What Does It Mean To Be Compliant With Debt Collection Laws?
Staying in compliance with state and federal debt collection laws requires collection agencies to respect the rights of the debtor when dealing with delinquent accounts. Later in this guide, we go into more detail on the specific laws and regulations which must be adhered to when dealing with consumer or commercial debts.
The following outlines some of the basic requirements for collection agencies in general:
- Treat the person or business who owes money fairly, staying within the regulations that govern the particular industry.
- Avoid deceptive or abusive practices, such as making false statements or harassing debtors verbally or calling them at all hours of the day or night.
- Send proper notifications and notices regarding the amount of the debt within five days of contacting them, letting them know the total amount owed.
- Protect the debtor’s privacy by not discussing the debt with anyone other than them or authorized parties.
What Does It Mean To Be Non-Compliant With Debt Collection Laws?
Collection agencies that do not follow basic requirements and fail to comply with debt collection laws reflect poorly on the industry in general. This is because they make it more difficult to work with businesses and individuals in resolving delinquent accounts. Credit.com, which offers credit cards, loans, and advice for consumers, warns their clients to be alert for companies who engage in the following:
Using Unfair Collection Practices
- Adding on vague and questionable ‘service charges’, late penalties, or other fees that are not authorized by state law or included in the original credit contract.
- Reneging on agreements you have made with the debtor, such as depositing a post-dated check early or failing to alert other representatives of prior payment arrangements that were made.
- Making false statements, such as threatening a lawsuit or other legal action which the collection agency has no intention on taking, or telling the debtor they will be arrested if they do not bring the delinquent account up to date.
Using Aggressive Collection Practices
- No calling outside of regulatory statute
- No verbal abuse
- No dire threats
Engaging in any of the above types of activities puts your company in a precarious position. It could ultimately lead to fines, a civil suit being filed against the collection agency itself, or even the total dissolution of a debt collection firm.
The Difference Between Collecting From Consumers & Collecting From Businesses
Consumer collections deal primarily with debts owed by individuals to a business, such as a credit card company, bank, or other vendors. Commercial collection agencies handle delinquent accounts owed by businesses and often involve companies or corporations who have declared bankruptcy or who otherwise owe large sums of money. As these tend to be more complex situations involving multiple competing interests,an even greater degree of training and industry knowledge must be possessed by a commercial collector..
What Happens When A Company Goes Bankrupt?
There are several different types of bankruptcy proceedings available through the U.S. Bankruptcy Court. While exact guidelines vary by state, the basic laws and regulations governing these filings are the same. In a bankruptcy involving a business, once the petition is filed the following takes place:
- A trustee is appointed to take over and liquidate the company’s assets, allowing for some basic exemptions;
- Once all assets are sold, the trustee then distributes the proceeds among the creditors, satisfying secured debts first.
While the goal of bankruptcy is to discharge or eliminate the filer’s outstanding debts, any amounts they are owed are considered accounts receivable and are included as assets in the bankruptcy petition. As a result, they are still collectible.
While collecting from a debtor who filed bankruptcy is sometimes impossible without a secured position on hard assets, debts owed by the bankrupt entity do have some potential for collection, and funds owed to a bankrupt entity are still receivable by the entity.
Regulations For Consumer Collection
As stated previously, consumer debts must adhere to strict rules and regulations designed to protect the rights of both the debtor and the creditor. In actions regarding past due payments and delinquent accounts, collection agencies are subject to the Fair Debt Collection Practice Act (FDCPA).
As detailed in the Consumer Compliance Handbook, provisions which must be followed by collections agencies in dealing with consumers include:
- Requirements for validating the debt and the total amount owed;
- Prohibitions against treating the debtor in an abusive or harassing manner;
- Prohibitions against providing false or misleading information to the consumer;
- Prohibitions against using unfair or unconscionable means to collect a debt;
- Prohibitions against furnishing deception forms;
- In the event of multiple debts, payments received must be applied in accordance with the consumer’s instructions.
Regulations for Commercial Collections
When it comes to collecting on commercial debts, the rules and regulations are somewhat more complex. The FDCPA applies to individual consumer debts and is therefore not applicable in handling delinquent accounts on the part of a corporate entity. However, there are a number of acts, statutes, and organizations which serve to regulate the commercial collections process.
Commercial Collection Member Organizations
To support each other in best practices and the dissemination of valuable tools across the industry, agencies have banded together in a number of trade organizations. As non-governmental bodies, commercial collection member organizations have no jurisdiction over non-members, but they do help to establish and maintain ethical practices and high standards for the commercial collection industry.
National Service Bureau is an active member of the following organizations:
- Association of Credit and Collection Professionals (Website)
- Knowledge-based resource for success in the credit and collection industry.
- This association brings collection agencies, law firms, and other members together for the overall betterment of the industry.
- National Association of Subrogation Professionals (Website)
- This organization is specifically for subrogation and provides training, educational webinars and podcasts to propel the subrogation industry forward.
- Washington Collectors Association (Website)
- This is a trade organization of debt collectors in Washington state.
- They aim to establish ethical standards for the collection industry and helps represent the collection and credit industry in Washington state.
- American Medical Billing Association (Website)
- Provides information and education for the medical billing industry and the regulatory bodies that govern it.
- Healthcare Financial Management Association (Website)
- The nation’s top organization for healthcare finance leaders
- This association identifies gaps in America’s healthcare system and advises how it can improve overall.
State Regulatory Bodies and Statutes
In addition to non-governing bodies, each state has its own statutes and regulatory agencies concerned with the collection of commercial debts. Under the United States Code (28 U.S.Code §547), overseeing commercial collection agencies is one of the primary duties that fall to State Attorneys General. In some areas, requirements vary depending on the size of both the business and the debt, or whether it is an individual business attempting to collect from a company or corporation, as opposed to a commercial collections agency. Even more, these laws can vary depending on the industry or region the business is located.
As these laws do vary depending on where you reside, commercial collection must be done very carefully and deliberately, with knowledge of all applicable factors and regulations to avoid any legal issues, setbacks, and financial consequences. Before partnering with a commercial debt collection agency, make sure that it is a reputable agency. You can tell if an agency is credible and trustworthy through a membership with different industry organizations or associations, and if they have a rich understanding of the various commercial collection laws that govern your industry and region.
Rules and Regulations for Debt Collection
The following provides a guide for the government agencies and organizations governing consumer collections:
For Consumer Collections
- Fair Debt Collection Practices Act (FDCPA): The Legal Information Institute (LII) advises that the FDCPA was established in 1978, setting ethical guidelines for third-party debt collection agencies. It provides a way for debtors to challenge payoff demands and to ensure the accuracy and validity of any amounts owed while protecting consumers against harassment, threats, and verbal abuse.
- Federal Trade Commission (FTC): Under 15 U.S. Code §41, the FTC was established in 1914 as an independent agency of the U.S. government, with the primary mission of ensuring consumer protections. The FTC enforces the Fair Debt Collection Practices Act and operates the National Do Not Call list.
For Commercial Collections
Each specific state or region can have varying regulations. If you seek specific understanding of the laws that may impact your company's collection process, you should contact your local attorney's general office. Regardless of specifics, high standards for compliance is one of the best reasons to work with a professional agency you can trust.
- State Laws and Agencies: Rules and regulations in each state are set by local legislatures, who respond to the needs and concerns of the citizens they represent. As a result, each state is likely to take a different approach in how it protects the rights and interests of both consumers and debt collections agencies. A listing of state and local consumer protection agencies can be found at gov. In Washington State, collections agencies are subject to the Collection Agency Act (RCW 19.16.100), which was established in 1972 and is administered by the Department of Licensing and the Washington State Collection Agency Board.
Reach Out To The National Service Bureau
When working with debt collection regarding outstanding payments and delinquent accounts, it is essential to ensure the company you select has the knowledge and skill to carefully navigate through the complexities of state laws, federal regulations, and governmental regulatory agencies.
Partner with a collection agency that has the experience and expertise necessary to recover delinquent accounts receivable. At National Service Bureau, we have been looking after the needs of consumers and businesses over three decades. Reach out and call or contact our office or speak to a Client Development representative to see how we can help streamline the collection process for your business needs.