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Debt Validation

Debt Validation as an envelope with urgent final notice

Updated: Oct 21, 2014

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.

The 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.

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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  • LS
    May, 2014
    Lisa
    I live in NC, where a debt collector MUST (by law) notify anyone of their intention to sue. So at the end of December 2013, I received a "Notice of Intent to File Legal Action" from lawyers representing Portfolio Recovery Associates. But it also had the "must dispute within 30 days...", blah blah, in the body of the letter. I immediately disputed (to the law firm), and they sent back something that barely covered the required validation. In the meantime, I sent Portfolio a letter saying that I didn't recognize the debt, the original creditor, or them, and that I think they made a mistake (which I DO think)....and I asked them to send me back anything with my signature on it so I could have my lawyer look at it. I haven't heard anything from them since.

    My question is this (because I keep getting conflicting advice!) -- WHAT should I DO NEXT?? Should I send your "Insufficient Validation" letter to the law firm along with additional wording similar to what I sent Portfolio, about wanting a signature because I believe they have the wrong person?? OR, should I just lay low hoping that they forget about me until the statue of limitations is up with this (in December 2014, according to the statement copy they sent as validation)? Some people on debt collection websites say it's better to do nothing and HOPE, than to be proactive and draw unwanted attention to yourself!! WHAT would YOU do?
    0 Votes

    • BA
      May, 2014
      Bill
      Three reading assignments for you first, then our opinion on your course of action will follow.
      • You mentioned North Carolina. You seem versed in North Carolina collection law, but it doesn't hurt to learn a little more about your potential liabilities. Skim the Bills.com article North Carolina Collection Law.
      • You mentioned Portfolio Recovery Associates. Skim the Bills.com article Portfolio Recovery Associates to learn more about your opponent.
      • Should you receive a notice of a lawsuit, consult with a lawyer. Read Answer a Summons & Complaint to learn how to respond to a summons.

      As we mention in the article above, collection agents have a difficult time validating debt properly. You indicated you challenged the validation Portfolio Recovery Associates provided you, and asked for more evidence the debt is yours so that you could give this to your lawyer.

      Your implication to Portfolio Recovery Associates you hired a lawyer may have given the collection agency pause, but I doubt it. It's likely they hear this sort of statement all of the time from consumers. They would, of course, believed you had hired a lawyer if your lawyer would have sent the request for discovery.

      No one outside of a collection agency's walls knows what they plan to do with a particular collection account, including Bills.com. Our guess is PRA pulled your credit report, made a guess as to your assets, and added in your apparent willingness to litigate this issue into their equation to pursue you further. PRS may have doubts about this debt, just as you do. If so, then you may never hear from the company again.

      We don't see how poking at Portfolio Recovery Associates a second time will help your cause. Lie low, and consult with a lawyer who has consumer law immediately should you be put on notice of a lawsuit.

      0 Votes

    • LS
      May, 2014
      Lisa
      THANK YOU for your reply. I just wanted to be clear about one thing -- I'm not considering poking at PORTFOLIO a second time, but the LAW FIRM that sent me the Notice of Intent and responded to my request for validation. I haven't sent anything back to those lawyers (acting as debt collectors for PRA), and they only sent a computer printout as validation. That's what I'm wondering ....should I send THE LAW FIRM my letter now? Will PRA share the one I sent them with the Firm?? Shouldn't those lawyers get something back from me about insufficient validation and my belief that this debt IS NOT MINE? (it's NOT!) Can I be sure that PRA will make sure their Law Firm sees my letter challenging that account as being really mine? If you still believe that I should lay low, I will definitely follow your advice. But I wanted to make sure that you knew I hadn't sent anything but a generic debt validation letter to the Law Firm that first contacted me. I probably should have sent my challenge letter to them to begin with (instead of to PRA), but I'm still learning this stuff as I go along! Wouldn't sending it to the lawyers be "poking at" them a FIRST time?
      0 Votes

    • BA
      May, 2014
      Bill
      Thank you for your clarification.

      Don't assume Portfolio Recovery sent its lawyers everything in your file. Therefore, send the lawyers representing Portfolio Recovery a notice of insufficient validation if they did not validate the debt properly.

      Include in your notice a statement explaining why you believe the debt is not yours. For example, if you have a common first and last name, or never had an account with that company, say that and explain they are trying to collect from the wrong John or Jane Doe.
      0 Votes

  • RP
    Apr, 2014
    Ricki
    I had a judgment already served to me and my original debt was a little over $1,000. I have paid almost $1,400 and the lawyers still say I owe $2,000, I'm assuming in fees. What can I do?
    0 Votes

    • BA
      Apr, 2014
      Bill
      Study your state's usury rules and judgment rules to learn the permitted interest rate for judgments. Do the math on your payments and balance due. If the judgment-creditor is exceeding the state judgment interest rate, then consult with lawyer who has civil litigation experience.
      0 Votes

  • AC
    Mar, 2014
    Ann
    I received a call at work and cell from a collector, and I believe the debt to be mine but the amount is way high like $2,000 to the $800 I think it should be. I want to send a validation letter but they have not given me any address for themselves. They sent me an e-mail with original creditor name and the $2,000 amount and an offer to settle for about $1,000. How do I handle this?
    0 Votes

    • BA
      Mar, 2014
      Bill
      Assume you are dealing with a scam artist until you receive written validation of the debt. E-mail is not good enough!

      What to do? Insist the caller give you his or her employer's name, mailing address, and the account number of the collection account. Then follow the instructions at the top of this page, and send a written request for debt validation using USPS Certified Mail.

      Include in your debt validation letter a request the caller stop calling you at work.

      Under federal law, a collection agent can add fees and interest to a collection account when:
      • State law allows it (most do), and
      • The original contract allows fees and interest

      The original contract is almost never included with a collection account. As a result, honest collection agents do not add interest and mystery fees to a collection account. Unscrupulous ones do in hopes consumers will not know this FDCPA rule. If the mystery fees were added by the original creditor, then you don't have a strong argument. But if the collection agent added $1,200 to the original debt, then they are almost certainly in violation of the FDCPA. Consult with a lawyer if the collection agent validates the debt to discuss how to proceed.

      0 Votes

  • KA
    Mar, 2014
    Kim
    I just received a call regarding a consumer debt from my husband from 1992. She mentioned he could receive a 1099C. What is a 1099C? Also, can I be held accountable for his debt. This was 10 years prior to marriage. Should I be concerned? Do we need to follow up on this. After 22 years I am confident he has no records regarding this reported debt.
    0 Votes

    • BA
      Mar, 2014
      Bill
      Read 1099-A vs. 1099-C to learn about 1099-Cs.

      If you live in a community property state, it is possible for creditors to reach assets owned by both spouses for debt of one spouse. In some community property states, this rule applies to pre-marital debt, too. If you live in a common law state, then it is much less likely state law will allow creditors to reach assets owned by the non-creditor spouse.

      You mentioned this is "consumer debt." If the debt is medical or involves supporting a spouse, some states follow the doctrine of necessaries, which requires spouses to support each other and pay each others' medical debts.

      Take these three steps:
      1. Validate the debt by following the steps outlined above. A debt that cannot be validated cannot be collected. Roughly half of all collection accounts cannot be validated, and the older the debt the less likely it is the collection agent will be able to validate the debt.
      2. Send the collection agent a cease communications notice with the debt validation.
      3. If you receive a notice of a lawsuit, consult with a lawyer to file an answer. Ignoring a lawsuit will not make it go away and will almost certainly make your situation worse.

      You want the collection agent to file a lawsuit over a 22-year-old debt. Why? Under the Fair Debt Collection Practices Act, a collection agent may not file a lawsuit on time-barred debt. If it does so, you have a cause of action (a legal reason to file a lawsuit) against the collection agent for violating the FDCPA, and the right to collect damages for this violation.

      0 Votes

  • DS
    Feb, 2014
    Devin
    I have credit card debt I ignored since 2007. Now I want to fix my credit and someone said look up statute of limitations in California where I live. I have never been sued by any creditors that I am aware of. I know the credit card company's have sold my debt but I have never talked to any of those collectors by phone or by mail. What's the best way to handle this?
    0 Votes