Debt Validation Myths: Red Flags to Know

Steve Rhode: Hey, you’re listening to the Get Out of Debt Guy Show and I’m back again with Damon Day. The last show we talked about debt validation and the magic beanstalk letters.

Danny Defends Debt Validation

Steve Rhode: I’ve got to read you this comment that just came in about the last podcast. The guy writes in: “I can tell the person who wrote all of this either works for a bank or doesn’t know what to do when you receive all of the documentation required in debt validation. The whole point of a creditor validating these accounts is to have an attorney conduct an audit on the information and find where a creditor charged you incorrect fees and raised your rates illegally.”

Damon Day: Sounds like a salesperson.

Steve Rhode: He goes on: “We all know these big banks are crooks and I’m tired of people defending these crooks. My name is Danny and I works with attorneys.”

Damon Day: “I works with attorneys”—after he got added our transcripts! And I agree with the guy—banks do rip people off all the time. I’m not defending the bank. I’m just saying the consumer is not going to get away with running up $50,000 in credit card debt and then just sending off some letters and walking away.

The Reality of Debt Validation

Steve Rhode: Debt validation—according to the Consumer Financial Protection Bureau—only requires: the identity of the debt collector or creditor with their address and phone number, the amount of the debt including any fees, what the debt is for and when it was incurred, and information about whether you or someone else may owe the debt. You can request all sorts of other things, but it doesn’t mean they have to provide those.

Damon Day: I got an email yesterday from somebody being sued by a collection agency. She’s been dealing with this for over two years. She says “I’ve validated the debt”—meaning she asked them to validate it—”and all I have received were copies of statements.” That’s your name, that’s your address. She goes “I’m not accepting or denying the debt, I’m just tired of dealing with it.” Now here she is two years later getting sued.

Equitable Acceptance Corporation Settlement

Steve Rhode: The thing I wanted to talk about today was this class action settlement with Equitable Acceptance Corporation. EAC was sued along with all of the student loan debt relief companies that were using them back in 2018.

The lawsuit said the scheme is masterminded by defendant Equitable Acceptance Corporation. The dealers lure vulnerable federal student loan borrowers with promises of loan forgiveness which the dealers do not and cannot offer. At EAC’s direction, they sell the service for $1,300. Because few borrowers can afford that sum upfront, the dealers offer a payment plan of $39 to $49 a month.

But the dealers don’t actually offer any payment plan—instead, they steer the borrowers to EAC to provide funding. EAC extends each borrower an entirely new loan in the form of a maxed out line of credit for the full price of the services, charging 21% interest.

Damon Day: So the sales guys were free to promise anything because they’re getting paid all of the money upfront. It’s not like they had to perform that service. That’s EAC’s problem.

Steve Rhode: The settlement that has been agreed to prevents Equitable Acceptance from collecting on any of those contracts. If you’re a consumer who fell into that pit and EAC is trying to collect, watch your mail—you might get something about a settlement.

Business Opportunity Scams

Damon Day: I had a conversation with an older lady who found this service for five or ten grand. The pitch was basically an e-commerce thing where they’re going to set up a website that sells products, drive people to the website, facilitate the sale, and do everything. She was just going to put in her money and then sit back and collect checks.

I told her: Here’s what I don’t understand—if they really have this turnkey system where they could create the websites, drive the traffic, and make the money, why would they need you? Why would they need your five grand? They’re doing all the work. Wouldn’t it make sense for them to just put their own money into it and make all the money themselves?

Steve Rhode: Before the retail internet store scam, it was the vending machine scam. “All you have to do is buy these 20 machines and we’ll help you locate them and you’re gonna make money just going around collecting it.” Same thing, just a different product.

Damon Day: I fell for that! Bubblegum machines with the big globe. And in college I got into coupon books—boxes of coupon books that I was supposed to sell for $25 with “thousands of dollars in savings.” I sold five to my friends and then realized what a pain it was.

Class Action Reality

Steve Rhode: The FTC is sending checks to people who were deceived into buying worthless online marketing services. The checks average over $511 each—which is pennies on the dollar when people are putting in five and ten thousand dollars.

Damon Day: By the time regulators catch scammers, years have passed. You said you were writing about EAC in 2015. The lawsuit was filed in 2018. Here we are six years later.

Steve Rhode: There’s never a shortage of people who want to take your money. Just don’t let them—be smart.