It happens. A collections notice shows up, a debt collector starts calling or you find a negative report on your credit history, but you know you paid the account in question. Can you sue a company for sending you to collections for the money you didn’t owe? Find out more about what the law says about your rights when it comes to protecting your credit history.
How Does the Law Protect Your Rights Regarding Credit Collections and Reporting?
Numerous federal and state laws protect your rights to fair and accurate credit reporting. Some of those laws also cover your rights as a consumer to fair debt collection practices. A few of the laws that might come into play are as follows:
- The Fair Credit Report Act ensures your right to an accurate consumer credit profile. It obligates companies to report truthful information on your credit report. It also provides some ways you can challenge information you think is inaccurate.
- The Fair Debt Collections Practices Act also helps ensure creditors are honest when reporting or collecting debts. Additionally, it prohibits collectors from engaging in harassing or abusive behavior to collect a debt, including contacting you excessively or at inappropriate times. You might be able to report or seek remedies from collectors who break these FDCPA rules for fair collections.
- The Truth in Lending Act is part of the Consumer Credit Protection Act. This law deals with what information lenders must disclose, how they can advertise their products and rates and what rights you have when a lender isn’t truthful or transparent.
Credit law can be complex. If you’re not sure which laws cover you or what the best course of action is in your case, you might need to consult with an attorney.
Can You Sue a Company for Sending You to Collections?
Yes, the FDCPA allows for legal action against certain collectors that don’t comply with the rules in the law. If you’re sent to collections for a debt you don’t owe or a collector otherwise ignores the FDCPA, you might be able to sue that collector.
It’s a good idea to do everything you can under the law to protect your rights before you sue. That might include requesting validation of any debt within 30 days of receiving the first notice, for example. But even without that action, the collector can still be liable if it breaks the law.
According to the FDCPA, civil liabilities are limited to the amount of damages actually experienced plus any additional damages awarded by the court. Those additional damages are limited to $1,000 in individual cases and $500,000 in class action suits.
Can You Sue a Company for False Credit Reporting?
Yes, you might be able to sue a company for false credit reporting. However, before you seek a civil remedy through the courts, you should properly exercise your rights under the law.
Begin by challenging the information with the credit bureau. False information hits credit reports for a variety of reasons, including misunderstandings and honest mistakes such as clerical errors. When you sent a credit dispute letter, the bureau must investigate and respond within a time frame dictated by the regulation.
The investigation typically involves contacting the reporting creditor or collection agency. That entity is given a chance to demonstrate the information is accurate via appropriate documentation. If the credit bureau determines the information is inaccurate or can’t be proven, it typically removes or corrects it.
The Fair Credit Reporting Act lists civil penalties for people or businesses that willfully refuse to comply with accurate credit reporting. Actual damages are limited to a range of $100 to $1,000. You might also be able to recover attorney’s fees and additional punitive damages the court can award on a case-by-case basis. Punitive damages are those awarded as a type of punishment for the person or business engaged in wrongdoing.
The Coronavirus Aid, Relief and Economic Security Act of 2020 (CARES Act) made some temporary modifications to creditors’ legal requirements for reporting. For example, it requires creditors to report accounts as current in certain situations where forbearances were granted.
Forbearance means the creditor agrees you don’t have to pay the loan for a certain period of time. During that time, you won’t be penalized by having the account reported as late.
If you think your collection or credit reporting issue should be protected under the CARES Act, consider consulting a lawyer. One can help you understand your rights, which laws affect them, and any action you might take next.
Related read: How to Pay Off Debt Fast
How Do You Sue a Collection Agency or Other Creditor?
We’re not legal experts at Credit.com, so we can’t give legal advice. We’ve provided a good amount of information to help you understand your rights under the law. But if you think suing a debt collector or other creditor is the next best step, consult an attorney.
A legal professional can help you understand if you have a claim against your creditor, for example. That person might also be able to advise you about other options, including debt settlement, if you do owe any money.
If you ended up here because you just discovered inaccurate information on your report, consider credit repair services from providers such as Lexington Law or CreditRepair.com. And if you have no idea what’s on your credit report, consider signing up for a service such as ExtraCredit to stay as informed as possible.
Disclosure: Credit.com and CreditRepair.com are both owned by the same company, Progrexion Holdings Inc. John C Heath, Attorney at Law, PC, d/b/a Lexington Law Firm is an independent law firm that uses Progrexion as a provider of business and administrative services.]
This article originally appeared on Credit.com and has been republished with permission.