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Say a customer of a large American bank, let's call him Paul, overdrafts on a debit card from said bank, let's call it ABC Bank. There is no notice of an overdraft at the time the money is withdrawn, and so Paul has no idea that he has just spent more money than he has. Seeing as he has accounts with Big Bank and Amazing Bank as well, he doesn't use ABC Bank much. A few months later, he receives a letter from a collections agency demanding payment for his debt to ABC Bank, and Paul, besides not being aware of his debt up until this notice, is worried the collections will hurt his credit.

Is this legal, considering he wasn't notified of his debt before it was sold or passed to collections?

  • Didn't Paul receive a statement from ABC showing a negative balance? I would think that would constitute more than sufficient notice. ("Receive" here might mean "have online access to", if Paul has consented to electronic statements.) Anyway, Paul probably has to read his account agreement - most likely it makes him responsible for tracking his own balance and preventing it from going negative. – Nate Eldredge Nov 20 '16 at 20:48
  • There are rules about what collection agents can do to your credit rating, and certainly about what steps they can take in attempting to collect the debt, but I don't think there are many restrictions on what creditors can do with your debt, neither in terms of contracting with others to effect the collection nor in terms of just selling it outright. – phoog Nov 20 '16 at 21:39
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    You're asking whether a creditor can contract with a third party to collect a debt without notifying the debtor? Is there any reason to believe this would not be legal? – feetwet Nov 20 '16 at 22:56
  • @NateEldredge Paul received no notice at all, and after receiving the notice all statements have been removed from ABC Bank – TheEnvironmentalist Nov 21 '16 at 1:44
  • Paul's account agreement likely required him to read and reconcile his statements every month or so. Why did he not complain that he wasn't receiving his statements? – Nate Eldredge Nov 21 '16 at 1:46
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There are numerous restrictions on debt collectors, and almost none on creditors. You will have received a printed set of "disclosures", which will say for example whether they are contractually required to notify you before sending your debt to an agency. There are a few state laws that apply to creditors, but from what I can tell they only prohibit deception and harassment. California has such a law, and their attorney general informs people that "Generally, a creditor is not required to tell you it is referring your account to a debt collection agency". The NY AG says some things things that a creditor can't do (talk to your employer, threaten to do something illegal, pretend to have judicial authority, or harass you). Notifying you is not a requirement.

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