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I’m a debt collector whose job it is to work on behalf of creditor clients to recover rightfully owed debts from consumers. The work debt collectors do is not popular, and has become increasingly derided by those who don’t like what we do or simply don’t know the facts about debt collection. Too often, debt collection is painted with a broad brush to create a portrait that isn’t accurate, and doesn’t properly educate consumers.

There are countless resources for consumers to help them know their rights should they ever be contacted by a creditor or debt collector (e.g., the Consumer Financial Protection Bureau and the Federal Trade Commission) and they’d be well served to know what can and cannot be done. To begin, any debt collector who has violated consumer law and causes actual damages should be held accountable for their actions. However, consumers who are considering suing a debt collector need to first be wary of unscrupulous plaintiff attorneys whose “protecting consumers” mantra may mask the real goal of exploiting them for their own profit. Here are a few points to separate fact from fiction when it comes to suing a debt collector.

Myth: Consumer Attorneys Sue to Protect Consumers

Some consumer attorneys take advantage of the fact that state and federal laws governing debt collection are ambiguous and out of date by filing repeated lawsuits instead of productively working with the debt collectors to modernize the laws. This has created a cottage industry of attorneys looking to exploit both the debt collectors and consumers. In fact, the majority of these lawsuits are either frivolous or technical, and in almost all cases no actual damages have been incurred. In my 15 years of being a debt collector, I have found the majority of lawsuits filed against debt collectors are based on debt collectors leaving a consumer a voicemail to call them back or debt collectors sending a consumer a letter in which the consumer attorney claims the content of the letter somehow violates the Fair Debt Collection Practices Act. These lawsuits are filed because of Catch-22 provisions within the FDCPA.

WebRecon, which tracks litigation filed against companies in the credit and collection space, identified 60 consumer attorneys who account for 46.6% of all consumer litigation filed so far in 2014.

Myth: Consumers Benefit When Suing a Debt Collector

Consumers gain very little as it’s the attorneys who profit. In fact, because damages against a debt collector for violating the FDCPA are capped at $1,000 per incidence, consumer attorneys make a living from the volume of lawsuits they file. They depend on debt collectors seeking to quickly settle the case instead of actually going to court, which is far more lucrative for attorneys who then don’t have to put any time into executing a defense. It is not uncommon for attorneys to receive at least five to ten times more money than the consumer once everything is said and done.

Myth: Suing Debt Collectors Has No Adverse Effects on Consumers

When suing a debt collector, all information becomes a matter of public record. The residual impact is that it could impede a consumer’s ability to work directly with a creditor or debt collector in the future to resolve a financial matter if a consumer has a history of legal action. So instead of trying to work with the consumer many creditors and debt collectors will simply forgo direct communication to resolve the issue and simply seek a judgment in order to garnish wages, freeze bank accounts, get a lien on your property or seek another legal remedy (depending on what is allowed under state law).  In addition, any judgment against a consumer may remain on their credit report for up to 10 years.

Myth: Monies Received From a Legal Action Do Not Have to Be Reported to the IRS

All monies over $600 received as a result of suing a debt collector may have to be claimed as taxable income. The agreement in which money is paid to a consumer is between the consumer and the debt collector, therefore a 1099 may be required to be filed with the IRS to account for the income. To avoid confusion, consult with a tax professional to understand your potential responsibility.

Myth: Suing a Debt Collector Resolves a Debt

Most consumer debt is not owned by the debt collector, they are working on behalf of a creditor client. So, in resolving the case with the debt collector (e.g., technicality, FDCPA violation, etc.) the consumer hasn’t resolved the issue with the creditor and therefore likely still owes the debt. In fact, a common misconception is that when a consumer sues a debt collector their debt is forgiven, but this couldn’t be further from the truth. In the majority of lawsuits filed, forgiveness of the debt is rarely requested because the consumer attorneys understand the request is rarely granted by the creditor.

Myth: It Doesn’t Cost Money to Sue a Debt Collector

While in some instances this may be true, more and more consumers are finding out the hard way that most of the time it isn’t.  Debt collectors are no longer rolling over and settling lawsuits filed against them as they are now investing the time and resources to defend the cases brought against them. When a debt collector takes a case to court and prevails, the debt collector will have the court grant their request in accordance with federal and state laws to be reimbursed for the attorney fees and court costs they incurred. Once this happens, the consumer who lost the case may be held solely responsible to reimburse the debt collector their legal costs, which can cost the consumer upwards of $10,000.

Increasingly, consumers with an account in collections are turning to the courts at the advice of attorneys seeking to exploit technicalities. As a result, the attorneys win, but consumers may unfortunately end up the losers. Consumers generally don’t want to talk to a debt collector, but it’s the best course of action to directly communicate with a creditor or debt collector, and work to resolve the matter at hand. While a consumer has a right to avoid contact or request that a debt collector not contact them, it never makes the debt go away, as it forces alternative actions such as credit reporting or potential lawsuits against the consumer.

In the end, consumer protection laws are in place to protect consumers, but they don’t serve their purpose when certain consumer attorneys exploit these laws in search of their own personal gain. It has and will always be best for consumers to attempt to work out a resolution of their debt directly with the creditor or debt collector. If attempting to resolve their debt directly with a creditor or debt collector fails, or they feel their consumer rights have been violated, then seeking legal advice and potential legal representation is a viable option.

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  • V

    This article seems biased and clearly written to discourage consumers from using lawsuits to protect their rights. I have no doubt that some lawsuits are frivolous and without merit. Until the debt collection industry actually upholds ethical standards and legitimately self-polices, people will turn to the courts for aid. I appreciate the writer acknowledging his connection to the industry, but he would have been more helpful writing a legitimate (read that as unbiased) article on how debt collection works, consumers’ rights, and advice on how to negotiate a debt down to a manageable amount (rather than not paying it all).

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