Beware: How to Know If a Debt Collector Is a Scam
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Debt collection is a legitimate business that chases down any type of debt ranging from credit card debt to medical bills. However, like other ventures involving money, many scammers have penetrated the industry hoping to make a quick buck illegitimately. In 2020, the Federal Trade Commission (FTC) and other federal and state regulatory agencies banded together and put several fake debt collectors out of business and secured multimillion-dollar judgments. In addition, one side-effect of a federal rule change enacted in November 2021 allowed scammers to target borrowers in new ways.
Having your debt sold to a collection agency is enough of a scary thought already. But debt collection scams have telltale signs, and it's only a matter of paying attention to their tactics and the manner in which they're talking to you. This article will take you through the nuances of a scam and how to keep yourself and others financially safe.
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Warning signs of a scam
Withholds information
As noted, real debt collectors are legitimate companies and have official addresses and websites that list their contact information. Scammers, on the other hand, do not and there are a few red flags you should keep an eye out for. When they're talking to you, they're likely to withhold information such as the creditor's name and the amount you owe. If the caller follows this pattern, you have yourself a scammer. If that's the case, you can ask these questions to avoid being preyed upon:
- Inquire about company name, address and phone number. If the caller refuses to disclose their identity and keeps insisting on paying the money, they're definitely looking to con you.
- Ask about the original creditor's name and your debt balance. If they do not provide the information on the first collection call, wait for another five days. If you do not receive any written notice of your debt collection, which should include the lender's name, the debt amount, and a disclosure statement that gives the borrower some 30 days to dispute the debt if it is not theirs, you can be sure it's a scam.
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Harasses and abuses
Another tool scammers employ is intimidation. They may directly or indirectly threaten an arrest in case the debt isn't paid there and then. They may also scare you by threatening to reveal your financial situation to family, friends, colleagues or employers. Under the Fair Debt Collection Practices Act, debt collectors are barred from disclosing a borrowers’ debt information to any unrelated party. The law also explicitly prohibits debt collectors from using any means of harassment, oppression or abuse. This also includes calling at odd times like early morning or late night.
Asks for sensitive information
Scammers usually ask for your sensitive financial information like your bank account number, Social Security numbers and routing number etc. The Consumer Financial Protection Bureau (CFPB) says you should never provide personally identifiable information. However, legit debt collectors also ask for information like you full name, date of birth and the last four digits of your Social Security number. But you should only provide this information once you've verified that you're talking to a legit debt collection agency. However, if you don't want to provide the information requested, you don't have to.
You don't recognize the debt
Before taking any steps to pay your debt, you ought to make sure it is indeed a debt you owe. Any legitimate debt collector contacting you to repay is bound by law to provide you information like the creditor's name and the amount you owe. If you become sure that the debt does not belong to you, you should let the caller know that you will dispute the debt by sending them a written request.
Demands payment instantly
Real debt collectors facilitate borrowers as much as they can, and ease the repayment procedure through customized payment plans and negotiating settlements. Fraudsters, however, demand that the money be paid immediately. They also typically accompany that statement with threats of jailtime. Another red flag to be on the lookout for is how scammers want your money. They tend to only accept payments via bank transfers or prepaid cards because they're tough to trace.
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How to protect yourself
Ask for a callback number
If you think you're talking to a debt scammer, you can ask for their information like their name, their company's name and its address, and a number where you can call them. A legitimate debt collection agency will provide you with all this information instantly. However, if the caller fails to give you this information, you can be sure you're talking to a fraudster.
Contact your creditor
If you receive a call from a debt collector, the first thing you should do is call your creditor. Double-check the information provided by the caller and make sure they are a legitimate debt collector. If you're able to verify the information, this means the debt collector is legitimate. Regardless of who is on the other side of the call, always ask for written debt collection validation letters.
Check your credit report
Another method of protecting yourself includes checking your credit report to ensure whether the debt being mentioned by the debt collector is real or not. Your goal is the verification of the debt. You can choose from one of the several companies offering free credit reports (like AnnualCreditReport.com) from major credit bureaus like Experian, Equifax and TransUnion. However, having no mention of the debt on your credit report does not necessarily mean the absence of debt. Most debt collectors do not convey information to the credit bureaus, which means you can have debt on your account that might not be reported.
Don't disclose any financial information
By now you know this, but it's worth repeating: don't give your personal information to the caller. Granted, legitimate debt collectors also ask for your information, but the onus is on you to ensure you're not talking to a scammer. If you do end up providing sensitive information to a fraudster, you risk the chances of an identity theft.
Know your rights
The Fair Debt Collection Practices Act lays out a framework that governs how debt collectors should act. For example, they cannot call you at work (if you've told them so), they cannot call you either early in the morning or late at night, and they also cannot disclose your information to co-workers or family. Debt collectors also cannot threaten or abuse you in any way. It's also advisable to read up on your state's statue of limitations. If the caller is inquiring about an old debt, chances are they're looking to con you.
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How to report a debt collection company scam
If you have reasons to believe you've talked to a scammer, you can report them. But before you do, you should keep a track of every type of communication with the scammer. Make notes of the phone calls, the date and time of calls, email exchanges, text messages, letters, and even recorded phone calls, if allowed by your state. The more evidence you have, the better and stronger the case. Once you have enough evidence, you can reach out to the state attorney general’s office and file a complaint. Alternatively, you can also report a debt collection scam to the FTC and the CFPB.
The bottom line
If you ever receive a call from someone identifying as a debt collector, you should put your detective hat on. If they refuse to convey relevant information, threaten and harass you and ask for immediate payment of the debt through a wire transfer or prepaid debit cards, odds are that you are talking to a scammer. But you shouldn't worry or panic. First, check whether they are legitimate debt collectors or not. You can ask for a callback number and double-check with the creditor. Once you're sure it's a scam, you can report it to law enforcement authorities gather all the evidence and file a complaint with either your state attorney general, the FTC or the CFPB. And if you're struggling to pay debt, you should consider debt relief options.
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Writer
Jasir Jawaid is Joy Wallet's Assistant Editor. He has more than 13 years of experience as a journalist covering Wall Street, equities, financial policy and regulation, and cryptocurrency and blockchain.
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