In 2016, a debt collector named Portfolio Recovery Associates called Maria Guadalupe Mejia in Kansas City, demanding she pay $1,000 on a credit card balance. Except the debt wasn’t hers.
It was owed by another woman in Kansas with a similar name. Mejia tried to tell Portfolio Recovery they had the wrong woman. They wouldn’t listen. The company pursued her for 15 months, finally filing a lawsuit. A Jackson County, Mo. jury ordered Portfolio Recovery to pay nearly $83 million in damages for malicious prosecution. Mejia fought back and won a record verdict.
But most people don’t. Most people in her shoes simply pay the debt to make the calls stop, never knowing they had the legal right to demand proof first.
The Single Most Powerful Action You Can Take When a Collection Agency Calls
The most common mistake people make when a collection agency contacts them is to send money instead of a letter. Federal law allows you to demand that any debt collector prove you owe the debt before you pay one penny. This process is called debt validation. Ignoring that right is one of the costliest mistakes a consumer can make.
This article explains why paying a collection agency before demanding validation can hurt your credit, revive zombie debts and cost you money you may not owe. More importantly, it shows you a better way.
How the Debt Collection Industry Works
Bad Data Breeds Bad Debt
What Happens to a Debt After It’s Sold
When you fall behind on a bill, the original creditor may sell the account to a debt buyer. Debt buyers purchase massive portfolios of defaulted accounts, often tens of thousands at a time. A Federal Trade Commission study analyzing more than 5,000 portfolios containing nearly 90 million consumer accounts found debt buyers paid an average of just 4 cents per dollar of face value.
That means a $5,000 debt on your credit report may have been sold for $200. A $1,000 balance may have been sold for $40. The older and more questionable the debt, the cheaper it is.
Debts over six years old were selling for as little as 2.2 cents on the dollar. Portfolios are sold “as is and with all faults.” The original creditor makes no promises about the accuracy of account balances, debtor identities or even whether debts remain legally collectable. Original account documents, such as a signed agreement and payment history, rarely change hands.
47% of Disputed Debts Cannot Be Confirmed
The same FTC study made another shocking finding. When consumers formally dispute debts owed to debt buyers, buyers could verify only 51.3% of the disputed accounts.
This means that nearly half of all disputed debts could not be substantiated by the company demanding payment. 3.2% of debts were disputed, and the rest of the people contacted by a debt collector paid without dispute, ignored the calls, or didn’t know any better.
Credit card debt had a higher verification rate than medical, utility, or telecom debt. The further back the debt went, the lower the verification rate. The more obscure the debt, the less likely the collector can verify it.
Paying a Collection Without Validation Hurts You
Your Credit Score May Not Improve at All
Many people think that paying off a collection account will help their credit score. The most widely used credit score in lending decisions, the FICO 8, treats a paid collection the same as an unpaid collection for debts over $100. The status of the account will change from unpaid to paid, but the account will remain on your credit report for the full 7-year reporting period.
Newer versions of the credit score like FICO 9 and VantageScore 3.0 ignore paid collections altogether, but most lenders are not yet using these new models. If you pay a collection thinking it will immediately improve your credit, you may be surprised to see the account still affecting your credit score under the model your lender uses.
The difference between a paid collection and a deleted collection is significant. A study by the CFPB found that on average, people saw a 25 point credit score improvement in the first quarter after getting their last medical collection deleted. For debts over $500, the average improvement was 32 points. These improvements came as a result of deletion, not payment.
You Could Restart the Clock on Old Debt
Every state has a statute of limitations on debt, and it’s typically between 3-6 years depending on the type of debt and the state you’re in. Once the clock runs out, the debt becomes time-barred, which means a debt collector can no longer sue you for the debt. The debt still technically exists, but the collector can no longer enforce it through the court system.
This is where paying without validation becomes a problem. In many states, if you make even a partial payment on a time-barred debt, the statute of limitations resets. The FTC explicitly warns consumers, “in some states, if you pay any amount on a time-barred debt, or even promise to pay, the debt is revived and a new statute of limitations begins.”
This isn’t a theoretical risk. In one instance, a debt collection agency sued an Oklahoma mother of five over a nearly $14,000 credit card debt that was past the statute of limitations. After the agency successfully garnished 19 cents from her bank account, they argued the involuntary partial payment reset the clock and sued her for the full amount.
The Biggest Debt Buyers Have Already Paid Over $100 Million in Fines
The two largest debt buyers in the United States are Encore Capital Group, which owns Midland Credit Management, and Portfolio Recovery Associates. These two companies have acquired the right to collect more than $200 billion in consumer debts that are in default.
In 2015, the Consumer Financial Protection Bureau (CFPB) determined that Encore and Midland had collected on unsubstantiated debt, filed court documents using robo-signers (employees who signed hundreds of affidavits daily without reviewing them), sued consumers for debts that were past the statute of limitations, and misled consumers that the burden of proof rested with them.
As a result, Encore was required to refund up to $42 million to consumers, pay a $10 million penalty, and stop collecting on $125 million in debts that it could not verify.
Portfolio Recovery also broke the terms of its 2015 consent order and, in 2023, was fined another $24.18 million. The current director of the CFPB, Rohit Chopra, stated: “After getting caught red-handed in 2015, Portfolio Recovery Associates continued violating the law through intimidation, deception, and illegal debt collection tactics and lawsuits. CFPB orders are not suggestions.”
Phantom Debt Collectors Collecting on Non-Existent Debt
And if legitimate debt buyers that cut corners aren’t enough of a problem, there’s an entire cottage industry of phantom debt collectors. These outfits fabricate debt completely and try to bully consumers into paying through threats and intimidation. In recent years, the Federal Trade Commission (FTC) has targeted multiple phantom debt rings.
One such company, Global Circulation, used threats of jail time to collect $7.6 million in entirely fabricated debt. The FTC has a banned debt collectors list that currently contains 233 individuals and companies that are permanently barred from the industry.
These examples should tell you something about the debt collection industry. Just because someone is calling you demanding money doesn’t mean you actually owe money. Without proper validation, there’s no way for you to know the difference between legitimate debt, debt that contains errors, and outright scams.
What the CFPB Complaint Data Reveals
The Top Complaint Is for Debt That Consumers Do Not Owe
In 2024, the Consumer Financial Protection Bureau (CFPB) received about 207,800 complaints regarding debt collection. The top complaint, making up 45% of all complaints, was attempts to collect debt not owed. Within this group, 60% said the debt wasn’t theirs, 28% said they were victims of identity theft, and 10% said the debt was already paid.
Complaints about debt that consumers didn’t recognize skyrocketed by 333% in 2024 compared to the monthly average over the prior two years. This isn’t some minor clerical error. This is a systemic problem that affects hundreds of thousands of consumers every year.
Companies Are Responding to Complaints, but Offering Little Relief
The CFPB complaint data also shows how companies react when consumers push back. Debt collection companies responded to 97% of complaints. However, they offered relief in only 0.2% of cases. Receiving a response acknowledging a complaint is not the same as having the complaint resolved.
Among consumers who complained about written communications, nearly half (47%) said the collector’s communication did not adequately disclose the communication was an attempt to collect a debt. Another 29% said they received inadequate information to identify the debt. The system is set up to collect first and ask questions later, if at all.
The Federal Law That Helps You
Your Right to Validation Under the FDCPA
Section 1692g of the Fair Debt Collection Practices Act (FDCPA) states that every debt collector must send you a written validation notice within five days of initial contact. This notice must contain the amount of the debt, the name of the creditor to whom the debt is owed, and a clear statement that you have 30 days to dispute the debt in writing.
If you dispute a debt in writing within 30 days of the initial contact, the collector must cease all collection efforts until it obtains verification of the debt and mails it to you. If it cannot verify the debt, it must stop collecting on it.
This isn’t a “should.” This is a “must.” (FDCPA violations carry a statutory penalty of up to $1,000 per suit plus actual damages, attorney fees, and court costs. Regulation F, which went into effect in November 2021, adds mandatory debt amount itemization, tear-off dispute forms, and a 14-day wait before reporting to credit bureaus.)
What a Validation Letter Requires the Collector to Prove
When you request validation, you’re forcing the collector to prove the chain of ownership, from original creditor to current owner of the debt. You’re forcing it to prove the balance, including the original amount, interest or fees added, and payments applied. You’re forcing it to prove the debt is actually yours, and not someone else’s.
For debts that have been sold and resold, this documentation chain rarely exists. When the Federal Trade Commission studied the industry, it found that account documents, like the original signed agreement and payment records, were rarely transferred when portfolios were sold. Dispute records were almost never transferred.
This is your weapon. You’re not asking the collector for a favor. You’re exercising a federal right that puts the burden of proof on the party that’s demanding money from you. If it can’t prove it, the law is on your side.
The Smartest Move You Can Make When a Collector Calls
Why Validation Should Always Come First
The data is clear. Debt buyers purchase accounts for pennies on the dollar without any assurance they’re accurate. Almost half of disputed debts cannot be verified. The nation’s largest debt buyers have been penalized more than $100 million combined for attempting to collect debts they couldn’t validate. And 45% of all CFPB debt collection complaints are for debts the consumers claimed they didn’t owe.
Paying a collection account without validation means you may be paying for a debt that isn’t yours. It means you may be paying the wrong balance. It means you may be paying an account you’ve already paid. Or it means you may be paying a debt that’s too old to collect.
You may also be renewing the statute of limitations on a debt that was already past the time limit for collection, giving the collector a legal sword it had already lost. Sending a written debt validation letter within 30 days of initial contact costs you only the price of a stamp and certified mail. It’s the most critical step you can take before making any payment or any decision on a debt in collection.
Let FightCollections.com Handle It for You
At FightCollections.com, we challenge invalid collection accounts on behalf of consumers every day. We know the tactics that collectors use. We know the laws they violate. And we know the paperwork they fail to maintain. We know how to use the FDCPA, the FCRA, and state-level consumer protection laws to challenge debts that shouldn’t be on your credit report.
If you have a collection account on your credit report, don’t pay it until you understand your rights. Contact FightCollections.com today for a free consultation. We’ll evaluate your situation, identify potential violations, and fight to have unverifiable or inaccurate collection accounts removed from your credit report.
The debt collection industry depends on consumers not understanding their rights. Now you understand yours.
