Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006).
Dear To Her Credit,
I recently had lunch with a friend who had surgery over 10 years ago. At the time, she was uninsured and so the hospital set her up with a payment plan. Her bill was $3,000. Evidently, she was late with a payment because she was set up with a collection agency, paying $50 a month. When I asked her what her balance was, she said they wouldn't tell her!
Shouldn't she be getting some kind of accounting for her payments so she will know her balance? How will she know when she is paid up? -- Vicki
Dear Vicki,
Your friend has a right to know how much she owes, how much she has paid, and what fees and interest charges have been added to the account. Not only is that the law, but it seems like something we should all be able to take for granted.
Unfortunately, your friend's problem is not unusual. One reason it's sometimes hard to get this information from the collection agency, according to Jack Craven, president of Debt Settlement USA, is that the agency that currently owns the debt may have trouble tracking the information down. "Some of our clients have debts sold once or twice," he says. "The collection agency could have trouble, with a cold audit trail, figuring out where the account originated or what the original balance was."
If your friend can't find out how much she owes, she should have the debt "validated." The federal Fair Debt Collection Practices Act (FDCPA) requires that agencies validate a debt when there is any dispute about the legitimacy, ownership or any other aspect of the debt. A debt is validated when the agency proves the identity of the original creditor, their right to collect the debt, the amount of the original debt, and how much has been added in interest and fees.
Here's what your friend should do:
Send a certified letter to the agency and ask it to "validate" the debt. "You have every right to have them revalidated," says Craven.
If the agency refuses to give her updated balance information, she should collect evidence of their refusal. Norman H. Perlmutter, CPA and author of "How to Settle Your Debts," recommends saving recorded telephone messages (check your state laws before you record any conversations). At a minimum, she should keep diary entries of conversations she had where the balance due was requested and not provided, including the date, who she spoke to, and so on. "The more of this, the better," says Perlmutter. "Then she should report the problem to the FTC [and] her state attorney general and find an attorney who will handle the case and sue." An attorney who specializes in FDCPA violations may file a lawsuit against the debt collector for statutory damages provided by the FDCPA, and in some cases, real or punitive damages.
If the agency provides the information, check it carefully to make sure no unwarranted fees have been added to the debt.
Most collection agencies try to do their job in a forthright, honest manner. After all, if word gets back to the original creditors or the Better Business Bureau that they do not, they can lose business. There are a few shadier agencies out there, however. In fact, I hear about agencies like this all too often.
If the interest rate on this debt is reasonable, and your friend has been paying $50 a month for the better part of 10 years, her total payment on a $3,000 debt is closing in on $6,000! You would think it would be paid off by now. If the interest rate is very high, however, she could go on paying indefinitely! If you help her figure out where she stands, she may find out a way to pay this off and put her debts behind her more quickly.
Sally Herigstad answers questions about credit every week for CreditCards.com. Herigstad is a certified public accountant, author and speaker. She also writes regularly for MSN Money, Interest.com, Bankrate.com and RedPlum.com, and has been a guest on Martha Stewart radio and other programs. You can read more about personal finance and download free budgeting worksheets at her website: www.sallyherigstad.com
To Her Credit answers a question about a debt or credit issue from a CreditCards.com reader each week.
Send your question to Sally.
Published: October 10, 2008
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