Debt Validation & Credit Repair

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    Facts

    • Debt validation is a method by which an individual can request proof from a collection agency that he owes the debt and that the collection agency in question is legally authorized to collect the debt. According to the Fair Debt Collection Practices Act (FDCPA), a collection agency may not continue collection activity until it provides the consumer with acceptable proof that the debt is legitimate and that it owns the debt. Collection activity includes, but is not limited to: Telephone calls, letters and credit reporting.

    Significance

    • Consumers often use debt validation as a method of credit repair because if the collection agency cannot validate the legitimacy of the debt or its right to collect, the debtor may dispute the account with the credit bureaus. The credit bureaus will also request that the collection agency validate the debt. The assumption is that if the company cannot validate the debt to the consumer, it cannot validate the debt to the credit bureaus. Should this occur, the credit bureaus will remove the collection account from the individual's credit report and her credit score will improve.

    Features

    • The FDCPA does not state what type of proof a collection agency must provide to a consumer in order to remain in compliance with the laws. Thus, most collection agencies use an automated debt validation system that sends computer generated printouts of the debtor's account information with the collection agency to the individual as a debt validation. Because these printouts often only contain the debtor's name, his account number and the amount he owes, many individuals argue that they do not serve as sufficient proof. Legally, however, the collection agency may resume collection activity after sending the consumer a computer generated debt validation.

    Effects

    • If a collection agency fails to validate a consumer's debt upon the individual's request but verifies the accuracy of the debt to the credit bureaus during a dispute investigation, the consumer may file a lawsuit against the company for doing so. Communicating with a third party about the debt without validating the debt to the consumer is against federal consumer protection laws. Many collection agencies would prefer to simply remove the collection account from the consumer's credit record themselves rather than face the costs of defending themselves against an FDCPA lawsuit. In this way, debt validation--or lack thereof--can also be an instrumental tool in credit repair.

    Considerations

    • When requesting a debt validation from a collection agency, consumers should take care to send their requests via registered or certified mail. Doing so allows the consumer to request a return receipt proving that the company received his validation request. Failure to obtain proof of delivery gives the individual little legal recourse in the event that the collection agency continues collection activity without providing the debtor with the proof he asks for. If the individual has no proof that the company received his letter, he has little chance of winning a lawsuit against the agency for violating his rights.

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