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What Constitutes Debt Validation?

So I sent a debt collection dispute letter [3], now what?

Well, now you wait.

In most states, the collector has 2 options:

Unless they validate the debt, including all the fees the collection agency has added on, you don’t have to do anything. It’s in this phase that most debt collectors trip up and make mistakes, which will be to your advantage.

What is Debt Validation?

What does a proper debt validation look like? A proper validation should explain how an account balance got from zero to the amount that is being claimed including all debits, credits, and fees explained. While there is no hard and fast definition of “Validation/Verification” of a debt because it’s always on a case by case basis. It’s like obscenity: You know it when you see it [4].

Special Case: Texas

Earlier, I emphasized “most” because in the great state of Texas, a debt collector is required conduct an investigation into the debt and provide the results to a consumer within 30 days or less. Debt collectors don’t have the option of ceasing collection efforts and sending the account back to the original creditor. If a collector only ceases their collection efforts and fails to respond in 30 days, they will have just violated the Texas Finance Code 392 [5]. It is a violation of the Fair Debt Collection Practices Act and the collector now owes you money! Time to file a lawsuit. (Most collectors don’t know this, and most collectors will violate this statue)

Debt Validation Court Rulings

Spears vs. Brennan

Spears v. Brennan looked at the issue where a creditor provided a signed contract and ruled:

The loan agreement contains no accounting of any payments made by Spears, the dates on which those payments were made, the interest which had accrued, or any late fees which had been assessed once Spears stopped making the required payments. Indeed, the existing unpaid contract balance at the time Brennan sent the debt collection notice was at least $350.00 more than the original loan amount.

To legally be able to collect again, a collector must provide some explanation of how whatever amount they are asking for came to be. Few collectors will do this properly, which is your chance to educate them on how to do so in court.

Clark v. Capital Credit & Collection Servs., Inc.

Here’s a case, Clark v. Capital Credit & Collection Servs., Inc., where a consumer disputed a medical bill. The collection attorney, hired by the doctor, collected eight pages of itemized charges that included the nature of the charges and balance of the bill. The 9th Circuit of Appeals [6] agreed and stated: “verification of a debt involves nothing more than the debt collector confirming in writing that the amount being demanded is what the creditor is claiming is owed; the debt collector is not required to keep detailed files of the alleged debt.”

Chaudhry v. Gallerizzo

Chaudhry v. Gallerizzo is the finding that is most often used by debt collectors. In that case, which was a special situation where pages and pages of detailed validation from the original creditor were already sent to the consumer as validation, the court ruled:

“Verification of a debt involves nothing more than the debt collector confirming in writing that the amount being demanded is what the creditor is claiming is owed; the debt collector is not required to keep detailed files of the alleged debt.”

If a debt collector sends you eight pages of detailed bills complete with procedures and explanations, barring fraud, they probably have validated the debt. If they haven’t violated any other laws, they have successfully navigated the FDCPA obstacle course and you might want make other arrangements with them. The simple fact of the matter is that these cases are the exception, not the rule.

Debt Validation Is Expensive

A collection agency must spend a lot of time and money to validate a debt. It’s a labor intensive, difficult to automate, and simply unprofitable. Debt collectors make the most money through volume, by quickly liquidating accounts and scaring people into paying them immediately. It isn’t profitable to properly document the debt and review for accuracy.

When a collector receives a file, they receive a name, amount, social security number (sometimes), phone number, and address. That is it. To properly respond to a dispute requires them circle back with original creditor, ask for proof, hope that the creditor has them, tabulate some numbers and send that to the consumer.

You may be surprised to find out that many creditors keep terrible records. Many debt collectors make something up so they can continue to collect or ignore your disputes and use the brute force method of continued calls, letters, and harassment until you give up. In most cases, the collectors are right, people don’t know their rights, and they get away with violating the law.

The proper response to some sort of weak or non-existent validation attempt is a follow up letter stating that what they sent is not validation and you consider the matter to be disputed followed by a lawsuit.Properly validating an account is often an arena for mistakes and is where collectors commonly violate the law.

But they keep calling, refused to get validation, or sent me some bogus validation… what do I do now?

This leads to the next article segment: so a debt collector violated the law… once you get to this point, the tables have effectively been turned, and the collector owes you money and we’ll go over how to collect from the collectors. Stay tuned for the update.

This is the third guest post in a special How to Fight Debt Collectors series [7] on Bargaineering.com.

(Photo: jaytamboli [8])