What Does It Mean To Be Compliant With Debt Collection Laws?
Staying in compliance with state and federal debt collection laws requires collections 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 collections agencies in general:
- Treat the person or business who owes money fairly, following the rules 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 Collections Practices
- Trying to add on vague and questionable ‘service charges’, late penalties, or other fees that are not allowed 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 Collections Practices
- Harassing debtors by calling them at work or by contacting them before they have received a written statement concerning the amount owed.
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 collections 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 lenders. Commercial collections 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, by their nature commercial collections resist being easily regulated.
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.
For example, if you own a business that purchases products on credit from a company who files for bankruptcy, a collections agency will be assigned to the debt and will contact you regarding any outstanding amount you owe.
Regulations For Consumer Collections
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, collections 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 far more complex. The FDCPA only applies to individual consumer debts and is therefore not applicable in handling delinquent accounts on the part of corporations or businesses. However, while there are no distinct federal laws controlling commercial debt recovery, there are different acts, statutes, and organizations which serve to regulate the commercial collections process.
Commercial Collections Member Organizations
With no specific federal organizations overseeing the actions of commercial collections agencies, many of these agencies have banded together to regulate themselves. As non-governmental bodies, commercial collections member organizations have no jurisdiction over non-members, but they do help to establish ethical practices and maintain high standards for the commercial collections 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 collections industry.
- This association brings collections agencies, law firms, and other members of the collections industry 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 collections industry and helps represent the collections 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 collections 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 collections must be done very carefully to avoid any legal issues, setbacks, and financial consequences. Before partnering with a commercial debt collections 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 Collections
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 collections 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
As previously mentioned, there are no specific laws, regulations, or restrictions that govern collections agencies with regard to collecting of business debts. However, there are many non-governmental bodies and commercial collections member organizations that have no jurisdiction over non-members.
Examples of these membership organizations are listed above, and they help to establish ethical practices for debt collections while also maintaining high standards for the commercial collections industry.
With that understanding, each specific state or region can have varying regulations. For the best understanding of the laws that may impact your company’s collection process, you should contact your local attorney’s general office.
- 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 collections 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 collections 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 collections for your business needs.