How to stop collections on recurring charge reported as fraud?

To Her Credit with Sally Herigstad

Sally Herigstad is a certified public accountant and the author of “Help! I Can't Pay My Bills: Surviving a Financial Crisis.” She writes “To Her Credit,” a weekly reader Q&A column about issues involving women and credit, for CreditCards.com. She also has written for MSN Money and Bankrate.com, and has guested on Martha Stewart Radio and other programs.

Ask Sally a question, or see if your question has already been answered in the To Her Credit answer archive.

I reported fraud when I was billed for unauthorized future services from a merchant. My creditor closed the account, but I was rebilled on the new card. Now it's in collections. What do I do?

Having a new card issued isn’t the answer for stopping recurring charges. Right or wrong, if a merchant bills you for recurring charges, your bank may let them continue to do so with the new card number until you get the merchant to either cancel whatever agreement you may have signed or you pay what you owe.

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Dear To Her Credit,
I reported fraud on my credit card account when I was billed for unauthorized future services from a merchant. My creditor closed the account and issued me a new card, but then they rebilled me for the canceled services on the new card. I didn't authorize the charges and didn't use merchant services. I disputed the charge over and over, and then I finally closed that credit card account myself. Now the balance has been sent to a collection agency.

I reported all the happenings to the Consumer Financial Protection Bureau. Now, the creditor is informing me that another collection agency owns the debt. How many times do I have to dispute with each collection agency about these unauthorized charges?  – Kendra

Dear Kendra,
You’ve run into a common, frustrating problem. You’ve seemed to have taken the correct steps to dispute the charge, but what do you do when it doesn’t seem to work? And how can you stop recurring charges that won’t go away?

Canceling card may not stop recurring charges

As you’ve discovered, having a new card issued isn’t the answer for stopping recurring charges. Right or wrong, if a merchant bills you for recurring charges, your bank may let them continue to do so with the new card number until you get the merchant to either cancel whatever agreement you signed or you pay what you owe.

All four of the major credit card companies – American Express, Visa, MasterCard and Discover – offer "updater" services to provide merchants with consumers' new credit card numbers and expiration dates.

See related: Canceling card doesn't wipe out charges for recurring services

Tip

Tip: Consumers contacted by debt collection agencies can request written verification or proof of their debts – but they must do so in writing with a verification letter that must be sent within 30 days of the initial contact from the collector. Collection calls and letters must stop until the debt is verified.

Closing the card, as you did, can temporarily stop anyone from charging on your account. However, the root problem is not solved. The merchant can still claim you owed the money and try to collect from you. If you don’t pay and cannot successfully dispute the charges, the merchant may send the unpaid balance to collection agency.

Sending the information to the Consumer Financial Protection Bureau was a good step. That should work to get a timely response from the merchant. In addition, your complaint helps the agency zero in on repeat offenders. Read about how the CFPB handles your complaint, and how you can track progress on your complaint.

If you get a letter now from the collection agency about a debt you haven’t been able to successfully resolve, yes, you must dispute it with them, too. Be sure to respond promptly. You have 30 days, according to the Federal Trade Commission, to request verification of the debt by the collection company.

You should also state in writing that you dispute the debt and send copies of the same information you sent the CFPB. While you wait for verification from the collection company, they cannot try to collect the debt from you.

When the collection company receives your request for verification, along with documentation and your statement that you dispute the debt, they may drop the whole thing. Collection companies are businesses, and they want to spend their money pursing accounts they are more likely to collect on.

If sued for the debt, don't ignore the summons

If you still cannot resolve the unauthorized charges on your account, one unattractive alternative is to just pay it, to put it behind you and avoid interest and late fees, and potential damage to your credit report. (A creditor or collector may report past due charges that are under dispute, but they are required by the FTC to include information that the amount is disputed.)

For small amounts, say $20 or so, you might rather give up and pay. If you need your credit report to be especially spotless; for example, if you are about to apply for a home loan, you might be willing to pay even a slightly higher balance. Yes, I know it’s maddening, but you can always take out your frustrations writing a review for the merchant.

See related: 10 tips for dealing with debt collectors, collection

If the balance is significant, or if you feel you have too much invested to give up now, then instead of paying, you may want to keep responding to the merchant or collectors.

If they continue down the path of trying to collect from you, eventually they may sue you. If they do, be prepared to respond promptly again. If you are sued and do not respond, you can lose the case by default, and the collector can take actions, such as garnishing your wages.

It is frustrating to have to keep explaining to more than one organization that you do not believe you owe a debt and why. Sometimes it feels like you’re just getting form letters back, and no one is really listening.

You’ve invested a lot of time so far fighting this battle. If you want to keep fighting until you win, or until the other side gives up, that’s your choice. Questionable billing practices of recurring services are a pet peeve of mine, so I really hope you fight back. Best of luck to you as you do.


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Updated: 09-24-2018