Debt Collection and Identity Theft

Identity theft is one of the fastest growing criminal activities across the world. Despite all of the efforts to generate awareness, more people are finding themselves to be victims every single day. Many victims don’t even know that they are victims until they receive an account past due notice.

Target made national news this winter when millions of credit card numbers used there were exposed. It was reported in an article from Bloomberg this year that the Internal Revenue Service has seen a 66% increase in identity theft cases involving tax returns.

The emergence of identity theft as a serious concern has created a very tough situation for debt collectors in some instances. If a collection attempt is being made in an identity theft situation, the debtor likely has no knowledge that the fraudulent debt was ever incurred. Therefore, the debtor is likely not responsible for the debt, leaving the creditor stuck with no one to collect from.

Handling Identity Theft Victims 

Identity theft situations can be very frustrating for debt collectors, but many states have very specific rules that must be followed in how collectors interact with identity theft victims. The California Fair Debt Collection Practices Act (CFDCPA) specifically states that victims of identity theft are entitled to certain protections.

If a debtor claims to be the victim of identity theft, the collection agency must temporarily stop their collection effort and investigate the debtor’s claim. The collector is then required to conduct their own good faith inquiry and determine whether the original debt was a result of identity theft or not.

Following that investigation, the debt collection agency is free to resume its collection effort if it has reason to believe that the debt was not part of the identity theft.

If the collection agency finds that the debt was a part of the identity theft, it must stop all bill collection efforts and then remove any negative credit report information regarding the debt. If the collection agency is a third party, it must also notify the original creditor that the debt was a result of identity theft.

Receiving Notification of Identity Theft 

In order for a debt collection agency to know that a debt may have been incurred as a result of identity theft, the debtor has to notify them. The most common way for debtors to report identity theft to their creditors is in the form of a report from local police or a government agency.

The local police report or an Affidavit of Identity Theft from the Federal Trade Commission can be forwarded straight to any creditors or debt collection agencies. Identity theft victims in California can also obtain an Identity Theft Victim’s Fraudulent Account Information Request from the California Office of Privacy Protection.

Aside from formal reports and forms, identity theft victims can also notify debt collectors of their situation by explaining the situation in writing and sending it to any creditors or debt collectors. However, if the debtor is found to be lying about the identity theft, they can be criminally charged.

As a debt collector, identity theft situations can be very frustrating. The fact that you are left with no one to collect the debt from will probably leave you feeling cheated, but it is absolutely critical that you know and follow the rules when dealing with victims of identity theft. Debt collectors who ignore these regulations can find themselves being sued for damages.

By |2017-09-16T12:39:42+00:00May 5th, 2014|Blog|0 Comments

About the Author:

Graduated from University of Utah - business degree 1990. Served in US Army as an interrogator / linguist, then as a tactical intelligence officer - Military Intelligence 1986-1990. Managed Western US sales operations for NY based collection agency 1990-1992. Founded Direct Recovery Associates, Inc. 1992-present