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Debt buyers can report debts to credit bureaus, but strict rules govern how and when they can do so. These entities purchase defaulted debts and act as "furnishers", meaning they provide information to credit bureaus. However, federal laws like the Fair Credit Reporting Act (FCRA) and Fair Debt Collection Practices Act (FDCPA) impose clear restrictions to protect consumers.
Debt buyers who fail to comply with these rules risk fines, lawsuits, and reputational damage. If you notice errors on your credit report or suspect illegal practices, you have the right to dispute the information and seek corrections.
Two key federal laws shape how debt buyers interact with credit bureaus: the Fair Credit Reporting Act (FCRA) and the Fair Debt Collection Practices Act (FDCPA). Both are designed to protect consumers.
The FCRA emphasizes accuracy and integrity in reporting. Debt buyers who provide information to credit bureaus must create and follow written policies to ensure the data they report is both accurate and complete. This requirement was reinforced by the CFPB in Bulletin 2016-01, which states:
The FCRA's requirement that furnishers establish and implement reasonable written policies and procedures regarding the accuracy and integrity of information furnished to all consumer reporting agencies.
The FDCPA, on the other hand, focuses on behavior and communication standards to prevent abusive practices. Section 807 specifically prohibits debt buyers from reporting credit information they know - or should reasonably know - is false.
Together, these laws provide overlapping protections. For example, the FCRA mandates that furnishers investigate disputes and report their findings, while the FDCPA requires that any disputed debts be clearly marked as such.
These legal requirements form the foundation for how debt buyers can legally report debts to credit bureaus.
Beyond these federal guidelines, debt buyers must also navigate specific rules about their rights and limitations in reporting.
Debt buyers are allowed to report acquired debts, but only if they meet certain legal standards. Their obligations depend on their classification under the FCRA and FDCPA.
Under the FCRA, debt buyers are considered furnishers when they provide account details to credit bureaus. Under the FDCPA, they are classified as debt collectors if their primary business is collecting debts or if they regularly collect debts on behalf of others. This distinction is critical because it determines what additional restrictions apply.
One major limitation comes from Regulation F. Debt buyers cannot report a debt to a credit bureau before first contacting the consumer. This rule, designed to prevent "passive debt collection", ensures that reporting cannot be the initial action taken. Furthermore, if a consumer disputes a debt in writing during the 30-day validation period, the debt buyer must stop all collection activities - including reporting to credit bureaus - until they verify the debt.
Failing to comply with these rules can lead to severe penalties. Individual consumers can seek statutory damages of up to $1,000 for FDCPA violations. For class actions, damages may reach up to $500,000 or 1% of the debt collector's net worth, whichever is less.
Debt Buyer Credit Reporting Requirements and Timeline
Before reporting any debt to a credit bureau, debt buyers are required to ensure the debt's legitimacy and accuracy. According to the FCRA's Furnisher Rule, they must establish written policies that ensure the accuracy and integrity of the information they provide to credit reporting agencies. This process involves confirming the debt amount, verifying the debtor's identity, and documenting the entire chain of ownership from the original creditor to the current debt buyer.
Debt buyers also need to verify their legal ownership and reporting rights by reviewing the chain of title. Without proper documentation showing the transfer of ownership from the original creditor through intermediaries, reporting the debt could violate federal regulations. The Federal Trade Commission (FTC) emphasizes that furnishers are obligated "to furnish information that's accurate and complete".
Once the debt's legitimacy is confirmed, debt buyers must ensure it falls within the allowable reporting period. The FCRA sets a seven-year reporting window that begins on the date of first delinquency - the date of the last missed payment leading to collections. It is illegal for debt buyers to reset this timeline, a prohibited practice known as "re-aging."
"The statute of limitations for both credit reporting and suit both start from the date of delinquency, or the last missed payment that lead to you being in collections." - DebtPedia.net
Even if a consumer voluntarily makes a payment on an old debt, it generally does not extend the FCRA's seven-year reporting limit. However, such payments might affect the statute of limitations for lawsuits in certain states. To avoid reporting outdated information, debt buyers must confirm the date of first delinquency using records from the original creditor.
Debt buyers must also comply with consumer notification rules before reporting any debt. They are required to contact the consumer through one of four approved methods - in person, by telephone, by mail, or electronically - and must wait 14 days after sending mail or electronic notices to confirm delivery before reporting the debt.
"Before a debt collector can report your debt to a credit reporting company, the debt collector must follow the rules for contacting you." - CFPB
Sending a validation notice fulfills this initial contact requirement, as long as the debt buyer observes the 14-day waiting period and does not receive notice of non-delivery. If the consumer disputes the debt during the 30-day validation period, the debt buyer must ensure the account is marked as disputed when reporting it to the credit bureaus.
Debt buyers are required to follow the Fair Credit Reporting Act (FCRA) and Fair Debt Collection Practices Act (FDCPA) by implementing written procedures that ensure the information reported to credit bureaus is both accurate and complete. Regular monitoring plays a key role in meeting these requirements. The Federal Trade Commission (FTC) has stressed that furnishers have a legal duty to provide accurate and complete data, as incorrect reporting can harm a consumer's ability to secure credit, employment, or housing.
One critical rule is that debt buyers must not change the original delinquency date of an account when they acquire it. The reporting timeline must begin from the consumer's last missed payment that led to the collection. Resetting this date violates the FCRA and can result in hefty penalties.
"If you report information about consumers to consumer reporting agencies (CRAs)... you have legal obligations under the Fair Credit Reporting Act's Furnisher Rule... to furnish information that's accurate and complete, and to investigate consumer disputes." - Colleen Tressler, FTC Consumer Education Specialist
These practices are essential for ensuring a smooth and compliant dispute resolution process, as discussed in the next section.
When consumers dispute information, debt buyers are legally required to conduct a reasonable investigation. They cannot impose unnecessary barriers, like demanding specific forms or documentation not required by law.
For disputes filed through credit reporting agencies, debt buyers must examine all relevant information, including electronic images of primary documents such as checks or billing statements. Investigations must rely on verifiable documentation rather than internal summaries. If the investigation reveals errors, incomplete details, or unverifiable data, the debt buyer must immediately notify all credit reporting agencies to correct or remove the item.
Between January and September 2021, the Consumer Financial Protection Bureau (CFPB) received over 500,000 complaints about credit or consumer reporting. For three consecutive years, the most common issue was "incorrect information on your report". This highlights the importance of having strong procedures to address disputes effectively.
Failing to meet FCRA standards can lead to serious penalties. For example, in August 2013, the FTC settled with Certegy Check Services, Inc., which paid a $3.5 million civil penalty for FCRA violations. This case illustrates the active enforcement efforts of regulatory agencies.
"Both the credit bureau and the business that provided the information about you to a credit bureau are responsible for correcting inaccurate or incomplete information in your report." - FTC Staff
In addition to federal actions, debt buyers may face lawsuits from state authorities or private individuals for FCRA violations. These cases can result in statutory damages, actual damages, attorney's fees, and damage to a company's reputation. To stay compliant and avoid these risks, debt buyers should regularly review the FTC's publication "Consumer Reports: What Information Furnishers Need to Know". These penalties underscore the importance of adhering to federal standards throughout the reporting process.
Debt buyers play a key role in shaping consumer credit profiles through their reporting practices, all while adhering to strict compliance rules.
When a debt buyer reports to credit bureaus, the collection account shows up as a collections tradeline - a specific negative entry on a credit report. The Consumer Financial Protection Bureau describes it as follows:
"A collections tradeline is an item on a consumer's credit report. It includes information about an individual's allegedly unpaid bills".
These tradelines typically include details like the debt buyer's name, the original creditor's name, account numbers, balances, and the original delinquency date. Once a debt is sold, the original creditor’s account is marked as "charged off" and "closed" or "transferred", while the debt buyer’s entry appears as a separate, open collection account. Jennifer White, a Consumer Education Specialist at Experian, clarifies:
"The open date of the new collection account will reflect the date that the account was purchased by the collection agency, but it will still be removed seven years from the original delinquency date on the initial account".
Between Q1 2018 and Q1 2022, the number of collections tradelines on credit reports dropped by 33%, from 261 million to 175 million. During this time, contingency-fee collectors reduced their reporting by 18%, while debt buyers maintained a steady 33% reporting rate. Debt buyers generally focus on financial collections, such as credit card and personal loan debts, rather than medical collections.
However, not all practices are above board. One illegal tactic is "debt parking" or re-aging, where debt buyers falsely report old accounts as new or manipulate delinquency dates to keep them on credit reports longer than allowed. Consumers should carefully check that the original delinquency date aligns with creditor records and dispute any re-aged accounts.
The way collection accounts are reported directly affects consumer credit scores.
Collection accounts remain on credit reports for seven years from the original delinquency date - the first missed payment that led to the account being charged off, not the date the debt buyer acquired it. As Experian explains:
"A collection account can stay on your credit report for up to seven years from the debt's original delinquency date. That's the first in the series of missed payments that led to the debt being turned over for collection".
These accounts signal negative financial behavior and can significantly lower credit scores, though the impact lessens over time as the account ages. The effect also depends on the scoring model used. For example, newer models like VantageScore 3.0 and 4.0 disregard all paid collections, while FICO Scores 8, 9, and 10 ignore third-party collections for debts under $100.
Medical debt follows unique reporting rules. Medical collections under $500 and all paid medical collections are excluded from credit reports. Additionally, unpaid medical debt over $500 won’t appear until a year after the original delinquency date. This is particularly relevant since medical collections make up 57% of all collections on credit reports.
There’s one notable state exception: in New York, paid collection accounts are removed after five years instead of the standard seven. Meanwhile, federal law allows negative information to stay on reports for up to seven years plus 180 days from the delinquency that triggered the collection activity.
Consumers are advised to regularly check their credit reports for "parked" debts - old accounts sneakily reported as new by debt buyers to pressure payment, especially during loan applications. When resolving debts, it’s worth negotiating with the collector to report the account as "paid in full" instead of "settled", as the former is viewed more favorably by lenders.
Debt buyers are required to keep thorough records to back up their credit bureau reporting and address consumer disputes effectively. Without proper documentation, they risk regulatory fines and may struggle to prove ownership of the debts they attempt to collect. These practices align with the legal obligations outlined earlier.
Maintaining a clear chain of ownership is critical for debt buyers. This includes a complete record of prior owners and certified transfer documents that trace the debt from the original creditor to the current buyer.
In September 2015, the Consumer Financial Protection Bureau (CFPB) imposed significant penalties on Encore Capital Group and Portfolio Recovery Associates, totaling $18 million in fines and over $60 million in consumer refunds. These penalties were tied to inadequate documentation and poor collection practices. Following the settlement, both companies were required to review "original account-level documentation", such as transactional histories and certified transfer documents, before initiating lawsuits or attempting to collect on most debts.
Stephen A. Serfass and Nolan Tully, partners at Faegre Drinker Biddle & Reath LLP, highlighted this requirement:
"One obligation imposed on Encore and PRA is a requirement to review 'original account-level documentation' reflecting the consumer's name and claimed amount before filing collection lawsuits and, in most circumstances, before attempting to collect debt".
Essential records should include details like the consumer's name, last known contact information, Social Security number, original account number, account opening date, interest rate, last payment date, and current balance. If the debt has been involved in legal proceedings, copies of any judgments should also be included.
Beyond ownership records, documentation from the original creditor is equally important to confirm the debt's validity and terms. This includes the original contract, periodic account statements, and a full transactional history detailing payments, accrued interest, and fees.
The Office of the Comptroller of the Currency emphasizes the risks of incomplete documentation:
"Each time account information changes hands, risk increases that key information will be lost or corrupted, calling into question the legal validity and ownership of the underlying debt".
Debt buyers should maintain a comprehensive documentation package for each account they purchase. This package should include the signed contract, the last 12 account statements, all associated account numbers, and an itemized breakdown of the debt (principal, interest, and fees). Such records are crucial for accurate credit bureau reporting and resolving disputes over balances. Additionally, banks are generally required to charge off consumer debts after 180 days of delinquency, making records from that period especially important.
Keeping detailed records of consumer interactions is essential for compliance and dispute resolution. Under Regulation F, debt collectors must retain evidence of compliance or noncompliance with the Fair Debt Collection Practices Act (FDCPA) for at least three years after the last collection activity.
The CFPB outlines this requirement:
"A debt collector must retain records that are evidence of compliance or noncompliance with the FDCPA and this part starting on the date that the debt collector begins collection activity on a debt until three years after the debt collector's last collection activity".
This includes maintaining logs of all communication attempts, copies of validation notices, and records of disputes, all organized in a single system. Recorded calls should also be preserved for three years. These records serve as evidence that collectors followed required procedures, such as sending validation notices, and avoided prohibited actions, like harassment.
Records don't need to be stored in paper form but must be easily accessible and reproducible. Debt buyers should also ensure they have contractual rights to access records held by third parties. Properly maintained records not only streamline dispute resolution but also demonstrate a commitment to compliance, reinforcing the principles discussed earlier.
Debt buyers can report to credit bureaus, but they must follow strict guidelines under the FCRA and FDCPA. Before reporting any debt, it’s mandatory to contact the consumer and wait 14 days after sending a validation notice to confirm delivery. This rule applies to the major credit bureaus: Equifax, Experian, and TransUnion.
Here’s what you need to keep in mind: accurate reporting is a legal requirement. The FCRA's Furnisher Rule mandates that any information provided to consumer reporting agencies must be complete and accurate. To comply, ensure you have thorough documentation, including proof of debt ownership, records from the original creditor, and detailed logs of communication with the consumer.
Reporting is just the beginning. You’ll also need clear procedures to investigate disputes quickly and correct any errors. Remember, re-aging - changing the original delinquency date - is strictly illegal.
The financial risks for non-compliance are steep. Consumers can recover actual damages plus up to $1,000 for FDCPA violations, and class action lawsuits can result in penalties of either $500,000 or 1% of the debt buyer’s net worth, whichever is less. Beyond financial penalties, inaccurate reporting can attract regulatory attention and harm your reputation in the long run.
To confirm whether a debt buyer legally owns your debt, ask for validation and proof of ownership. This could include documents like a written agreement or records of the account transfer. According to the Fair Debt Collection Practices Act (15 USC 1692g), debt collectors must provide this information if you request it.
If a debt buyer reports a debt to the credit bureaus before reaching out to you, it’s important to act fast. They are required to contact you first - whether by phone, mail, or in person - before making a report. If this step is skipped, you have the right to dispute the accuracy of the report and request an investigation. Be sure to keep detailed records of all communications. You might also want to file a complaint with the CFPB or seek advice from a legal professional to ensure your rights are upheld.
Paying off a collection account won’t make it disappear from your credit report. It will stay there for seven years from the date of your first missed payment. However, once it’s marked as paid, the negative effect on your credit score can lessen over time.
More than a decade of Ivan's career has been dedicated to Finance, Banking and Digital Solutions. From these three areas, the idea of a fintech solution called Debepxert was born. He started his career in Big Four consulting and continued in the industry, working as a CFO for publicly traded and digital companies. Ivan came into the debt industry in 2019, when company Debexpert started its first operations. Over the past few years the company, following his lead, has become a technological leader in the US, opened its offices in 10 countries and achieved a record level of sales - 700 debt portfolios per year.
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