The Devastating Effects of Debt Parking

How Debt Parking Works

Debt Parking (aka: “passive debt collection”) – the practice of posting perceived debt on a persons’ credit report without first attempting to inform them about the debt. In many cases it’s a completely fraudulent charge that pressures a percentage of consumers to pay.

For consumers who have fallen prey to the destructive practice of debt parking the results can be financially devastating – and in most cases you won’t even be aware of it until it’s too late.

A person applying for a mortgage loan or being offered a job may end up paying the fraudulent debt simply because there’s not enough time to file a dispute with the credit bureaus.

FTC Lawsuits

Debt parking has managed to stay under the radar, but the U.S. Federal Trade Commission (FTC) is starting to crack down. According to one lawsuit, the defendants reported fraudulent debts of more than $98M to the credit reporting agencies – payday loans, inflated medical costs, bankruptcy fees, and even debts that a person had already paid.[1]

Even when consumers had the opportunity to challenge alleged debts, defendants would confirm that 80% – 97% of them were either inaccurate or invalid.

The FTC claims that the defendants continued to collect un-owed debts even if red flags were raised over their validity. It’s unsurprising, given that many of these debts arose from payday lenders who usually prey on consumers who already have low credit scores and high amounts of debt.

Debt Parking Example

When applying for a home mortgage, a lender requests a credit report from a credit reporting bureau (i.e. Transunion). Unknown to the consumer their credit report shows that they owed a medical bill of $1,500. The consumer went to the hospital and finds out that he owed a co-payment of only $80. Regardless, the FTC says the defendants refused to pay off the debt and threatened the consumer with legal action if they did not respond.

Debt parking is big business – in one case the FTC alleges that a company collected more than $24 millions of dollars for invalid or fraudulent debts. The company also received thousands of complaints each month from consumers about invalid payday or medical debts reported to the credit reporting bureaus. Medical debt is often used because of the complexity of insurance coverage and cost sharing.

Under a recent settlement a debt parking company had a monetary judgment of $24.3 million.

Check if you are victim to debt parking by requesting a free credit report from the three major credit reporting bureaus. (request a free copy each year.)

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