Don’t dodge collection agency’s debt call

Dear Dr. Don,
I signed up for a one-year gym membership. After the year ended, I tried to cancel my account with the gym. They kept charging me for dues. After a year of the egregious charges, I went to my bank because the gym was charging my debit card. They closed that account and opened new accounts for me. They even contacted the business office at the gym, demanding them to close the account. The gym refused because they must receive a letter at a specific post office box by a certain point in the billing period. I sent more letters and left messages, requesting account cancellation.

They continued to bill me, and ultimately they put me into collections. The gym has since closed, but the collection agency is still after me. I have no idea how to handle this situation.

My credit score is now in the mid-600s. I have no credit card debt. I pay my bills on time every month, and I paid off my car last year. Please help me fix this situation. I would like to buy a new car next year and a house in the next two years.
— ML Problem

Dear ML,
You’re not alone. I’m convinced that one reason I don’t belong to a gym is that I don’t want to find myself in a situation like yours. It’s doubly bad when you’re an advice columnist. I’d rather buy some gym equipment, set a television up in my basement and work out at home. That’s largely what I’ve done, but that advice won’t help you with your problem.

Closing the bank account stopped the automatic debit but didn’t cancel the contract. It’s not clear at what point your contract was actually canceled. Up to that point, you owe the money for the gym membership.

Take a look at your credit report(s). It will spell out the history and size of this collection problem. Talk to your state’s attorney general about the statute of limitations on a written contract and the laws concerning health club memberships in your state. Often, the collections activity ramps up just prior to the end of the contract’s enforceability.

Under the dispute provisions of the Fair Credit Reporting Act, you have the right to dispute items on your credit report, and your dispute has to be settled in a timely manner.

You need to come loaded for bear with this one, providing a paper trail of documentation sent via registered mail to one of the credit bureaus that shows the collections on your credit report. You may be tempted to do this via the Internet, but that’s not the way to go.

My guess is the collections agency is trying to collect on a valid debt from the gym contract. The credit report act’s dispute process will only work if it isn’t a valid debt and you can prove it. State consumer protection bureaus will have something to say about gym memberships. However, with the gym closed, it’ll be difficult, if not impossible, to use consumer protection bureaus to get the gym to cancel the contract as of an earlier effective date to eliminate the missed payments on the contract.

It’s easy to stop the collection agency from bothering you. All you have to do is write the agency a letter, make a copy for yourself and send the letter certified mail “return receipt requested,” and ask them to stop contacting you. That won’t make the collections debt go away. It’ll just stop the annoying calls.

Upon receipt, the collector may not contact you again. There are two exceptions. The collector can contact you to tell you there will be no further contact, or you will be contacted if the collector or creditor intends to take a specific action such as filing a lawsuit. If you owe the debt and don’t plan to pay it, you have to wait out the contract under the statute of limitations. The collections agency may decide to take you to court. If it does and wins a deficiency judgment against you, the judgment will show up on your credit report.

If the dispute is not resolved in your favor, you have the right to place a statement on your credit report that explains your issue with the disputed information on your report.

The good news is that the passage of time often heals all wounds when it comes to credit repair. Negative information, other than a Chapter 7 bankruptcy filing, can only stay on your credit report for seven years from the initial negative report. How that impacts your planned financing of a new car and a new home would depend on the dispute resolution and when the negative information was first placed on your credit report.

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