Debt collection laws protect you from unfair debt collection practices. Under federal and state laws, debt collectors must follow certain rules — and you have certain rights as well. If you have collectors contacting you, be aware of the major debt collection laws.
Our guide gives you an overview of your rights and the rules debt collectors must follow.
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What Debt Collection Laws Should I Know About?
There are a few key debt collection laws that can help protect you and your credit score. Here are the main laws to know about:
Fair Debt Collection Practices Act (FDCPA)
The FDCPA specifically outlines what debt collectors can and cannot do. By law there are rules they must adhere to and certain tactics they can’t use, such as being deceptive or abusive. There are also certain hours they can and cannot call you. The FDCPA covers debts like credit cards, mortgages and medical bills.
Fair Credit Reporting Act (FCRA)
Thanks to the FCRA, you’re legally allowed to know what’s in your credit report and dispute any errors. By having an accurate credit report, lenders, employers and insurance companies have a clearer idea of your creditworthiness.
State LawsMost states have debt collection laws that are similar to the federal ones. Some also have Unfair and Deceptive Acts and Practices that may include laws related to debt collection. While these laws vary, in general, they help regulate debt collector practices so the consumer isn’t tricked or abused into more payment.
Can a Debt Collector Call Me at Work?
Under the FDCPA, debt collectors aren’t allowed to call you at inconvenient or unusual places, which may include your workplace. For example, hospitals, schools and restaurants are examples of workplaces that qualify.
No matter where you work, you have the right to tell the debt collector to stop calling you at work. You can tell them that due to the FDCPA, they cannot call you at your place of employment. If they persist, you can file a complaint with the Federal Trade Commission or your state’s attorney general office.
When Can a Debt Collector Call Me?
By federal law, debt collectors aren’t allowed to contact you at unreasonable times — they can only call you between 8 a.m. and 9 p.m. your local time. If they call you outside of those hours, it’s an FDCPA violation.
A debt collection agency can contact you by phone, mail, fax or email. If you don’t want a debt collector to contact you — or to contact you in a certain way — you can tell them to stop or specify how you prefer to be contacted.
By law, they must end communication with you unless they’re advising you that their efforts are being terminated or to inform you that the collector might invoke specified remedies for payment.
Who Can a Debt Collector Call?
Debt collectors can only discuss your debt with you, your spouse, your attorney, your executor or your parents (if you’re a minor), but they can call other relatives or friends to look for you. When contacting those other people, they cannot say they’re with a debt collection agency and they cannot call that person a second time.
Here’s the type of info debt collectors can receive from other people:
- Your address
- Your phone number
- Your place of employment
What Can Debt Collectors Say?
Debt collectors cannot say things about your debt that are abusive, deceptive or lies. By law, you’re able to request anything they say in writing — such as how much you owe and to whom — before you make any payments.
Here’s what debt collectors can’t say or do:
- Harass you
- Lie to you
- Threaten you with harm or violence
- Use profane language
- Misrepresent what you owe
- Falsely claim that you could be arrested
- Call you repeatedly to bother you
- Collect fees and interest on top of the actual amount you owe, unless the agreement included additional accrual of fees or interest.
- Take or threaten your property (unless it’s legal, like in the case of a secured loan with your vehicle as collateral)
How Much Can Debt Collectors Ask For?
A debt collector can only ask for the amount you owe including outstanding fees, charges and interest not paid — but cannot ask for more on top of that. Debt collectors must send you a written validation letter within five days that specifies how much you owe and to whom.
If you feel a debt collector is asking for more than you actually owe, send a letter stating and proving that you don’t owe that amount or ask for verification of the debt. You must send your response letter within 30 days of being contacted by a debt collector, or the amount originally stated is assumed as true.
Can I Ask the Debt Collector for Their Name?
Yes, you can ask the debt collector for their name and the name of the company they are collecting for. If they don’t give you their name or you feel it’s a suspicious company, request a debt verification letter. Within five days, they must send you a written notice with the details of the debt including the name of the company and how much you owe.
What Does a Debt Verification Notice Include?
A debt verification notice includes details about what you owe and to whom. Debt collectors are obligated to send it to you within five days of their initial contact.
Here’s what a debt verification notice should include:
- Amount of the debt you owe
- Name of the creditor
- A statement that the debt is assumed as valid unless you dispute within 30 days of the first contact
- A statement that if you dispute the debt or ask for more info within 30 days, the debt collector must verify the debt in writing by mail
- A statement that if you request info about the original creditor, you should receive it within 30 days
By law, you have a right not to further communicate with debt collectors or pay the debt until it is verified.
Yes, you can ask a debt collector by phone or mail to stop contacting you and they must oblige. You can officially state in a cease and desist letter that you don’t want the debt collector to contact you further.
They can only contact you from that point on to advise you that their efforts are being terminated or to tell you what the debt collector will do next.
If they don’t stop contacting you, you can report the debt collector to the Federal Trade Commission or your state’s attorney general.
What Should I Do If a Collector Violates Debt Collection Laws?
If a debt collector violates any of the debt collection laws, you should file a complaint.
You can report a debt collector to:
- The Federal Trade Commission
- Your state’s attorney general
- Consumer Financial Protection Bureau (CFPB)
- The Association of Credit and Collection Professionals
- The Better Business Bureau
How Can I Avoid Scams?
Debt collectors are legally prohibited from unfair practices, but you should still be aware of suspicious tactics. You want to avoid scams that could harm you financially.
Understand the Statute of Limitations on Your Debt
Before proceeding, make sure you understand if the debt is something you legally owe or not. If the statute of limitations has passed — meaning how long a lender can collect that debt — then you’re not legally obligated to pay it.
For example, a credit card debt might be time-barred, or too late for the defense to win in court if they were to sue you over it.
The statute of limitations depends on the type of debt and the state you live in, or the state listed in your credit contract. If you’re not sure if you legally owe the debt, be sure to ask for a debt validation letter.
You may also want to talk with an attorney before making a decision on whether to pay. Paying for even part of a debt can cause more harm than good, because it restarts the statute of limitations and enables the collector to sue you for payment.
No matter what, you still need to respond to any debt collector that says you owe money. If you ignore a debt collector or a lawsuit, the collector could get a court judgment and garnish wages from you.
Understand What Happens When You Make a Payment
Making a payment acts as representation that you accept the debt as yours and makes it more difficult to dispute it later on.
If you make a payment on a debt that’s time-barred, the payment can restart the statute of limitations and is considered your debt to pay depending on the state you reside. That’s why it’s critical to know your rights and verify the debt before making even a partial payment.
Know the Signs of a Scam
Recognize when a debt collector might be a scam to avoid paying for something that’s not yours or a debt that’s outside the statute of limitations.
Here are the main signs of a debt collection scam or practices to be wary of:
- They don’t send you a debt validation letter complete with how much you owe and to whom you owe it
- They charge you extra fees and interest beyond what you owe
- They threaten to sue you over payment
- They tell you that you have to pay right away (even over the phone)
- They lie to you, such as saying if you pay a small amount they’ll wipe out the rest of the debt
- They seem fake or dishonest
- They keep contacting you after you’ve asked them to stop
Do I Need an Attorney?
An attorney isn’t required when dealing with debt collectors but they can help your situation so you don’t end up paying more than you owe or for debt that isn’t even yours. An attorney can also help you identify and dispute collection errors, or other error types on your credit report that might be bringing down your credit score.
Consider an attorney if you feel like you’re swimming in debt, have debt collectors calling you and you’re not sure what to do, or you have questions about your situation. Getting professional help can save you money and time in the long run.
How Do Debt Collections Affect My Credit?
Debt collection can lower your credit score because it’s debt that’s past due or never paid. Lenders want to see that you’re a responsible borrower and if your debts have gone to collections, it means you failed to pay it back on time.
Paying off debt, whether through a collections agency or other means can improve your score. It may lower your debt utilization ratio because you’re using less of your available credit. It may also lower your debt-to-income ratio, which is another factor in your credit score. Making on-time payments and paying off your debt are great ways to repair your credit.
How Can I Navigate Debt Collection Laws?
You can research each law thoroughly to protect yourself and know your rights or reach out for professional help. Debt collection laws can be tricky to navigate, especially when you’re not familiar with them. Professional help can alleviate stress and clear up uncertainties if you have questions, especially if you feel like something is unfair or incorrect.
Although Lexington Law does not manage debt collection, they are a great resource for learning how to navigate credit repair. Contact Lexington Law today to learn how credit repair can help you.
Does Getting Joint Credit Cards Have an Impact on Both Spouses’ Credit?
While marriage can help you improve your financial situation, it does not automatically mean that you and your spouse will share a credit report. Your credit records will remain separate, and any joint accounts or joint loans that you open will appear on both of your reports. While this can be advantageous, it’s critical to remember that joint account activity can effect both of your credit scores positively or negatively, just as separate accounts do.
Users Who Are Authorized
An authorized user is a user who has been added to an existing credit account and has been granted the authority to make purchases. Authorized users are typically issued a card bearing their name, and any purchases made by them will appear on your statement. The primary distinction between an authorized user and a shared account owner is that the account’s original owner is solely responsible for debt repayment. Authorized users, on the other hand, can always opt-out of their authorized status, although the principal joint account owner cannot.
If your credit score is better than your spouse’s as an authorized user, he or she may benefit from a credit score raise upon account addition. This is contingent upon your creditor notifying the credit bureaus of permitted user activity. If your lender does report authorized users, the activity on your account may have an effect on both you and your spouse. However, some lenders report only positive authorized user information, which means that late payment or poor usage may not have a negative effect on someone else’s credit. Consult your lender to determine how authorized users on your account are treated.
Joint Credit Cards Have an Impact on Your Credit Score
Opening a joint credit account or obtaining joint financing binds both of you legally to the debt’s repayment. This is critical to remember if you divorce or separate and your spouse refuses to make payments, even if previously agreed upon. It makes no difference who is “responsible,” the shared duty will result in both partners’ credit histories being badly impacted by late payments. Regardless of changes in relationship status or divorce order, the creditor considers both parties to be liable for the debt until the account is paid in full.
Whether you’re happily married or divorced, you and your spouse may decide to open separate credit accounts. Most creditors will enable you to transfer an account that was previously joint to one of your names if both of you agree. However, if there is a debt on the account, your lender may refuse to remove your spouse’s name unless you can qualify for the same credit on your own. Depending on your financial status, qualifying for financing and credit on a single income may be tough.
While creating the majority of your accounts jointly with your spouse may make it easier to obtain financing (two salaries are preferable to one), reestablishing credit independently following a divorce or separation is not always straightforward. To make matters worse, your spouse may wind up causing significant damage to your credit rating following the separation, either intentionally or through irresponsibility – making the financial situation much more difficult.
Before you rush in and open accounts with your spouse, take some time to discuss the shared responsibility of these accounts and what you and your husband would do in the event of a worst-case situation. These types of financial discussions can be difficult, especially when you rely on items lasting a long time, but a mutual understanding and respect for each other’s credit can go a long way toward keeping your score when sharing an account.
Should you pay down debt or save for retirement?
While establishing a comprehensive, workable budget is undeniably one of the most important factors in maintaining a healthy financial life, it can also be one of the most difficult. For those who are struggling with personal debt, building a budget can be particularly challenging. When the money coming in has to stretch like a contortionist to cover expenses, it can be hard to determine where to focus — and where to trim.
Sometimes, the battle of the budget can come down to a choice between dealing with the present — and thinking about the future. When your income is running out of stretch, do you pay off your existing debt, or do you start saving for retirement? At the end of the day, the solution to that particular dilemma depends on the type of debt you have and how far you are from retiring.
If you have high-interest debt, pay it down
When considering how to allocate your budget, it’s important to understand the different kinds of debt you may have. Consumer debt can be categorized into two basic types: low-interest debt and high-interest debt, each with its own impact on your credit (and your budget).
In general, low-interest debt consists of long-term or secured loans that carry a single-digit interest rate, such as a mortgage or auto loan. Though no debt is the only real form of good debt, low-interest debt can be useful to carry. For instance, purchasing a home with a low-interest mortgage can actually save you money on housing costs if you do your homework and buy a house well within your price range.
High-interest debt, on the other hand, typically has a hefty double-digit interest rate and shorter loan terms, such as that of a credit card or payday loan. High-interest debt is the most expensive kind of debt to carry from month to month and should always be priority number one when building a budget.
To illustrate why you should focus on high-interest debt above everything else, consider a credit card carrying the average 19% APR and a $10,000 balance. If the balance goes unpaid, that high-interest credit card debt will cost $1,900 a year in interest payments alone. Now, compare that to the stock market’s average annual return of 7%, and it becomes clear that you’ll see significantly more bang for your buck by putting any extra funds into your high-interest debt instead of an investment account.
If you are having trouble paying off your high-interest debt, there may be some steps you can take to make it more manageable. For example, transferring your credit card balances from high-interest cards to ones offering an introductory 0% APR can eliminate interest payments for 12 months or more. While many of the best balance transfer cards won’t charge you an annual fee, they may charge a balance transfer fee, so do your research. You’ll also want to make sure you have a plan to pay off the new card before your introductory period ends.
Most balance transfer offers will require you to have at least fair credit, so if your credit score needs some work, you may not qualify. In this case, refinancing your high-interest debt with a personal loan that has a lower interest rate may be your best bet. Make sure to compare all of the top bad credit loans to find the best interest rate and loan terms.
If you’re nearing retirement, start to save
The closer you get to retirement age, the more important it becomes to ensure you have adequate retirement savings — and the more pressure you may feel to invest every spare penny into your retirement fund. No matter your age, however, paying off your high-interest debt should always remain the priority, as it will always provide the best rate of return (as well as likely provide a credit score boost).
Indeed, no matter how tempting it becomes, you should avoid reallocating money you’ve dedicated to paying off high-interest debt to save for retirement. Instead, the focus should be on re-evaluating your budget to find any additional savings you can. To be successful, you will need to make a strong distinction between want and need — and, perhaps, make some tough lifestyle choices.
Though simply eliminating your daily coffee drink won’t magically provide a solid retirement fund, saving a few bucks by homebrewing while also eliminating a pricey cable bill in favor of an inexpensive streaming service — or, better yet, free library rentals — can add up to big savings over the course of the year. The ideal strategy will involve overhauling every aspect of your lifestyle, combining both large and small cuts to develop a lean budget structured around your long-term goals.
Of course, while you should never allocate debt money to your retirement savings, the reverse is also true. It is almost always a horrible idea to remove money from your retirement account before you hit retirement age — for any reason. Withdrawing early means you will be stuck paying hefty fees for withdrawing money early and, depending on the type of account, you may also have to pay significant taxes.
Aim for both goals by improving income
As you take the necessary steps to pay off debt and save for retirement, you may have already stretched the budget so thin it’s practically transparent. In this case, it is time to consider ways to improve your overall income. Increasing the amount you have coming in not only provides extra savings to put toward your retirement, but may also speed up your journey to becoming debt-free.
The easiest solution may be to look for ways to increase your income through your current job; think about taking on additional shifts or overtime hours to earn some extra cash. Depending on your position — and the time you’ve been with the company — consider asking for a pay raise or promotion, as well.
If you do not have options to make more money at your day job, it may be time to find a second job. Look for opportunities that provide flexible schedules that will accommodate your regular job; many work-from-home positions, for example, can easily fit into most work schedules. Doing neighborhood odd jobs, such as babysitting and dog walking, may also provide a solid income boost without interfering with your existing job.
For some, the need to pay off debt and improve retirement savings can be more than just a source of stress — but a hidden opportunity to begin a new career adventure. Instead of being weighed down by yet more work, use the desire to better your budget as a reason to explore the profit potential of a passion or hobby. Starting a small online store, part-time consulting service, or other small business can be a great way to improve your income and your overall happiness.
While it may sound intimidating, starting a side business can be as simple as putting together a professional looking website and doing a little marketing legwork to spread the word. And no, building a website isn’t as scary — or expensive — as it seems, either. A number of the top website builders now offer simple drag-and-drop interfaces perfect for putting together a professional-looking web page in minutes (without breaking the bank).
How does a loan default affect my credit?
Nobody takes out a loan expecting to default on it. Despite their best intentions, people sometimes find themselves struggling to pay off their loans. These types of struggles happen for many reasons, including job loss, significant debt, or a medical or personal crisis.
Making late payments or having a loan fall into default can add pressure to other personal struggles. Before finding yourself in a desperate situation, understanding how a loan default can impact your credit is necessary to avoid negative consequences.
30 days late
Missing one payment can further lower your credit score. If you can pay the past due amount plus applicable late fees, you may be able to mitigate the damage to your credit, if you make all other payments as expected.
The trouble starts when you (1) miss a payment, (2) do not pay it at all, and (3) continue to miss subsequent payments. If those actions happen, the loan falls into default.
More than 30 days late
Payments that are more than 30 days past due can trigger increasingly serious consequences:
- The loan default may appear on your credit reports. It will likely lower your credit score, which most creditors and lenders use to review credit applications.
- You may receive phone calls and letters from creditors demanding payment.
- If you still do not pay, the account could be sent to collections. The debt collector seeks payment from you, sometimes using aggressive measures.
Then, the collection account can remain on your credit report for up to seven years. This action can damage your creditworthiness for future loan or credit card applications. Also, it may be a deciding factor when obtaining basic necessities, such as utilities or a mobile phone.
Other ways a default can hurt you
Hurting your credit score is reason enough to avoid a loan default. Some of the other actions creditors can take to collect payment or claim collateral are also quite serious:
- If you default on a car loan, the creditor can repossess your car.
- If you default on a mortgage, you could be forced to foreclose on your home.
- In some cases, you could be sued for payment and have a court judgment entered against you.
- You could face bankruptcy.
Any of these additional consequences can plague your credit score for years and hinder your efforts to secure your financial future.
How to avoid a loan default
Your options to avoid a loan default depend upon the type of loan you have and the nature of your personal circumstances. For example:
- For student loans, research deferment or forbearance options. Both options permit you to temporarily stop making payments or pay a lesser amount per month.
- For a mortgage, ask the lender if a loan modification is available. Changing the loan from an adjustable rate to a fixed rate, or extend the life of the loan so your monthly payments are smaller.
Generally, you can avoid a loan default by exercising common sense: buy only what you need and can afford, keep a steady job that earns enough income to cover your expenses, and keep the rest of your debts low.
Clean up your credit
The hard reality is that defaulting on a loan is unpleasant. It can negatively affect your credit profile for years. Through patience and perseverance, you can repair the damage to your credit and improve your standing over time.
Consulting with a credit repair law firm can help you address these issues and get your credit back on track. At Lexington Law, we offer a free credit report summary and consultation. Call us today at 1-855-255-0139.
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