How to Beat Debt Collection Scammers at Their Game

For years, we’ve been warning consumers about debt collection scammers. These companies call consumers and threaten with dire consequences — arrest, lawsuits, wage garnishment or worse — if they don’t pay up right away. Their threats are bogus, and so are the debts that they say consumers owe.

One of the main ways consumers fall prey to these scammers is by applying online for a bad credit loan or an online payday loan. They enter their personal information (Social Security number, employment information, etc.) in an online application through a questionable website and sometime later they find themselves being harangued for a loan they never took out, or for one they already paid off. Information about payday loan applicants and borrowers is available for sale, and not at all expensive.

That’s what happened to our reader, Maria Brown, who was told she would be arrested for check fraud because of two payday loans she had previously taken out. Problem was, she had paid off those loans long ago, and now crooks were attempting to wring more money out of her. Be extra careful before applying for online loans if you have bad credit, to make sure you are dealing with a legitimate company that won’t sell your information to anyone willing to pay for it.

The Federal Trade Commission, state attorneys general and other law enforcement agencies have attempted to crack down on these firms, with limited success. In early 2012, the FTC obtained a court order against one company that allegedly stole some $5 million from consumers across the country. But that may just be the tip of the iceberg.

The only way to stop them is to stop making it lucrative for them to try to shake down people. If people stop paying them, they will be forced to move on to more lucrative endeavors.

Tip Offs That You’ll Be Ripped Off

There are several common tip-offs that you are probably dealing with a scammer:

A Heavy Accent

In many cases, these calls are coming from overseas, usually from places like India or Pakistan. The caller will have a heavy accent and be very abusive or aggressive. Of course, that doesn’t mean that anyone with a foreign accent who calls you about a debt is trying to rip you off, but it should put you on the alert, especially if you aren’t absolutely certain this is a debt that you owe.

Imitating Law Enforcement

Sometimes he (or she) will claim to be working for an American collection agency or some type of official sounding agency such as a state court, the FBI, etc. Other times they may pretend to work for a legitimate American law office. Pretending to work for someone else is illegal under the Fair Debt Collection Practices Act which prohibits “The use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer.”

Threatening Immediate Legal Action

The fraudsters often scare consumers into paying debts they don’t owe by threatening to have them arrested, served with legal notices, have their wages garnished or bank accounts seized, etc. Mary wrote on our blog:

I have been getting calls like this also. Some friends of mine has been getting the calls also and the person on the other end tells them that I better show up in court or I am going to be locked up. For instance, one got a call last night saying I was supposed to be in court for something I did in Maryland and if I didn’t show up at 10:00 they would arrest me.

This is an empty threat. Court employees don’t call individuals threatening to have them arrested if they don’t show up the next day. Think about it for a second: They don’t have the resources to call everyone who is supposed to show up in court the next day! And the last thing legitimate collectors want is for the defendant to show up in court. If the person being sued doesn’t appear to defend the collection lawsuit against him or her, the collector usually gets a default judgment which opens up new avenues for collecting the debt.

Instructing You To Pay With A Prepaid Card

Susan Grant, director of consumer protection at the Consumer Federation of America, warned in a recent radio interview that some of these crooks will instruct consumers to load the money that they supposedly owe on a prepaid card, then mail the prepaid card to the collector. This is a really bad idea as there is no way to trace the payment. If the debt is legitimate, you wouldn’t have proof that you paid it. And if you don’t owe the debt, you’re mailing your hard-earned money to … who knows?

Plus, once you pay one of these scammers, you’ll likely be on a “sucker list,” and harassed for more money.

Fight Back

In a previous post, we’ve offered tips on how to spot a debt collection scam. Still, we continue to hear from consumers who are too afraid to hang up on these callers.

Knowing your rights when you deal with debt collectors is one of the best ways to protect yourself from being ripped off. The Fair Debt Collection Practices Act, a federal law, provides you with a number of protections. A crucial provision in that law requires debt collectors to mail you written notice of the debt:

Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing (1) the amount of the debt; (2) the name of the creditor to whom the debt is owed;

In addition, the notice must tell you about your rights to request verification of the debt or to dispute the debt.

This is mandatory, not optional. Scammers will almost always refuse to send you written notice of the debt. They may offer to fax or email it, because those methods are cheap and easy (especially if they are based overseas). Do not accept a fax or an email as a substitute for the required written notice. Email addresses can be easily faked, and you won’t know whether you are dealing with an actual representative of the company.

If the caller gives you a song and dance about why it can’t send you written notice of the debt, tell him you know your rights and you’ll wait to hear from him by mail. Period.

In addition to requesting written verification of the debt, you can call their bluff. If the caller claims to be with an American collection agency or law enforcement agency, for example, tell them you are going to call them back at the number listed on that company’s (or agency’s) website, and ask them how to get routed back to them. They’ll backpedal or give an excuse why that won’t work, and you’ll know they are lying.

If they claim to be calling from the courts or to have you arrested if you don’t show up in court the next day, ask for the case number and the name of the court, then call the court yourself to find out whether you are supposed to appear. Don’t be afraid to investigate. If you have been sued and are supposed to show up in court, you must be served with a written notice of the lawsuit. If that happened and you weren’t properly notified of the lawsuit, you’d want to know that so you could get legal advice.

Another way to check out a debt collector include checking with your state attorney general’s office to find out if debt collectors must be licensed to do business in your state, and if they must, whether that particular agency that is trying to collect is properly licensed.

Once you’ve established that the person calling is not on the up and up, you can tell them to stop calling you. If they don’t, read our post, 7 Ways to Stop Overseas Debt Collection Scammers , where we offer strategies for stopping these calls.

Image: basykes, via Flickr