How to Deal With Collection Agencies

 What should you do if a debt collection agency contacts you?

• Understand your rights before communicating with any bill collector.

• Make sure that you owe the money -- debt collection agencies have to disclose the amount owed and the name of the original creditor.

• Negotiate the terms of repayment, including the amount to discharge the debt and how it will be reported to credit bureaus.

 Avoid acknowledging the debt in writing or paying any money until you decide what you want to do.

Collection Accounts: What Are Your Rights?

You have many legal rights under the Fair Debt Collection Practices Act when you deal with collection agencies. 

On Nov. 30, 2021, the CFPB clarified the law by laying out rules to help consumers and collection agencies know where they stand.

In particular, it sets out the information a debt collector must provide you with when – or soon after – it first contacts you. 

• Name and mailing information of the debt collector

• Name of the creditor to whom the debt is owed

• Account number (if any) associated with the debt

• An itemization of the current amount of the debt that reflects interest, fees, payments, and credits 

• Information about your debt collection rights, including how to dispute the debt

All that information should be provided in writing. And the notice must include a tear-off section that you can return to the collector disputing the debt.

What Should You Never Say to a Bill Collector?

Even if you believe you owe the debt that a collection agency is demanding from you, it’s a good idea to wait until you receive all that information before engaging in any way with the agency. 

Attorney Amy Loftsgordon on the legal website NOLO says, “Don't give a collector any personal financial information, make a ‘good faith’ payment, make promises to pay, or admit the debt is valid.”

Instead, buy time by telling the agency that you won’t engage with it until it has validated the debt. That means until it has provided you with ALL the information required on the CFPB list above. 

You’ll probably be put under pressure to at least acknowledge that you owe the money. Resist! Stick to the line that you’ll respond only when you’ve had a chance to study and digest the validation document(s). 

Often, collection agencies try to collect “time-barred” debts, which are legally unenforceable because of your state’s statute of limitations on debts (the number of years after which a debt becomes unenforceable). Say the wrong thing now or send even a token payment, and you could re-start the statute of limitation’s clock, meaning you’re once again liable for the debt.

Can You Avoid Paying a Collection Agency?

Many collection agencies routinely push their luck. And they try to collect debts that are time-barred or may even ask you to pay just because your name’s the same or similar to the real debtor. 

How likely that is to happen to you will largely depend on the age of the debt. That’s because different collectors are involved as the debt ages. Here are the three main types:

1. In-house collections – Big creditor companies and lenders often have in-house collection departments.

2. Assigned collectors – Independent agencies paid by companies to collect their debts. You still owe the company, and the collection agency acts on its behalf.

3. Debt buyers – Once it’s failed to collect, a creditor company may sell your debt for pennies on the dollar. And you now legally owe the debt buyer. This tends to be the Wild West of the debt collection world, where unscrupulous operators often use unethical and sometimes illegal practices to collect.

The older the debt is, the more likely it is to have passed from in-house collectors to assigned agencies to debt buyers. 

Here are some circumstances in which you may not need to pay a debt collector:

• It’s up to the collector to prove that you owe the debt. But some debt buyers receive only a few basic details when they make their purchases. And those might not be enough to validate the debt. If it can’t do that, tell it so. And, if necessary, fight the action in court.

• If the statute of limitations means your debt is uncollectible, you don’t have to pay it. Tell the agency you won’t pay on those grounds. If it’s foolish enough to go to court, tell the judge. You should win. But you may not if you don’t turn up. Not sure if your debt is time-barred? Ask a lawyer or your state’s attorney general’s office. 

• Assuming your debt hasn’t already been sold, you can contact the company you owe and negotiate repayment directly with it. That could save you from dealing with collection agencies.

If your debt is old but not old enough to be time-barred, you should take care. Making payments or acknowledging the debt is likely to harm your credit score. If possible, negotiate a settlement by offering pennies on the dollar. 

How to Stop Bill Collectors From Calling

Under the federal Fair Debt Collection Practices Act (FDCPA), you have a right to stop a collection agency from contacting you. You might tell it to stop calling you. Or you could limit its contacts to mail, email, or SMS messages. Indeed, you can just tell it to stop all communication. That’s best done through a “cease and desist” letter that you send to the agency. 

However, stopping all contact has its downside. Agencies rarely suspend collection efforts just because you tell them you. You won’t know what the collectors are doing, and, worse, you might even force them to sue you.

Can You Settle Collection Accounts?

Oh, yes. Many people reach settlements on collection accounts each year. Settling a collection means getting the collection agency (with the blessing of the original creditor) to accept less than the total amount owed as payment in full. 

You can negotiate a settlement yourself. Or you might prefer to have a debt settlement professional do it for you. 

What Is a Pay for Delete Letter?

A negative item typically remains on your credit report (and is reflected in your credit score) for seven years. But there may be a way to improve your score very quickly.

And that’s by reaching a deal with your creditor or debt buyer for you to pay the outstanding sum (or a negotiated amount) in exchange for deleting the negative item from your credit report. Not all creditors will go along with this, and it’s not legal in all states. But plenty – including most debt buyers – will. 

You write the “pay-for-delete” letter to your creditor, collection agency, or debt buyer. And be sure to get a response, agreeing to your proposal, in writing.  You may not be dealing with honest or reliable folk.

Legal website Lexington Law recommends that you only write such a letter if:

• The debt has already been validated 

• You have the funds on hand to hold up your end of the bargain

• The negative item on your credit report isn’t going to expire anyway anytime soon

You must word the letter correctly. Lexington’s template can help you with this.

What Is a Goodwill Letter?

A goodwill letter has a similar effect to a pay-for-delete letter in that it might get negative items deleted from your credit report. However, it rarely works for collection accounts and is usually effective only for more minor issues, such as late and missed payments.

With these letters, you write to a creditor with whom you’re in good standing, having already brought your account up to date. So you have no leverage with it and are appealing for its goodwill. 

You are simply asking it to delete certain historical negative items from your credit report out of the goodness of its heart. Sounds weak? Well, it works surprisingly often, providing you’ve previously had a good payment record with the company.

What Is a Conditional or Restrictive Endorsement?

A restrictive endorsement can help you settle a debt for less than you owe. You endorse your check for the amount you wish to pay by writing one or more conditions on it. 

That might be “In full and final settlement of account x,” where x is the account number. You might even add a pay-for-delete provision to have the account removed from your credit report.

You pop the check into an envelope with a covering letter that explains your proposal. But it’s the endorsement that counts. Because, in theory, the creditor or collector accepts the endorsement’s conditions when it banks the check. 

Without the endorsement, it can bank the check, throw away your letter and come after you for the outstanding balance. 

However, legal loopholes and state laws make relying on conditional endorsements a little tricky. You’re better off creating a written settlement agreement and requiring the collection agency to sign it before you send any money. 

How to Negotiate With Debt Collection Agencies

When it comes to collection agencies, President Theodore Roosevelt's maxim works well: "Speak softly and carry a big stick.” The big stick is your knowledge and willingness to stand up to the collectors.

• Before negotiating, make the collection agency validate the debt. Determine how old it is (how long since your last payment). Do not admit that you owe the money or make any payment.

• Decide how much you’re willing/able to repay and under what terms (lump sum, series of payments, or a combination?). Do you want a pay-for-delete arrangement, a reduced balance, or more time to repay? 

• Make your request in writing. Use language that states you are not acknowledging ownership of the debt and that you are not making a promise to repay. Use a conditional endorsement if you write a check.

• Follow up to ensure the collection agency kept its end of your bargain. If it promised to delete the collection from your credit report, check your credit after 30 days to make sure that’s been done.

Assuming you owe the money claimed, and the debt isn’t time-barred (check our map to see your state’s statute of limitations on debts), you’ll need to work out how to repay it. 

Of course, if you’re lucky enough to have some savings on hand, or able to borrow some, you can simply settle the debt immediately with a single lump sum. And you’re in a strong position to negotiate down the amount you have to pay. 

How much can you settle debt for? It depends on the age of the account. A recent study by the American Fair Credit Council found that the average debt settlement clients settled $17,032 of debt for $8,365. However, no creditor or collection agency is under any obligation to accept any settlement offer, and individual creditors have different policies. There are no guarantees.

But you might be willing to pay a little more for a pay-for-delete agreement.

Unfortunately, most of us don’t have that sort of money lying around. So we’ll have to negotiate a payment schedule with the collector. But that doesn’t mean we can’t try to get easier terms: a reduced balance or longer to repay.

Request that the agency responds in writing, accepting, or negotiating your proposal. Of course, you don’t automatically have to accept any amendments it wants to make. But, if it is, be ready to compromise, if you can. 

If you’re enclosing a check, write a restrictive endorsement on it. As we explained above, that isn’t always enforceable. But there’s no harm in doing so.

It’s especially important to get in writing any pay-for-delete agreement. Collection agencies are notorious for reneging on those once they have your money. 

Don’t over-promise. Really, you’re not doing yourself any favors by saying you’ll pay more each month than you can sustainably afford. If money’s extremely tight, consider sharing your household budget with the agency, showing it your income and expenses so it realizes just how difficult times are.

But you also shouldn’t under-promise. Staff at collection agencies do this stuff for a living. And they’re likely to grow impatient if you try to pay less than you can reasonably afford. 

So take a long, cool look at your finances and make a sensible proposal.