Debt Collection Transfers & Sneaky Tactics

If you’ve ever had a debt go into collection, there’s a likelihood that you’ve noticed your debt being transferred from one collection agency to another. In today’s digital environment, “rapid fire” debt transferring can alleviate some of the legal liabilities of debt collectors, while also causing major headaches for consumers.

Why Do Debt Collection Companies Transfer Debt So Often?

One of the major reasons why debt collection companies transfer debt is to avoid unnecessary costs and legal issues arising when consumers dispute debts. When a consumer makes a dispute about a debt, the Fair Debt Collection Practices Act requires that debt collectors take action to insure that they are not collecting on an illegal debt.  In some instances, the FDCPA will require that collector to gather documents and evidence proving the consumer is responsible before it can proceed to collect.   This may require the debt collector to obtain the original documents or perform other investigations that can be both expensive and time consuming.

Many debt collectors do not want to incur these costs and prefer to get rid of problem debts rather than pay to research them or risk a lawsuit.

By transferring these disputed debts to other collection agencies, debt collectors can save time and recoup fees that would have otherwise been lost during the process of validating disputed debts and abiding by the Fair Debt Collection Practices Act.

Because the debt is sold and no longer in the debt collector’s ownership, they also can avoid legal implications under the Fair Debt Collection Practices Act. From the debt collector’s perspective, their hands are clean. From the consumer’s perspective, the arduous process of disputing their debt has to start all over again, creating a frustrating and seemingly never-ending cycle.

Sneaky Tactics: Failure To Mark Debts As Disputed

Under the Fair Debt Collection Practices Act, when a consumer disputes a debt with a given debt collector, that debt collector must validate the debt. Due to the cost and time associated with validating the debt, most debt collectors instead sell or transfer them to other debt collection companies.

But if a disputed debt needs to be validated, and validation often costs more than the debt itself, who would want to buy a disputed debt?

In order to quickly offload disputed debts to rid themselves of legal liability and potentially increased costs, shady debt collection companies often sell these disputed debts without marking them as “disputed”  or telling the next collection company that there may be a problem with the debt.

If a collection agency buys  a debt that is disputed or is not actually owed at all (which is many times the case with these multi-transfered debts), that collection agency would be subject to legal action by a savvy consumer with an equally experienced debt collection attorney.

Simply put, some debt collectors will hide information about a dispute or a problem with a debt when selling that  debt to another collector.

Am I Still Protected Under the FDCPA If My Debt Wasn’t Transferred Properly?

Recent cases lean towards “yes”. Take the example of Magrin v CCR Partners Fund, Inc. In the Magrin case, the consumer had filed suit against both debt collection companies involved in the transfer of their debt. The consumer and his legal team argued that the company who sold the debt to the receiving company failed to mark the debt as disputed.

Originally, the trial court dismissed the case. However, the Magrin court reversed this claim, stating that a debt collector is in violation of the Fair Debt Collection Practices Act if they use “false, deceptive, or misleading representation or means in the connection with the collection of any debt.”  This included representations made to other debt collectors in the process of transferring the debt.

In two other similar cases, Burdick v Palisades Collection, LLC and Kinel v Sherman Acquisition II, LP, the collection agency’s shady tactics of withholding the status of the debt’s dispute status resulted in favorable outcomes for the consumers under the FDCPA.

In sum, if you have previously disputed a debt, only to find a new collector demanding payment from you, you may have a right to recourse.  Current law prohibits collection of debts the consumer has not agreed to pay and some courts now allow consumers to seek remedies when debt collectors conceal past disputes from subsequent owners of those disputed debts.