Fizz | Istock | Getty Images
Nearly 2,000 consumers who were defrauded to pay debts they did not owe are getting their money back.
More than $1 million, an average of $516 for each payment, is being returned to victims via PayPal or a postal check, the Federal Trade Commission recently announced. “Consumers will get back all the money they lost to scammers,” the FTC noted.
The phantom debt collection scheme – which used names such as GAFS Group, Global Mediation Group and Mediation Services – pressured consumers to pay fake debts by threatening to take legal action against them.
Learn more about personal finance:
What a recession could mean for you
The Best Money Moves After Fed Interest Rate Hikes
Nearly half of Americans are taking on more debt
If you know your rights and financial situation, you’re less likely to be duped by a similar scheme, according to Bruce McClary, senior vice president of memberships and communications at the National Foundation for Credit Counseling.
But if you don’t, you might be liable to hand over your money.
“If you’re not aware of the Fair Debt Collection Practices Act and you’re not aware of your rights as a consumer, it would be very easy for a scammer to bring up all kinds of scenarios that scare you out of your mind,” McClary said.
These five steps can help prevent this scenario.
1. Request a Debt Validation Letter
If you are contacted by a credit collection agency, whether it seems legitimate or not, you should request a debt validation letter, McClary said.
The letter will require the debt collector to prove they are legally collecting the balances owed, he said.
“If they don’t respond with that kind of proof, then you’re not legally obligated to send them a penny,” McClary said.
2. Keep good records of past debts
It’s especially important to be diligent about backing up your financial records in case circumstances like this arise, McClary said.
This goes for any accounts you owe and how they were handled, whether you paid in full or paid less than you owed.
“You should have verification in either scenario that shows you honored your commitment and shows the history of those debts,” McClary said.
3. Check your credit report
By regularly checking your credit report, you can see the status of your current and past accounts.
This can give you better clarity than trying to remember those details on your own, McClary said.
Granted, a credit report may not show everything. You may owe unpaid debts from past years that are within the debt collection statute of limitations that can still be legally collected, McClary noted.
You can view your credit report each week for free until the end of 2022. Typically, these free reports are available once a year.
4. Know your rights
Naruecha Jenthaisong | time | Getty Images
Consumers should familiarize themselves with their rights to better protect themselves from creditors, McClary said.
Getting to know the Fair Debt Collection Practices Act is a good place to start, he said. The Consumer Financial Protection Bureau also provides information that details how fair debt collection practices should work in easy-to-understand terms.
“The first tool a scammer uses is a psychological tool,” McClary said. “They create a feeling or an urgency where there really is no sense of urgency to begin with.”
5. Negotiate existing debts
If you determine the debt is legitimate, it’s possible to negotiate with the debt collection agency to come up with a payment plan you can afford, McClary said.
To do this, you may want to speak with a non-profit credit counselor or agency, which can be found on the National Foundation for Credit Counseling website.
“I would recommend this as a stopover if you’re struggling financially,” McClary said.
These professionals can also work with you to help you avoid situations that have resulted in debt collection.