Key takeaways

  • Parked debt violates multiple consumer laws — you have rights if you're a victim.
  • You can sue the collection agency for debt parking, but it must be within one year of the violation occurring.
  • Check your credit report and score regularly to prevent debt parking before it's too late.

You’ve been paying your debts like clockwork, haven’t applied to new credit or made any huge changes to your accounts — still, your credit score has dipped. If that’s the case, you might be a victim of an illegal practice called “debt parking”. Fortunately, there are some resources available that can help you sort this out while restoring your credit.

What is debt parking?

Debt parking happens when debt collectors report debts to the credit reporting agencies without making a legitimate attempt to communicate with the consumer about the debt in question. Some debt collectors use this tactic to get consumers to pay off a certain account — even if it doesn’t belong to them.

Most of the time, the parked debt is first noticed when your credit report or score undergoes a hard check, like when you apply for an apartment or a loan. At this point, you’ll likely be pressured to pay off the debt so you don’t miss the rental agreement date or miss out on your dream home, even if you have doubts about its authenticity.

The FTC vs. debt parking

In 2022, the Federal Trade Commission (FTC) reached a settlement with debt collection agency, Midwest Recovery Systems. It was alleged that the company had collected over $24 million from consumers, most of which came from debt parking.

The FTC alleges that the owners of the company had been engaging in debt parking practices since 2015. “The defendants used this illegal ‘debt parking’ to coerce people to pay debts they didn’t owe or recognize,” says Andrew Smith, Director of the FTC’s Bureau of Consumer Protection in a statement.

Midwest Recovery allegedly received thousands of complaints per month about these debts from its customers. When investigated by the company itself, it was found that between 80 to 97 percent of the investigated debts were invalid or inaccurate.

In one case cited by the FTC, a consumer applied for a mortgage loan, where he found that $1,500 in outstanding medical debt had lowered his credit score. He contacted the hospital only to find out that the only outstanding balance was an $80 co-pay. Despite this, Midwest allegedly threatened to sue if he didn’t pay the $1,500 balance.

Debt parking tactics violate FCRA, FDCPA regulations

The debt parking tactics employed by debt collectors like Midwest violate various aspects of the Fair Debt Collection Practices Act (FDCPA) which lays out how debt collectors should engage with debtors, and the Fair Credit Reporting Act (FCRA), which spells out how credit reporting agencies and those who furnish information to them should operate.

The legal violations the FTC cites against Midwest that violate these regulations include:

  • False representations, or representations that lack substance.
  • Not providing validation notices to consumers giving them the information they need to dispute a debt.
  • Providing information to credit reporting agencies that they knew, or had reason to believe, was not accurate.
  • A failure to conduct “reasonable investigations” of consumer disputes of the debt.
  • Not communicating the findings of investigations to consumers.

What to do if you’ve been a victim of debt parking?

If you are a victim of debt parking, you have certain recourses under the FDCPA and the FCRA. The FTC states  that within a year of the violation occurring, you could sue a debt collector who negates your FDCPA rights.

The FCRA allows you to dispute any inaccurate credit reports with credit reporting agencies, or with those who provided the input to them. You should contact them with a dispute letter and any documents (send copies) that support your case.

A credit reporting agency should investigate your dispute and get back to you within 30 days. If you want it to, the agency should also send any corrections made to anyone who received your credit report in the last six months. In the event that the dispute is not resolved to your satisfaction, you can put in a statement providing your input to be included with your credit report.

Make it a point to keep track of your credit report, particularly before applying for a consumer loan, to avoid being the victim of debt parking.

The bottom line

From getting an apartment lease to securing a good car insurance rate, your credit score will serve as a representation of how reliable of a consumer you are. That’s why it’s important to stay on top of it and make sure everything is on the level. If something seems amiss, don’t let it slip. Take the time to pinpoint what’s wrong and flag it to the proper channels. This will help you avoid future financial woes that could prove costly if you choose to ignore them.