Debt Validation

Bills.com Team
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Highlights


  • Ask for debt validation when a collection agent attempts to collect a debt.
  • If a creditor cannot verify a debt it may not collect the debt.
  • Send a debt validation letter immediately, because there is a 30-day time limit.
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What is debt validation and how do I do it? Also, how do I know if a debt is properly validated?

Ask for a debt validation when someone attempts to collect an old debt from you.

Collection agents are bound by federal and state laws concerning the collection of debt. Original creditors must also follow debt collection rules when attempting to collect a delinquent debt. The Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Reporting Act (FCRA) are key federal laws regarding these issues. Many states have consumer protection laws that overlap with both acts, and have stricter rules protecting consumers.

he FDCPA and FTC use the word verify to describe this process. Bills.com and other personal finance Web sites call it validate or validation. These terms refer to the same process and are interchangeable.

Assignment of Debt

Most consumer debt contracts give the original and subsequent creditors the right to assign the debt. Assignment is legalese for “sell the rights to the contract.” Collection agents buy most debts for 5 to 50 cents on the dollar. The collection agent has the right to collect the entire balance due plus interest, but does not necessarily expect to collect the full amount. State laws set the interest and fee rules collection agents can tack onto a debt.

a name="SOL"> Consumers with old delinquent debt often ask how their state statutes of limitation may impact their rights. See the Bills.com resources Statute of Limitations Laws by State and How to Tell Which Statute of Limitations Applies to Your Situation to learn more about this issue.

How to Ask For a Debt Validation

If a collection agent demands payment of a debt a consumer does not owe, or more than they owe, the consumer can dispute their responsibility for the debt or the validity of the amount. The formal terms for this process are “debt verification” or “debt validation.”

A consumer should, as a matter of course, validate a debt when a collection agent attempts to collect the debt. Why? Just because a voice on the telephone claims someone owes the collection agent money does not necessarily mean the collection agent has the right to collect the debt, or that the debt is even owed. If a collection agent cannot validate the debt, it may not collect the debt or report it to the consumer credit reporting agencies. A collection agent is stopped dead in its tracks if it cannot validate a debt.

A disputed debt could be:

  • One already paid
  • One you do not owe
  • An amount different from what is demanded
  • Related to a hospital stay. If you informed the hospital you could not pay for the care, the hospital should have considered payment under its charitable care policy.
  • A time-barred collection (see the statute of limitations Quick Tip above)
  • One discharged in bankruptcy

Is it worth your time to validate a debt? Yes! Collection agents cannot validate 41% of the accounts less than 3 years old. Collection agents cannot validate 64% of the accounts 6 years of age or older. Overall, the debt industry can validate about half of all accounts (The Structure and Practices of the Debt Buying Industry (PDF)). The least likely accounts to be validat­ed are med­ical, tele­com­munica­tions, and utility debts.

Here is a template of a debt validation letter to help you get started: Sample Debt Validation Letter

Edit our sample debt validation letter to fit your needs. Then, send it USPS Certified Mail to the collection agent who demands you pay the old debt. Be sure to send this letter within 30 days of receiving notice of the attempted collection. Keep careful records of your debt validation. Repeat this process if the collection agent sells the collection account in question to a different collection agent. (See the comments from readers below for examples of collection agents that seem to sell the accounts of people who ask for debt validations.)

To learn more background information about debt validation and what information you can expect to receive from a collection agent, read on.

Debt Validation Statutes & Case Law

Debt validation rules are set by Congress in statutes and by federal courts in case law. As with other laws, Congress writes the rules, and then the courts interpret them. Here, it is important to understand both because some federal appeals courts interpreted the verification rules narrowly.

We discuss both the statutes and the case law here because other personal finance Web sites focus on the statutes only, and others offer incomplete discussions of the case law. Some discuss only state appellate law, which applies in that state only. You need to understand both the statutes and the case law to get a complete picture of your rights.

Debt Validation Statutes

Let us look at the statute first. Here is FDCPA Section 809(a) (15 U.S.C. § 1692g(a)):

  1. “Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing —
    1. “the amount of the debt;
    2. “the name of the creditor to whom the debt is owed;
    3. “a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector;
    4. “a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and
    5. “a statement that, upon the consumer’s written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.”

According to the statute, after receiving the notice of dispute from the consumer, the collection agent must:

  • Suspend collection activities regarding the claimed debt until the collection agent receives verification of the debt or receives a copy of the judgment against the consumer
  • Provide verification, by mail, to the consumer, including:
    • The name and address of the original creditor
    • A statement from the original creditor the debt is valid
    • The amount of the original debt
    • Copies of judgments (if any)
  • Not report the debt to the credit reporting agencies, including Equifax, Experian, and TransUnion, according to some interpretations of the statute. Or, according to other interpretations, may report the debt to the credit reporting agencies as “disputed.”

If the collection agent is collecting more than one account from a consumer, the consumer must instruct the collection agent how to apply any payments made to each debt. The collection agent may not apply a payment to a disputed debt.

Debt Validation Case Law

If all federal appeals courts had been asked to interpret the debt validation law and did so consistently, we would have a fair understanding of how validation is supposed to work, what information collection agents are supposed to give consumers when validating a debt, and a uniform application of the rules.

States following the 3rd, 4th, 9th & 11th standards
Source: Bills.com
Alaska
Arizona
California
Delaware*
Guam
Hawaii
Idaho
Maryland
Montana
Nevada
New Jersey*
North Carolina
Northern Mariana Islands
Oregon
Pennsylvania"
South Carolina
Virgin Islands*
Virginia
Washington
West Virginia
* Must provide dates the debts were incurred to residents in these jurisdictions.

However, four federal appeals courts that Bills.com could find weighed in with definitions of validation that appear tighter than what Congress may have had in mind when writing the FDCPA.

  • In the Third Circuit, the court articulated this standard: “computer printouts which confirmed amounts of debts, the services provided, and the dates on which the debts were incurred constituted sufficient verification” (Graziano v. Harrison, 950 F.2d 107, 113 (3d Cir. 1991))
  • The Fourth Circuit uses a much lower standard: “[v]erification only requires a debt collector to confirm with his client that a particular amount is actually being claimed, not to vouch for the validity of the underlying debt” (Chaudhry v. Gallerizzo, 174 F.3d 394 (4th Cir. 1999))
  • The Ninth Circuit follows the Fourth Circuit’s lower standard (Clark v. Capital Credit & Collection Servs., 460 F.3d 1162 (9th Cir. 2006))
  • The Eleventh Circuit sets the bar even lower: “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” (Azar v. Hayter, 874 F.Supp. 1314, 1317 (N.D. Fla.), aff’d, 66 F.3d 342 (11th Cir. 1995), cert. denied, 516 U.S. 1048 (1996))

Although this has no legal weight or precedent, FTC counsel seems to follow the Fourth Circuit standard, too. (Wolman-LeFevre letter dated March 10, 1993)

We could find no cases in other nine circuit courts regarding debt verification, and no federal cases contradicting the four mentioned. The US Supreme Court has made no decision in this area.

Therefore, in states in the US Third, Fourth, Ninth, and Eleventh Circuit Courts, collection agent must provide two or three pieces of data in writing when a consumer asks for a debt validation:

  • Confirmation from the original creditor the consumer owes the debt
  • Confirmation from the original creditor the amount demanded is accurate
  • Dates the debts were incurred, if the consumer resides in Delaware, New Jersey, Pennsylvania, or the Virgin Islands (Graziano v. Harrison as cited above).

It is unclear if the other circuit courts would require a collection agent to provide the dates the debts were incurred, or an itemization of the collectors’ added charges, which is what the FTC has recommended Congress add to the FDCPA.

If you live in one of the other nine circuits, then you can argue the collection agent must follow the statute, and not the standards set by the Third, Fourth, Ninth, and Eleventh Circuit Courts.

Dealing with debt? A Bills.com debt resolution partner might be able to help.

Must a Collection Agent Cease Collecting When it Receives a Verification Notice?

Collection agents must cease their collections activities when they receive a verification notice. A collection agent may resume these activities when it mails a copy of the verification to the consumer.

The 30-day period during which a consumer has a right to request a verification is not a grace period. A collection agent may continue their collection activities, including filing a lawsuit against the consumer.

In a 1997 opinion, the Seventh Circuit states "[t]he debt collector is perfectly free to sue within the thirty days; he just must cease his efforts at collection during the interval between being asked for verification of the debt and mailing the verification to the debtor." Bartlett v. Heibl, 128 F.3d 497, 501 (7th Cir. 1997) (Posner, J.).

The Sixth Circuit stated "[a] debt collector does not have to stop its collection efforts [during the thirty-day period] to comply with the Act. Instead, it must ensure that its efforts do not threaten a consumer’s right to dispute the validity of his debt." Smith v. Computer Credit, Inc., 167 F.3d 1052, 1054 (6th Cir. 1999).

There is no time limit on when a collection agent must respond to a verification. It may, for example, respond with its evidence 75 days (to pick a number out of the air for the sake of argument) after receiving the consumer’s debt validation request. It is unclear if, during those 75 days, the collection agent may not report the debt to the consumer credit reporting agencies, or if it must report the debt as “disputed.”

Conclusion

Send a debt validation letter immediately because there is a 30-day time limit for doing so. The collection agent, in turn, must respond with validation. As discussed above, what is complete and proper validation depends on your state of residence. See the Bills.com resource What if a Collection Agent Does Not Validate a Debt? if the collection agent does not comply with your debt validation request.

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179 Comments

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  • SR
    Jan, 2013
    Samantha
    In 2006, I briefly enrolled in a credentialing program With the promise I would receive financial aid to pay for the program. Even though I filed a FAFSA and required financial aid, the school never addressed this. I had to withdraw.

    A couple of months ago, the school contacted me and claims that I owe them over $6,000. I responded to them in writing within 30 days to dispute the debt and they never responded.

    Today, I received a collections notice on behalf of the school from a collections agency. I plan on disputing it right away. Should I include in the dispute letter that the statute of limitations is up? I live in California where the statute of limitations is 2-4 years. How likely do you think it is that they will get the debt verified and take me to court?

    If the affirmative defense is used, then the case would be thrown out right?
    0 Votes

    • BA
      Jan, 2013
      Bill
      You have several defenses.
      1. Consult with a lawyer who has consumer law or civil litigation experience. If the school promised to help you find a loan, and you dropped out shortly after enrolling because it failed to fulfill its promise, then you owe the school nothing. The $6,000 debt should not exist.
      2. Assume for a moment you have legal liability for the debt, the California statute of limitations for a breach of contract is 4 years. Here in 2013, we are long passed the California statute of limitations. Should the school or its collection agent file an action against you (a lawsuit, in other words), you have the affirmitive defense of statute of limitations you can assert. If you assert this defense at trial and the court looks at the timeline here, it will dismiss the case.

      No outsider can answer the question, "Will creditor X file an action against me," because creditors and collection agents are unpredictable. I have seen collection agents sit on collection accounts totaling tens of thousands of dollars, and other collection agents file small claims cases for $500 accounts.

      My advice? In your debt validation letter, explain that if the collection agent files an action, you plan to assert all available defenses including breach of contract and the California statute of limitations.

      0 Votes

  • KO
    Nov, 2012
    Kimberly
    My husband received a phone call about a debt (payday loan) he supposedly owes from 2006. He was told that he would be summoned to court if he did not pay. My husband kept asking for information on it and all they told him was the amount of the debt and the name of the place that he originally had the debt to. When he asked if they could send the info to his email they told him yes and asked for his email address. He gave it to them and they never sent anything. The guy told my husband 'so you admit you owe this debt?'. my husband said he did take out payday loans before but they were paid for. when he tried to ask for more information about the loan, they kept skating around the question and tried to get him to pay money today. When he refused until he got info, they said he would be served with a summons at his place of employment. Now, I read that the statute of limitations in Texas is four years so is what the debt agency saying valid or are they blowing smoke up your... you know. lol any info would be greatly appreciated.
    0 Votes

    • BA
      Nov, 2012
      Bill
      First, your spouse should reread the original article above to learn the steps necessary to validate a debt. If a collection agent refuses to give a consumer its contact information to validate a debt, then the consumer should assume he or she is dealing with a fake debt collector.

      Second, you mentioned you reside in Texas. Read the Bills.com article Payday Loans & Hot Checks in Texas to learn why the collection agent's statement your spouse could expect to be served a summons at his place of employment is possible under law.

      Third, the Texas statute of limitations is four years for a breach of contract, as you mentioned. However, that does not mean the creditor is prohibited from filing a civil lawsuit against your spouse. However, it does mean that if your spouse mounts a defense against the creditor, and the court believes the statute of limitations defense, the case will be dismissed.
      0 Votes

  • MK
    Aug, 2012
    Maria
    I was checking my credit report and came across two collections due to unpaid medical bills. They claim collection on November 2011, then May 2012, and so on. I did go to the hospital in November though I had all the bills paid in April and have proof of that. Though I imagine I should have bills from 2008 when i was only visiting the country and had to go to the ER. I never received any bill since I left the country a week after and returned a year later to a different city. So, I guess they might have restarted collection on my visit to the different hospital in November. Never had any letter from them so couldn't really contact . If that has anything to do with the previous debt why the earliest date it would show would be November 2011? Can they "update " collection like that so it will never expire? If that happened due to my visit to the hospital, why wouldn't they send me any letter to the address as all the medical bills did?

    I want to clean up my credit report. Could you advise me on the steps? Appreciate any help, thanks
    0 Votes

    • BA
      Aug, 2012
      Bill
      Let me challenge several of your assumptions. Creditors, which include hospitals, do not have a private Internet or database where they share contact information about consumers. You could visit three different hospitals in one city and give them three different addresses for billing, and none would be the wiser. Also, credit reports are not legal ledgers where a consumer's financial history is maintained. Many credit reports contain inaccurate information, and the credit reporting agencies do a particularly bad job with people like you who change addresses frequently.

      Regarding your date questions, original creditors or collection agents may not reset the date of first delinquency on a debt. To do so violates the Fair Credit Reporting Act. If a collection agent resets the date of first delinquency, file a dispute with the creditor reporting agency or agencies that publish the incorrect date.

      You asked how to improve your credit report. Read the Bills.com article How to Improve Your Credit Score to learn what steps you can take to clean up your credit report, which will increase your credit score.
      1 Votes

  • CB
    Jul, 2012
    Cassandra
    Source Receivable Management recently called me about a debt from 1995. When I asked who the client was, they said Sears. I told them that I received a letter in 2000 from another company telling me they'd purchased the account from Sears and I know Sears didn't turn around and buy it back. I've told them multiple times that I would not pay the debt because the statute of limitations ran out over 10 years ago, not to mention they lied about calling on behalf of Sears. I understand that being outside the statute does not excuse me from paying the debt, they just can't sue me for it or report it to the credit card companies. I received a letter in the mail from a different company, Convergent Outsourcing, about the same debt. I sent them a certified letter stating "I dispute the validity of this debt. Even if this was a valid debt, as you are aware, it is outside the statute of limitations." A week later, I received yet another letter from Resurgent Capital Services about the same debt. Each company's letter explains the same 30 day rule: if they don't receive written notice within 30 days, they will assume the debt is valid. Do I have to keep sending certified letters every time another company contacts me about this same 17 year old debt?
    0 Votes

    • BA
      Jul, 2012
      Bill
      Yes. Unless and until your state legislature outlaws what you described, collection agents are permitted to buy, sell, and trade old collection accounts and attempt to collect the account even though the statute of limitations is long passed. As you mentioned, should the collection agent file an action against you (file a lawsuit), you have the affirmative defense of statute of limitations available to you.

      My advice? Keep careful records of your debt validation letters. If the collection agents are alter egos of each other, you may have a cause of action against the company for an intentional infliction of emotional distress claim, or a similar claim based on your state's particular laws.
      0 Votes

    • MF
      Jul, 2012
      Michelle
      I happen to have the same issues with the same collection agencies as the original poster of this matter. I, too, received a collection letter from Convergent Outsourcing and in turn, I sent them a debt validation letter. A week later, I also received a collection letter from Resurgent Capital on the same debt with the same 30 days term to validate the debt. But what is different is that Resurgent did provide a validation of debt. It specifies that the so called "original creditor" is "Metris" who supposedly recently acquired the debt from "Arrow Financial Services". I looked up both companies on the internet and they are both collection agancies! I think this debt is being passed on from one collection agency to another. Neither Convergent or Resurgent can really pinpoint who the actual original creditor is! Additionally, the account is not even on my credit report! Should I send Resurgent another debt validation letter since I do not agree with their validation of debt? I really do not think that they can collect on this account since it is way passed the statute of limitations.
      0 Votes

    • BA
      Jul, 2012
      Bill
      Under the Fair Debt Collection Practices Act, the original creditor must validate the debt. Collection Agent A may not validate a debt for Collection Agent B, C, D, and so on.

      Regarding your statute of limitations comment, unless you reside in Wisconsin or North Carolina, an original creditor or collection agent may attempt to collect a debt after the statute of limitations for contract breach expires in your state. If an original creditor or collection agent files a lawsuit against you, you may raise the statute of limitations defense to ask the court to dismiss the case. Unfortunately, some Internet commentators concatenate this into, "The creditor can't collect the debt if the statute of limitations has expired," which is wishful thinking and a false statement in all but two states.

      My advice? Send Resurgent a notice of insufficient validation. Keep complete records about this collection account, and in particular, your proof of when you sent debt validation and insufficient validation notices.
      0 Votes

  • KA
    May, 2012
    Karla
    Issue number 1 I filed bk back in September of 2008. One of the accounts included was Drive Time. Since then, they have attempted to collect on this debt every 6 months or so regardless of cease and desist notices from my attorney. The big issue, i just noticed on my Equifax report that Drive Time is reporting a $6000 past due amount. To me, this is a passive aggressive attempt to collect a debt which violates 3 different laws: FDCPA and US Bankruptcy code for attempting to collect on a discharged account FCRA for reporting incorrect information. I feel this has unfairly damaged my score for at least 44 months. Can I handle with demand letter?
    0 Votes

    • BA
      May, 2012
      Bill
      Time to put this issue to an end and consult with your lawyer about filing an action against the collection agent. Consumers file about 1,000 lawsuits each month against collection agents that violate state and federal laws, and this collection agent deserves an expensive education in bankruptcy law and the FCRA. I do not see a FDCPA issue, but I am either lacking imagination or facts to see a violation there.
      0 Votes

    • KA
      May, 2012
      Karla
      In this case it is the original creditor.
      0 Votes

    • BA
      May, 2012
      Bill
      Once a debt is discharged in bankruptcy, a creditor (be that a collection agent or the original creditor) may not attempt to collect the debt. Doing so is a violation of bankruptcy law. A debtor in this circumstance almost certainly has a cause of action against the creditor.
      0 Votes

    • KG
      May, 2012
      Ken
      I do not see a direct cause of action here. What needs to be done is that a motion is filed in BK Court to have the creditor held in contempt.
      0 Votes