News & Resources

Debt collection 101

Feb 04, 2013 Philip Burgess

The debt collection industry has expanded significantly in recent years, likely the product of a greater volume of outstanding loans among consumers and corporations than ever before following the recent recession. As a result, many businesses have entered the industry as newcomers, and a significant amount might not be prepared to follow the laws in place to protect consumers and businesses.

This has led to an increase in poor press for the debt collection industry, much of which is not pertinent to seasoned professionals who have been in the field for years and follow the laws properly. Still, more federal agencies and state lawmakers are passing stringent legislation to tighten the grips on debt collectors, and professionals in this industry will need to follow the ebb and flow of new requirements to maintain good reputations and stay a safe distance away from legal proceedings.

There are a variety of resources available to businesses that partake in debt collection processes, such as those provided by the Federal Trade Commission, the Consumer Financial Protection Bureau and the Better Business Bureau. However, the language of some of these laws can be extremely complex and tough to decode without strong knowledge of the legal precedence set in other debt collection cases. 

What not to do
The Consumerist recently listed a variety of actions debt collectors are prohibited from taking in accordance with the Fair Debt Collection Practices Act and other laws. An important note to remember when reading up on this law is that it is not the only one outlining prohibitive actions in debt collection proceedings, and that state laws will vary.

According to the news provider, a debt collector can only contact an individual between the hours of 8 in the morning and 9 at night, but these professionals are prohibited from contacting people at their workplace. Debt collection agencies are not allowed to publish the names of people who refuse to pay their debts in any form or communicate this information to any entity other than a credit reporting bureau. 

The use of profane language, threats of violence, false claims that the individual committed a crime, misrepresentation of the amount owed and providing fraudulent information about the person in debt are all illegal actions. The source added that misrepresentation of the collection agency or specific individual sent out to collect the money are strictly prohibited, as this had been a problem with negligent agencies in the past.

Finally, The Consumerist said essentially any type of misleading or false information communicated to the person in debt is considered illegal, and any attempts to seize property without a court order to do so could end in legal proceedings against the agency.

Debt collection firms should always remember that failure to meet these requirements can lead to a loss of the amount owed, as individuals who successfully prove that the agency violated the law will sometimes be freed of the debt.

Regulators tighten the grips
American Banker recently reported that the FTC, under the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as several groups of state Attorneys General and other entities in federal and state governments are looking to begin overseeing debt collections in a more targeted fashion. While the FTC was always the leading oversight entity for the industry, recent problems in the debt collection sector have led a variety of groups to demand the power to take action against abusive practitioners. 

Businesses that do not feel completely comfortable with the debt collection laws in place should consider using a firm that specializes in the responsibilities. This will ensure expedited collection of all debts while maintaining a strong professional reputation and avoiding legal proceedings.