Banks report borrowers’ late payments as overdue or delinquent to credit bureaus like Equifax, Experian, and TransUnion. However, it is the collection agency purchasing the debts from the banks that report them to the bureaus as unpaid or collection accounts when borrowers fail to pay. These reports significantly damage borrowers’ credit scores as they indicate higher risks to creditors.
For a collection account to be listed on borrowers’ credit profiles, the agencies must prove they have made multiple attempts to contact such individuals either through recorded phone calls or postal letters. Collection agencies often lack the necessary information to legally collect, and ultimately send unpaid accounts to credit bureaus.
Therefore, They ask borrowers to confirm personal details like their date of birth and Social Security Number before discussing the debt. Borrowers are not obligated to provide this information. When they do provide it, they enable the collection agency to proceed with the collection. When they refuse, the agencies cannot legally collect.
Individuals have the right to request a copy of the contract that assigns their debt to the collection agency. When the debt collector cannot provide this contract during a call, borrowers may inform them that they will send a certified debt verification letter to the agency to request this document. Once they say that, the collector must end the call and refrain from calling the debtee until the agency sends the letter.
Under the Fair Credit Reporting Act (FCRA) and the Consumer Financial Protection Bureau (CFPB), the collection agency has 30 days to respond to consumer requests. If they fail to provide the contract within this period, or if they admit they cannot provide it, the debt is considered null and void. If they do provide the contract but individuals believe there is an error or they do not recognize the debt, they have the right to file a complaint with the CFPB. This could lead to the invalidation of the debt or the removal of the delinquency from their credit report.
In summary, collection agencies play a significant role in reporting unpaid debts, but they must adhere to strict legal requirements before they can do so. Borrowers have rights under the Fair Credit Reporting Act (FCRA) and the Consumer Financial Protection Bureau (CFPB) to challenge and verify the validity of any collection account reported on their credit profile. By exercising your right to request verification and understanding the obligations of collection agencies, they can protect themselves from unjust debt collection practices and potentially prevent negative impacts on your credit score.
Bobb Rousseau, PhD
Bobb Rousseau
Business Coach
Policy Consultant