Consumer debt ballooned to $15.31 trillion in the year after the COVID-19 pandemic began. This brought the total average debt balance to more than $96,000 and Generation Z’s average debt has jumped almost 30%. While many consumers are able to manage their debt load and stay current on their accounts, many businesses are finding themselves with uncollected debt and no proven collection strategy. Before you can collect on any debt, you need to validate the debt in accordance with the Fair Debt Collection Practices Act. Here’s what you need to know about debt validation.
Why you need to validate debt
The Federal Trade Commission (FTC) has established debt collection guidelines to protect consumers from predatory collections practices. Running afoul of these rules when collecting a debt can get your company fined or punished. If your company has an in-house collections department, make sure they’re well trained on the latest debt collection regulations, including how to properly send a validation letter.
Validating a debt provides written proof to the consumer that the debt belongs to them. It gives the consumer an opportunity to review the debt and file a dispute if they don’t recognize it. This may seem like an unnecessary step if you have a clear record of the debt, but unfortunately there have been abusive and deceptive debt collection practices in the past. Debt validation gives both parties reassurance that the debt is legitimate.
What to include when validating debt
Debt validation letters must contain specific information, and they must be in writing. Even if an employee talks to a consumer on the phone and verifies the debt verbally, they must still follow up with a written validation notice. The debt validation letter must include:
- The total amount of the debt.
- The full name of the creditor.
- A statement that unless the consumer disputes the debt within 30 days of receipt it will be assumed to be valid by the debt collector.
- A statement that if the consumer notifies the debt collector in writing within the 30-day period that the debt, or a portion of the debt, is disputed, the debt collector will obtain proof of the debt of a copy of the judgment against the consumer.
- A statement that the debt collector will provide to the consumer, within 30 days, the name of the original creditor if different than the debt collector.
If a company manages a large volume of consumer debt, it takes considerable resources to follow up with each debtor in writing. In these cases, it’s often more efficient to partner with a reliable third-party collection agency like CMC to manage debt validation and collections.
Validating debt is just one step in the collections process. As it states in the validation letter, debtors also have a responsibility to provide proof if the debt is disputed. CMC has decades of experience professionally managing debt collections for clients across many industry sectors. We can manage the process from skip tracing and locating debtors to validating debts and creating a compliant debt collection strategy.
Contact us to find out how we help companies validate and recover debts.
