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Late on debts? Know your rights

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The average FICO credit score hit an all-time high last summer, but that doesn’t mean debt isn’t an issue. According to data from the Urban Institute, a policy think tank, nearly 30% of consumers with a credit history had some type of debt in collection as of last October. And when debts are collected, they end up in the hands of debt collectors, a common source of consumer angst.

According to the Consumer Federation of America, a consumer advocacy group, credit and debit issues, including those related to debt collection, are among the top 10 complaints made by consumers to state and local law enforcement agencies. consumers. And thanks to a new debt collection rule released last year by the government’s Consumer Financial Protection Bureau, complaints are unlikely to abate anytime soon.

The CFPB’s two-part rule, due to take effect in November, will allow debt collectors to contact consumers by email, text and direct messages on Facebook and other social media sites. to you using these methods. On the bright side, you might not get as many phone calls during dinner, as collectors will be limited to seven calls per week for each debt. If you pick up the phone during any of these attempts, the tax collector will no longer be able to call you back that week to discuss that particular debt.

There are still plenty of calls and consumer advocates are concerned about the lack of a cap on electronic communications, says Linda Sherry, director of national priorities at Consumer Action, a consumer advocacy group. If you have, say, three debts in collection, you could get up to 21 calls a week and mountains of social media messages. Consumer groups are hoping that the Biden administration’s candidate for CFPB head Rohit Chopra will support the rule change to limit digital communications.

Know your rights. Under the federal Fair Debt Collection Practices Act, it is illegal for debt collectors to use abusive, unfair, or deceptive tactics when attempting to collect a debt. Collectors cannot threaten you or someone you know with violence or jail time or add interest or charges to debt that have not been approved by the company that you owe. And debt collectors usually can’t call you before 8 a.m. or after 9 p.m.

You also have the right to write to the debt collector (or collectors) and ask them to stop contacting you. After that, a debt collector will not be able to contact you again, unless it is to verify that they have received your request or to tell you that they are considering taking legal action.

It is also important to understand that a limitation period applies to debts in collection. The time frame varies by state and type of debt, but debt collectors usually have three to six years from the time the debt comes into collection to take legal action against you to collect payment. Once the statute of limitations has passed, the debt collector can no longer sue you. But that doesn’t mean pickup calls will stop, Sherry says. Additionally, making a payment on an old debt may reset the statute of limitations and the collector could sue you for the full amount. However, if you are able to pay off the debt in full, it should improve your credit score. (To learn more about past debts and lawsuits, visit

The new CFPB rule requires consumers to receive more information about debts that have been collected. Debt collectors must provide you with a written “validation notice” either before contacting you for the first time or within five days of contacting you. It should include details of the amount you owe and inform you that you have the right to dispute the debt within 30 days.

Debt collectors also have to wait 14 days after sending some type of notification to consumers – whether it’s the validation notice or another letter or note for debate, according to consumer advocates – before d. ‘alert the major credit bureaus (Equifax, Experian and TransUnion) that a debt has gone into collection. The goal is to make sure that the notice has been sent to the right person and that the person understands that the debt has gone into collection before it appears on their credit report. If the collection agency reports it, the black mark will remain on your credit report for seven and a half years. Recently, some large debt collection agencies have agreed not to report accounts to the credit bureaus if you make a payment agreement with them and stick to it, says credit expert Gerri Detweiler.

The validation notice can help you determine if the debt really belongs to you and if the amount is correct. This is important, Sherry says, because it’s common for debt collectors to contact the wrong person about an unpaid debt. Additionally, scammers often pose as debt collectors to prey on consumers. If you know you have unpaid debts, Sherry suggests keeping detailed records of your debts and unpaid balances. If you believe your rights have been violated, file a complaint with the CFPB and the Federal Trade Commission.

Your rights if you have a medical debt. Medical debt is subject to the same collection rules as credit cards and other consumer debt, such as personal loans. But if you have unpaid medical bills, you have additional rights. Following a legal settlement between major credit bureaus and various states that went into effect in 2017, debt collectors must wait 180 days from the time a medical bill becomes unpaid before reporting it to the top three credit bureaus. This gives your insurance more time to pay the bill or, if it is not covered, to allow you to work out a payment plan with the hospital billing department or medical services.

This rule also says that if your insurer pays a medical bill in full, the default account should be immediately removed from your credit report. Again, it is important to keep track of who has the debt stated in the validation notice or any other notice you receive. Medical debt collections are more likely than other debt collections to contain errors because multiple parties provide information that determines the final bill. For example, if an administrator enters the wrong billing code, your insurer may incorrectly deny coverage.

The debts in collection will eventually fall off your credit report. But as long as they’re on your report, they negatively affect the payment history portion of the FICO score calculation, which is 35% of your score. The good news is that FICO has an updated model that weights paid receivables in collection differently. With FICO 9, debts collected and repaid no longer hurt your score. However, many lenders continue to use FICO 8, which counts collections in your score even if they are repaid.

Meanwhile, FICO 10T, introduced late last year, incorporates “trend data,” which tracks consumer account balances and payment activity on loans and credit cards over the course of time. of the last 24 months. If you regularly pay off your debts over time, it has a positive effect on your 10 T score. However, it will be some time before lenders at all levels start using the new model.

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