Debt Collectors' Jobs Just Got Harder

A new court ruling may be giving more power to consumers trying to figure out if a debt collector’s phone call means they actually owe that debt.

A July 16 ruling by the Sixth Circuit Court of Appeals elaborated on debt collectors’ obligation to respond to debt-verification requests, requiring collectors to provide details on the origination of the debt under the Fair Debt Collection Practices Act.

“The verification provision must be interpreted to provide the consumer with notice of how and when the debt was originally incurred or other sufficient notice from which the consumer could sufficiently dispute the payment obligation,” reads the ruling in Haddad v. Alexander, Zelmanski, Danner & Fioritto, PLLC.

The ruling stems from a case in which the debtor claimed the collector resumed collecting his debt before it had been sufficiently verified. Consumers have 30 days after receiving a collection notice to request verification from the collector, to which the collector must respond in writing. Verification is an important step for consumers to take when dealing with debt collectors, to ensure they’re not being scammed or held liable for a debt that isn’t theirs, but historically, there hasn’t been a strong definition of verification.

Previous opinions (Chaudhry v. Gallerizzo, Fourth Circuit) have said verification consists of “nothing more than the debt collector confirming in writing that the amount being demanded is what the creditor is claiming is owed; the debt collector is not required to keep detailed files of the alleged debt.” At the same time, other rulings have said verification requirements are met when the debtor has enough information to dispute the debt, which is difficult to do without details on the unpaid sum.

The Haddad ruling may not be painting a clearer picture for debt collectors on what they must do to verify a debt, said Mark Schiffman, a spokesman for ACA International, a collection industry trade group. However, it does mean that collectors in the 6th Circuit will need to be more careful in verifying debts.

“Debt collectors, especially in the 6th Circuit, will need to pay more attention to the substance of a dispute and differentiate between the typical form dispute letters that are most often sent versus a particular or specific dispute about a debt,” Schiffman said. “The Haddad decision now appears to expressly require what many of our members may already be doing – providing more information to verify the debt that what was previously articulated as being required by the courts.”

What Verification Should Look Like

In the Sixth Circuit’s opinion, a list of account transactions that led to the debt is noted as the best way to verify debt and allow the debtor to contest it. It “makes good sense,” the opinion says, and the itemized history doesn’t need to be complicated.

“It should provide the date and nature of the transaction that led to the debt, such as a purchase on a particular date, a missed rental payment for a specific month, a fee for a particular service provided at a specified time, or a fine for a particular offense assessed on a certain date,” the decision reads.

This structure allows consumers to compare the collector’s information with their own records and possibly identify errors with the history. The previous definition of verification — a collector saying, “Yep, this is what the creditor says you owe” — isn’t useful in resolving disputes, the court found.

A collection account has a negative impact on your credit standing, which in turn could make it more difficult or expensive for you to obtain credit. If a collector is claiming you owe something you don’t, you’ll definitely want to dispute it and try to remove the inaccuracy from your credit report. If you have a legitimate collection account on your credit report, you’ll want to do everything you can to compensate for that negative mark in your credit. To monitor how a collection account affects your credit scores and your future access to financial products, you can check your credit data for free through Credit.com.