situation. The economic downturn continues to result in a rising number of consumer loan delinquencies . That has helped spur an uptick in business at debt collection agencies. These companies purchase your debt outright or get a cut of any collections they make, so they have a vested interest in getting you to pony up.

I called up the National Consumer Law Center, an advocacy group, to find out what folks should do when they're confronted by a collections agency. Bob Hobbs, deputy director of the center and author of Fair Debt Collection, gave me this advice:

Make sure they're telling the truth. The No. 1 rule that debt collection agencies have to follow is to tell the truth. They cannot pretend to be someone they are not or threaten to sue you if they do not intend to.

Don't let them get into your inner circle. Debt collectors are not able to call your friends, parents or kids in order to get you to pay your debt. They can talk to you, your spouse and your attorney.

Tell them you can't talk. Debt collectors are also only allowed to call you at "convenient" times. If you tell them you cannot speak to them, they are supposed to end the conversation and contact you at another time.

Make them verify the debt. If you dispute the debt (like I do), you have 30 days to notify them in writing of your claim. The debt collector then becomes responsible for finding the paperwork to back it up. If they can't verify it, they can't contact you anymore.

Tell them to stop. If you continue to feel harassed by the collection agency, you can send a cease and desist letter. The rub is that creditors often change collections agencies, and you may have a new one calling up eventually.

You still have to pay. This is important. Just because your debt has gone to collections and the person on the phone may be really annoying or worse, you are still liable for your debt. Not paying could harm your credit score and prevent you from getting loans in the future.

The NCLC produces a pamphlet called Dealing with Debt Collection that includes templates for the two letters. Bankrate also lists 10 steps for dealing with collections agencies. And Broke-A#$ Student (Sorry, we're a family publication!) also has some real-world tips from her own battle with collections.

If you really want to nerd out, you can also read the Federal Trade Commission's 120-page report on the debt collection industry and its proposals for change.

By Ylan Mui  |  June 18, 2009; 7:00 AM ET
Categories:  Credit Cards , Ylan Q. Mui  
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