Under the Fair Credit Reporting Act, “Debt Validation” refers to the debtor’s right to ask the creditor to validate the debt which the creditor or the debt collector claims they own. It is one of the most effective weapons against the creditors who illegally claim any debt from the debtor either by sending a collection letter or by reporting the debt to the credit bureaus. Under Section 809 of the Fair debt Collection Practices Act, if a creditor or a collection agency claims that you them money, you can send them a debt validation letter by certified mail and the creditor must stop the process of debt collection till the time they properly validate the debt.
Original creditors either hire a debt collector to recover the outstanding debt or sell it off to a collection agency, because most of them do not have the time or manpower to recover the same. If the original creditor transfers the right to collect the debt to the debt collector, then after the debt is successfully recovered, the collector gets a percentage of the debt collected as their fees. However, in most cases, the original creditor sells off the debt to junk buyers and these junk buyers collect the debt as collection agency, but not as original creditor.
There are two ways by which the creditors can collect the debt. They may either send you a collection notice or report the debt in your credit report. If they send a collection notice, you must send a debt validation letter by certified mail within 30 days from the date of receipt of the notice, else it will be accepted that you agree with the debt. If you find the name of the creditor or the collection agency listed in your credit report, you can also send a debt validation letter. Debt Validation letter should always be send by certified mail with return receipt as a proof that you have asked for debt validation, in case the creditor later disagree that you have asked for validation of the debt.
Once the creditor receives the debt validation letter, they must validate the debt else they have to stop the process of collecting the debt further. Although it is not clearly defined in the Act of what should be a proper debt validation, a proper debt validation should include the following:
- Proof that the collection agency has been given the right to collect the debt by the original creditor or the original creditor has sold off the debt to the collection agency.
- Bills showing the outstanding debts along with interest and other charges.
- Copy of the original signed loan agreement.
If the creditor or the debt collector validates the debt, you can negotiate with the creditor for pay for deletion. If the creditor agrees to pay for deletion agreement, the negative listing will get removed from your credit report after the debt is paid in full. However, if the creditor does not agree to PFD, you can ask the creditor to change the status as “paid in full”, after you pay it off. If you get proper debt validation, you should always pay off the debt to avoid judgment against you. However, you can also negotiate with the creditor for a discount on the outstanding debt if you cannot afford to pay it off in full. Under such circumstances the creditor generally does not agree to pay for deletion agreement. They only change the status of the listing to “settled for less” in your credit report.
If the creditor cannot validate the debt within 30 days from the date of receipt of the debt validation letter, then as per the FDCP Act, you are in no way responsible to them for the debt. You can send them a second letter along with a copy of the receipt, which you have received while you asked for debt validation, telling them that they have violated the provisions under the Fair Debt Collection Practices Act and so they should remove the negative listing from the credit report or you may file a suit against them for violating the Act. At the same time you can send a dispute letter to the bureaus telling them that you do not agree with the debt. The credit bureaus will verify the debt with the creditors or the collection agency who claims to own the debt, and will remove it from the credit report if the claim is not well founded.