Don't fall victim to debt collection scams

When a consumer has an unpaid debt such as significantly past-due credit card or loan payments, the creditor typically contacts the consumer to try to collect on the debt. If that doesn’t work, they may “sell” the debt to a collection agency, which can then attempt to collect the debt.

Sometimes, unscrupulous scammers may take advantage of struggling individuals by posing as debt collectors or collection agencies. Here are some tips to help you separate collection scams from legitimate legal tactics.

How debt collection scams play out

In a debt collection scam, a caller claiming to represent a debt collection agency demands immediate payment for an alleged outstanding debt. The caller insists on specific means of payment and may threaten to tell the victim’s friends about the unpaid debt. The alleged debt may be completely fabricated, or the scammer may have hacked the victim’s accounts to learn of its existence. In either scenario, the caller does not represent the creditor and will pocket any “collected” money.
These scams can also take the form of abusive debt collection, in which a caller collects money for a legitimate debt but does so using abusive and illegal practices.

How to spot a debt collection scam

You might be looking at a scam if an alleged debt collector:

• Withholds information about the debt and the creditor.
• Threatens the debtor with jail time.
• Insists on specific means of payment.
• Asks for personal financial information.

What debt collectors can and can’t do

When outstanding debts go unpaid, a lender can legally sell the debt to a collection agency. The agency can then attempt to collect the debt through letters and phone calls.

According to the Fair Debt Collection Practices Act (FDCPA),¹ debt collectors cannot:

• Contact borrowers at unreasonable hours.
• Call borrowers at their workplace if the borrower said they cannot accept phone calls at work.
• Harass borrowers about a debt, including using threats of violence and calling the debtor multiple times each day.
• Engage in unfair collection practices.
• Lie about the money owed.
• Falsely represent themselves.
• Threaten the debtor with jail time.
• Falsify the name of the agency they represent.

If you’re unsure of whether you are being targeted by a debt collection scam, ask the caller for a callback number and to confirm information about the debt. The collector should know the amount owed and be able to tell you the name of the company the debt is owed to. If you still believe you are being scammed, contact the original creditor and ask if the debt collection has been outsourced to another company.

What to do if you’ve been targeted

If you’ve been targeted by an illegitimate debt collector, report the scam to the Federal Trade Commission (FTC) and file a complaint with the Consumer Financial Protection Bureau (CFPB). You can also take additional steps to bounce back from fraud.

If a falsified debt appears on your credit report, you will need to contact the creditor directly to have the past-due status corrected.

If a collection agency is employing abusive tactics or if you’d like them to stop calling you, it’s best to send them a letter asking them to cease all contact. The CFPB provides sample letters you can use to communicate with a collector. Once the agency has received the letter, they can only reach out to you to confirm there will be no further contact or to inform you of a specific action they are taking.

How to file a complaint

If you’re getting harassed by an unlawful debt collector, you can file a complaint with the CFPB. In most cases, you'll receive a response within 15 days.

By understanding how collection agencies work, you’ll be better equipped to deal with them. You’ll also be more likely to spot a debt collection scam before you take any action. Before you pay a debt collector, remember to verify that all of the debt information is correct and the collection agency is legitimate, then ask about your options for repayment.