Debt Consolidation

The Fair Debt Collection Practices Act was passed in 1977 to protect you from abusive debt collectors. Here are rules a third-party debt collector must follow:

Contacting a debtor. A collector may contact you in person, by mail, telephone, telegram or fax. However, a debt collector may not contact you at inconvenient times or places, such as before 8 a.m. or after 9 p.m., unless you agree. A debt collector also may not contact you at work if the collector knows your employer disapproves of such contacts. Tip: If a debt collector phones you at work, inform your boss that it is disrupting your performance, and have your boss tell the collector to stop calling you at work. Drawback: If your boss learns of your debt problems, it may interfere with your promotional abilities.

Contacting a third party about your debt. If you have an attorney, the debt collector must contact the attorney rather than you. If you don't have an attorney, a collector may contact other people but only to find out where you live, what your phone number is and where you work. Collectors usually are prohibited from contacting such third parties more than once. In most cases the collector may not tell anyone other than you and your attorney that you owe money.

Giving written notice. Within five days after you are first contacted, the collector must send you a written notice telling you the amount of money you owe, the name of the creditor to whom you owe the money and what action to take if you believe you do not owe the money. Tip: Once you receive the letter, you may want to attempt a settlement with the creditor or the collection agency. A collections agency is always authorized to take something less than 100 percent, usually 50 to 60 percent. Here are tips on how to proceed:

- Whether you pay in full, negotiate for a percentage of the debt or accept a payment plan, get everything in writing before you give them any money.

- Make them stipulate they will not report anything negative to the credit bureaus regarding the debt. And have your original creditor sign off on the deal. A collection agency could offer to settle a $1,000 credit card bill for just $500. But once they're paid, the original creditor can still come after you for the other $500.

- If you negotiate a settlement for less than you owe, you could end up paying taxes on the unpaid portion. But if the unpaid amount is less than $600, a collection agency does not have to report it to the IRS. Make this part of your written agreement.

- Always pay with paper checks, not electronic bank drafts by phone or debit cards. It's to your advantage to have a physical record that you've paid, plus you control exactly what you're paying and when.

- Be sure to get something in writing when the debt is paid. That way, if it does come up on your credit report, you have something to prove it was paid.


When a consumer doesn't owe the money. A collector may not contact you if within 30 days after you receive the written notice, you send the collection agency a letter stating you do not owe money. However, a collector can renew collection activities if you are sent proof of the debt, such as a copy of a bill for the amount owed.

No harassment. Debt collectors may not harass, oppress or abuse you or any third party they contact. They cannot:
- Threaten violence or harm.
- Use obscene or profane language.
- Repeatedly use the telephone to annoy someone.
- Lie.
- Use any false or misleading statements when collecting a debt.
- Falsely imply that they are attorneys or government representatives.
- Falsely imply that you have committed a crime.
- Falsely represent they operate or work for a credit bureau.
- Misrepresent the amount of your debt.
- Give false credit information about you to anyone, including a credit bureau.
- Send you anything that looks like an official document from a court or government agency when it is not.
- Use a false name.

Debt collectors may not state that:
- You will be arrested if you do not pay your debt.
- They will seize, garnish, attach or sell your property or wages unless the collection agency or creditor intends to do so and it is legal to do so.
- Actions, such as a lawsuit, will be taken against you when such action legally may not be taken or when they do not intend to take such action.

A debt collector may not engage in unfair practices when they try to collect a debt from you. They cannot:
- Collect any amount greater than your debt, unless your state law permits such a charge.
- Deposit a postdated check prematurely.
- Use deception to make you accept collect calls or pay for telegrams.
- Take or threaten to take your property unless this can be done legally.


Having bad debt collection harassment? Here are some extreme steps you may decide to take:

1: Don't take the calls. You can hang up, screen calls or stop them from calling entirely with what's known as a "cease and desist letter." If you send a "cease and desist," include your name, address and account number, and tell the company "do not contact me further about this debt." Send the letter certified so that you have proof the company received it. But this move doesn't cancel your debt. The original creditor or the collection agency may decide to sue, or the creditor can simply hire another third-party collector.

2: Keep a diary. If you do take the calls, write everything down: dates, times, names and what is said. If it's legal in your state, tape the exchange. And if you tell them you're taping the call; whether you are or not, they'll be more likely to behave.

3: Negotiate to pay the debt. Once a debt goes to collections, you may be able to work out a deal to pay less than the full amount.

4: Understand the laws in your state. Garnishment, lawsuits and property seizure are illegal in some places, which gives you a little more leverage to work out a deal. To learn what is and isn't allowed, call your state Attorney General's office or the state consumer protection office.

But third party collectors have a choice: they can operate under the laws of your state or those of the state where the debt originated, usually interpreted as where you were living when you opened the account. Also, time may have run out on the debt. While there is no federal statute of limitations on debts, most states limit the amount of time a creditor has to collect a debt. However, that deadline varies from state to state. There is also a question of which state's rules govern the transaction, yours or the creditor's. That's a very gray area. Check with your local state authority or an attorney in your state who specializes in this kind of law.

5: File a complaint. If you suspect that a collection agency has crossed the line, call the FTC and your state's governing office and file complaints. (Yet another reason it's good to keep a written or tape recorded diary.)

6: Sue. If a third-party collection agency violates your rights, you can sue for actual damages and punitive damages, as well as attorneys' fees and court costs.

Article by Toni Phelps, with resources from Credit Federal's Debt Negotiators and the Federal Trade Commission