How Can I Stop Payday Loan Collection on an Old Debt?

Hi,

I have a collections agency calling me about a payday loan from 2014. When I call the original creditor, they say they have no record of me with my social. They state that even if they sold the debt, they would have a record of what they wrote off. When I called the collection Agency back they state that they bought it from the original creditor so it doesn’t belong to them so they wouldn’t have a record. Is this true? Or is this a scam? They’re telling me they’re going to sue for wage garnishments. They have my social and old bank information.

Gabriela
Salinas, CA

Hi Gabriela,

Sorry to hear that you’re having trouble with a payday loan collector. The good news is that there are several steps you should be able to take which should help you avoid the wage garnishment that the debt collector is threatening. You’re right that what the collector is telling you doesn’t seem entirely on the up and up. So, let’s lay down some facts that will put you in a better position to hopefully stop these payday loan collection efforts.

How to stop payday loan collection legally

First, to give you some background, there’s a federal law called the Fair Debt Collection Practices Act. This consumer rights legislation protects consumers from unfair and harassing collection practices.

This law states that a collection cannot confiscate your property without a court order. Since a payday loan is an unsecured debt with no collateral attached to it, the collector cannot take your property without going to the court first. They would need to win a case against you in civil court to garnish your wages.

Step 1: Check the statute of limitations for your state

Every state in the U.S. has a set amount of time that collections can be pursued on debts. This is known as the statute of limitations. Essentially, a collector only has a limited time where they can take you to court over a debt.

The good news for you, Gabriela, is that the statute of limitations for written contacts where you live in California is four years. If the payday loan collection account is for a debt from 2014, then it seems like it is well past the statute of limitations. This means that the collector cannot take you to court. Thus, they won’t be able to garnish your wages.

So, that’s one less thing you need to worry about. They can’t win a court case against you on a debt that’s past the statute of limitations. Any consumer who is facing collection actions on an old debt should first check the statute of limitations on written contracts in the state where they reside.

However, just because a debt is past the statute, it doesn’t mean that the collector still can’t try and collect. That’s what seems to be happening in this case.

Step 2: Ask for a debt validation letter

By law, collectors are required to provide written verification of a debt within 30 days of contacting you. This should be a written letter sent by physical mail. This notice should state:

  1. The name of the company seeking payment
  2. The amount you owe

If you have not received this notice yet, request it immediately and tell them you do not wish to be contacted until you receive it. Once you receive it, this notice will help you verify that this is a debt you legitimately owe and that this company has a legal right to collect it.

If you still question the debt, you can then ask for a written debt validation letter. This letter will verify the original creditor that the company purchased the debt from. Once requested, the payday loan collector will have 30 days to respond.

The validation letter should include documentation from the original creditor and verify the purchase of the account by the collector. You can also request the creditor’s name and address.

And you are correct that even if the debt was purchased by the collection company, the original creditor should still have a record of you. The fact that they don’t is suspect.

If the collector cannot provide sufficient proof of everything required to validate the debt, then they have no legal right to collect.

Step 3: Cross-reference your credit report

Even if a debt gets sold to a third-party debt collector, a creditor will still have a record of the account. What’s more, there will be a paper trail you can follow via your consumer credit report.

When an account is charged off by the original creditor and sold to the collector, that will be reflected in your report. The original account will not disappear. Rather, the creditor would report a zero balance and list the account status as a charge off.

Then the collector may report the collection account to the credit bureaus. The collection account will appear in the public records section of your credit report. This account can only remain on your credit report for a set time – seven years from the date the original account became delinquent.

Given that this debt was originally from 2014, the collection account could legally appear on your credit report for another year or so.

But in any case, you should be able to go back to your credit report and see the original account listed with a $0 balance. If there is no account, then that’s more proof that you are not on the hook for this debt.

Step 3: Send a cease and desist

Once you’ve gathered up as much information as possible and done your due diligence to verify the debt, you can decide how to proceed.

If the debt is either past the statute of limitations or unable to be validated, then you have one easy out you can take. You can write a formal cease and desist letter to the payday loan collector.

This letter states that you no longer wish to be contacted about a debt. Make sure to type the letter and, if possible, send it by certified mail with a return receipt requested. That way, you have proof that the letter was received.

Once a collector receives a formal cease and desist, they must stop all contact. The only recourse they would have would be to go through the courts. However, if the debt is past the statute of limitations and/or unable to be verified, the collector shouldn’t be able to take you to court. Thus, it should be the last that you hear from them and it will take care of the matter.

What happens next

While it seems like the collector does not have a legal right to collect or take you to court over this matter, you should still monitor the situation closely. It sounds like this collector is being fairly aggressive with their collection attempts, so they may try something, even if it’s less than scrupulous.

With that in mind, make sure to keep all the paperwork and correspondence that you have regarding this debt. It may come in handy if the collector tries to find a way to get around the law.

First and foremost, be on the lookout for a civil court summons about this debt. This is a formal notice from the clerk of courts that you are being sued for a debt. If the collector does, in fact, try and take you to court, you will receive this notice.

Do not ignore a civil court summons! Even if the collector has no right to collect the debt, ignoring a summons could lead to a deficiency judgment. Essentially, the court will find you guilty for not responding. In this case, then the collector could get your wages garnished.

Instead, respond to the summons. You may want to seek legal counsel to understand the best way to respond. If you cannot afford legal counsel, find a local Legal Aid Society near you. They may provide free legal advice.

Most likely, your counsel will help you craft a response to deny the allegation. This is where the paperwork and correspondence you have will come in handy. You will be able to show that you do not legally owe the debt to this collector and/or that the debt is past the statute of limitations.

Be aware that this could turn into a zombie debt

Even after you deal with this collector, keep your paperwork on file. The law doesn’t prevent this payday loan collector from selling your debt to someone else. They may sell the debt to another collector just to cut their losses when they see they won’t be able to get you to pay.

If they sell the debt, you will need to go through this same process. So, having your paperwork on hand down the line will make that process easier.

We hope this advice helps, Gabriela, and hopefully, you can handle this issue successfully now. If you still have questions, we have a guide that goes into more detail about how to deal with debt collectors.