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How to fight robo-debt collectors

Past Due Notices
Past Due Notices iStockphoto
(MoneyWatch) Think you're being hounded for a bill you don't owe? You may well be right. Collection agents for credit card companies are pursuing consumers with erroneous "robo-signed" documents, much as mortgage lenders did with homeowners, according to The New York Times. As credit issuers ranging from American Express to Citigroup attempt to collect on billions in delinquent loans, consumers are claiming in dozens of lawsuits that the lenders have been unable to show that they actually owe the debt and are pursuing them with fabricated documents and generic testimony, the paper reports. In some cases, consumers contend that they don't owe the debt at all. In others, they say that they do owe something, but the amount of the debt has been padded.

Notably, the allegations against the credit card companies are nearly identical to those leveled against mortgage servicers, which led to a $25 billion settlement earlier this year. The root of the problem is also likely to be similar -= the secondary market for debt, said Bill Bartmann, president of CFS II, a debt collection company in Tulsa, Oklahoma.

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Banks frequently sell bad loans to collection companies for pennies on the dollar. The debt buyers are supposed to get the documentation that came with the original loan, but in the fast-paced world of high finance, loans are sometimes sold without all the requisite paperwork. When a purchased loan proves difficult to collect, it can be sold over and over, creating the economic equivalent of a game of telephone, where the final message is far from the one that was originated, he said.

That boosts the chance that a consumer is dinged for a phantom debt-- debt owed by someone with a similar name or Social Security number -- or for an amount that bears little resemblance to the amount that was borrowed.

What can you do if you're being pursued for a debt that you don't believe you owe?

Find out who's calling: Get the name and contact information of the person collecting your debt, suggests Bartmann. It's not enough to hear that they're calling about "the debt you owe to Bank of America." Find out if they are calling from Bank of America or if they're calling from a debt collection company. Get names, addresses and contact information of both the company and the person you're dealing with. Write them down and keep written notes of your conversations, in case you need them later.

Demand documents: The Fair Debt Collection Practices Act requires debt collectors to provide you with written proof that you owe the debt they are attempting to collect if you ask for it. If you're contacted about a debt you don't believe you owe, the first step is to ask for written verification of the debt.

Read documents closely: The Times report one consumer's debt verification notice appeared to be fabricated. How did they know? The statement, which was supposedly dated from 2004, had an advertisement from 2010. Look to see where the debt was generated. Was it from a store where you shop? Does the loan agreement have your signature and the right personal information? It's not uncommon for people with similar names or Social Security numbers to be confused.

Put disputes in writing: If the documentation leaves you convinced that you are being unjustly pursued for someone else's debt, explain why you don't believe the debt belongs to you. And make sure you provide this explanation in writing and mail it with a return receipt. Keep copies of everything, just in case.

Complain to the authorities: If your dispute falls on deaf ears and you find yourself relentlessly dogged by debt collectors, contact your local attorney general's office, Bartmann suggested. Most have consumer complaint divisions that handle just this type of dispute. If enough people are complaining about the same debt collectors, it bolsters the argument that they -- not you -- are the problem. Also contact the federal Consumer Financial Protection Bureau. "They're the new cop in town and they're taking that responsibility very seriously," Bartmann said.

Get help: If none of these steps help, you may need an attorney. If you can't afford one, contact your local Legal Aid office.

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