Dealing with Debt Collectors: Know the Rules, Your Rights, and How to Spot a Scammer
Last updated August 22, 2020
Knowing how to handle a call from someone claiming to be a debt collector is a challenge. It’s not always easy to tell if the caller is a real debt collector or a scammer.
That’s why it’s important to go slowly and know your rights. Take the time to verify everything you’re told, and to consider your options.
Debt collectors will never win a popularity contest, but they have a legitimate job to do. When you fall behind on paying a bill, and don’t respond to the creditor’s requests for payment, the creditor may hire a debt collector, or sell the debt to a company that will try to collect.
Many debt collectors follow the rules, but some don’t. In 2019, the Federal Trade Commission received more than 136,000 debt collection complaints.
“Although many debt collectors are careful to comply with consumer protection laws, others engage in illegal conduct. Some collectors harass and threaten consumers, demand larger payments than the law allows, refuse to verify disputed debts, and disclose debts to consumers’ employers, co-workers, family members, and friends. Debt collection abuses cause harms that financially vulnerable consumers can ill afford. Many consumers pay collectors money they do not owe and fall deeper into debt, while others suffer invasions of their privacy, job loss, and domestic instability.”
The most common debt collection complaints to the FTC include:
- Being asked to pay a debt I don’t owe or don’t recognize.
- I don’t owe as much as the collector claims.
- Being harassed with too many calls.
- Unsubstantiated threats to sue when the collector has no intention of doing that.
- Falsely claiming the person will be arrested if they don’t pay.
The Association of Credit and Collection Professionals (ACA International) blames “industry outliers” who don’t follow the rules, or scammers who routinely use abusive and illegal scare tactics.
“Legitimate debt collectors are going to act the right way,” said Jeff DiMatteo, president of the New England Collectors Association. “They’re going to communicate with people to get something accomplished, rather than harass, or do something illegal.”
DiMatteo admits debt collection can be intimidating, but he says: “Don't ignore the phone calls. Don't ignore the letters. A debt doesn't go away simply by ignoring it.”
What to Do When You Get a Call or Letter From a Debt Collector
Legitimate debt collectors identify themselves and the company they work for, and they’re happy to provide contact information. The person calling will already have your full name and address, and will not ask for personal information, such as Social Security number or bank account number.
Red Flag: Scammers or disreputable collectors will threaten to tell your family, friends, employer or coworkers about your debt. Don’t respond to this high-pressure tactic.
Remember, nothing needs to happen immediately, no matter what the caller says.
“Politely decline to continue further conversation until you've had a chance to look into the company and look into their allegations that you owe a debt,” said Dan Dwyer, an attorney in the FTC’s financial practices division. “Hang up and search online to verify the information you received to determine if this is an actual business. Then check to see if it’s licensed, if that's required by state law.”
(Check with your state attorney general or consumer protection office. If your state doesn’t license debt collectors, you can check the Nationwide Multistate Licensing System to see if this is a legitimate company that’s licensed as a debt collector in other states.)
Don’t pay anything or provide any personal information until you get basic information about the alleged debt and your right to dispute it. Under federal law (The Fair Debt Collection Practices Act) a debt collector must to give you specific information in writing. If you didn’t get a letter from the collector prior to the call, tell them to send you a “validation notice” which is required to be sent within five days.
A “validation notice” must show the amount of the debt, as well as:
- The name of the original creditor.
- The amount you owe (including late fees and other charges).
- How to dispute the debt.
“People should not pay anything unless they get this basic information about the debt, and how to dispute it, if they think they don't owe it,” Dwyer told Checkbook.
Red Flag: Legitimate debt collectors will accept payment by check, credit card, or debit card. Scammers generally insist on a wire transfer or payment via a prepaid debit card or gift cards because these transactions are all untraceable. Never pay this way, no matter what the caller threatens to do.
Know Your Rights: There Are Limits on What a Debt Collector Can Do
The FTC enforces the Fair Debt Collection Practices Act, which prohibits various deceptive, unfair, and abusive debt collection practices. (Note: Business debt is not covered.)
A debt collector can contact you by phone, mail, email, or text message, but the law says they cannot:
- Call before 8 a.m. or after 9 p.m., unless you agree.
- Call you at work, unless you agree to be contacted there.
- Threaten you with violence or harm.
- Use obscene or profane language.
- Misrepresent the amount you owe.
- Lie about being attorneys or government representatives.
- Claim you’ll be sued, or that your wages could be garnished, unless the collector intends to do so.
Debt collectors are also prohibited from trying to collect interest, fees, or other charges on top of the amount you owe, unless the original contract with your lender or state law allows it. They cannot deposit a post-dated check early, and they cannot threaten to take your property, unless those practices are legal in your state.
You have the right to make them stop contacting you.
If you tell collectors to stop contacting you, they must stop. You need to do that in writing. The FTC suggests sending your letter (make a copy before you do) by certified mail.
Once the collection company gets your letter, it can only contact you for a few limited reasons, such as to confirm it will stop all future communications, or to tell you a specific action will be taken, such as filing a lawsuit.
If you tell the collection agency you’re represented by an attorney, the collector must communicate with your attorney, not you (unless the attorney fails to respond within a reasonable amount of time).
In a Debt Collection Q&A, the FTC advises talking to the collector at least once, even if you don’t think you owe the debt or can’t repay it immediately, so you can figure out whether it’s really your debt. If it’s not, you can take steps to dispute it.
Note: If you challenge the debt within 30 days of your first contact with the collector, they cannot continue asking for payment until the dispute is resolved.
If it is your debt, you can find out from the collector more information about it.
“In talking with a debt collector, be careful about sharing your personal or financial information,” the FTC cautions.
Can a debt collector contact anyone else about my debt?
In general, a debt collector cannot discuss your debt with anyone but you or your spouse.
The only reason a collector can reach out to anyone else is if they don’t have adequate contact information for you––and even then, the law prohibits mentioning the debt.
TIP: If you suspect you’re dealing with a scammer, the Consumer Financial Protection Bureau (CFPB) suggests contacting the original creditor to find out if that debt collector is really working for them.
More Info: The CFPB has a tip sheet that explains how to tell the difference between legitimate debt collectors and scammers.
Some Debt Is Too Old to Collect
Creditors can file a civil lawsuit against someone who doesn’t pay their debt, but only for so many years. This ranges from three to 15 years for claims based on written contracts, depending on the state where the debtor lives.
Once the debt is older than the statute of limitations, it is “time-barred,” which means that if the collector sues, you can raise the age of the debt as your defense.
According to the National Consumer Law Center (NCLC), suing or threatening to sue for time-barred debt is an unfair and deceptive practice that’s prohibited by the Fair Debt Collection Practices Act.
Here’s where it gets complicated. Let’s say the debt is now time-barred and the debt collector tries to recover the debt outside the legal system—no lawsuit, just calls or letters. In most states, that’s allowed.
In some states, if you agree to make a small payment or otherwise acknowledge the debt, you can end up “reviving” that old time-barred debt—restarting the statute of limitations, cautions April Kuehnhoff, an NCLC staff attorney.
“It’s an area where consumers can easily get tripped up because it's really not clear to them that trying to make a small payment on a debt could end up restarting the statute of limitations, and giving the debt collector more time to sue you for the full amount of the debt that was originally owed,” Kuehnhoff told Checkbook.
Her advice: If you get contacted by a collector, make sure you really owe the money. If you do, verify that the collector is asking for the correct amount. Then look at how old the debt is. It could be beyond the statute of limitations. When in doubt, get some legal advice before doing anything.
Armed with the facts, you can decide whether to dispute the debt, ignore it, or set up a payment plan. And yes, you can negotiate. Many collectors will agree to settle for significantly less than what you owe.
More Info: FTC factsheet on time-barred debt.
Scammers Pretend to Be Debt Collectors
Fake debt collectors will try to bully you into paying a debt you don’t owe. These scammers often say they’re calling from a law firm with a legitimate-sounding name.
“Even for people who know they don’t have any outstanding debt, the con artists are so convincing—or threatening—when they call, that some people suspect someone else may have taken out loans in their name,” said John Breyault with Fraud.org.
These imposters are stealing an enormous amount of money. A bogus debt collector, sued by the FTC last year, is accused of bilking millions of dollars from consumers for debts they did not owe.
“People tell us they’ve gotten an unsolicited phone call saying they owe a debt and the caller was threatening them with either criminal prosecution or embarrassment, if they didn’t pay immediately,” said Amy Nofziger, director of the AARP Fraud Watch Network. “And all too often, they do pay simply because they’re afraid, even when they don’t owe the debt.”
Red Flag: The caller wants you to pay via wire transfer or prepaid debit card. These are methods favored by scammers because they can’t be traced and are difficult to reverse.
If you don’t agree to pay, the scammers may threaten arrest or other legal action. Victims are often told a police officer is already headed to their home or office.
Remember, failing to repay a loan is not a criminal offense. That’s why making such a threat is illegal.
More Info: AARP: Debt Collection Scams
If you’re fallen victim to a collection scam, file a complaint with the Federal Trade Commission. You won’t get your money back, but this information will help prosecutors go after these criminals.
If you believe you were mistreated by a debt collector—threatened, harassed or lied to—file a complaint with the Consumer Financial Protection Bureau.
Contributing editor Herb Weisbaum (“The ConsumerMan”) is an Emmy award-winning broadcaster and one of America's top consumer experts. He is also the consumer reporter for KOMO radio in Seattle. You can also find him on Facebook, Twitter, and at ConsumerMan.com.