The Fair Debt Collection Practices Act (FDCPA): Some Quick Tips to Avoid Problems Collecting in Today's Troubled Economy
The Fair Debt Collection Practices Act (FDCPA) is a key federal law which applies to debt collections. Since it is a federal law, it is applicable in all 50 states. However, there are two primary provisions: it only applies to consumer collections, not commercial collections and the law only applies to third party debt collectors, not individuals or businesses collecting their own debts.
Steven A. Harms, Esq.
Some credit grantors believe that it is cost effective if they set up an internal collection agency within their company. These internal collection agencies are usually called "in-house agencies." If the company has a large collection department it might make sense from an operating cost view point to leverage that capability and reduce outside collection fees paid to collection agencies and attorneys.
However, what is sometimes overlooked in the cost-benefit analysis is the additional expense of licensing and complying with FDCPA requirements.
The FTC and many states have taken the position that in-house collection agencies are indeed third party debt collectors and need to be licensed and comply with the FDCPA if they are collecting consumer accounts. So it is important to investigate the need for licensing and evaluate whether it is desirable to comply with FDCPA requirements.
When it comes to commercial versus consumer transactions: the question to ask is whether or not the goods you provided (or your client provided if you are a debt collector) were personal or household in nature. If they were, the act applies. If they were not personal or household, that means the debt is commercial and the FDCPA does not apply.
Here's the thing: it's best to be safe than sorry. If you're uncertain as to whether you are a debt collector or whether the debt is consumer or commercial, then go with the guidelines provided below. If you follow the guidelines, you will be safe even if the FDCPA applies to you.
The only exception to the bullet points above is third parties can be contacted to verify where the debtor resides, but the collector cannot mention the debt itself.
- If you know you are subject to FDCPA or suspect that you may be, send the debtor a validation letter within 5 five days after your first demand for payment of the delinquent account. Every letter that follows should include the so-called "mini Miranda" requirements.
Following these two requirements will save a lot of problems. (An example of a validation letter and the "mini Miranda" requirement can be obtained by emailing firstname.lastname@example.org and requesting this information.)
- Avoid any communication with third parties concerning the collection of the debt. Under FDCPA, a debt collector can't contact any third parties (debtor's relatives, friends, people who live in the debtor's household, other than possibly the debtor's spouse, debtor's place of employment, bank, and any other third parties) to discuss the debt. The only communication with third parties allowed by FDCPA is to:
- Communicate with the debtor's attorney
- Communicate with a consumer reporting agency
- Communicate with a party when it is reasonably necessary to enforce a judgment
- When the debtor has given permission
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Some quick tips
Steven A. Harms is a partner in Muller, Muller, Richmond, Harms & Myers, with offices in Birmingham, Grand Rapids and Traverse City, Michigan. Steve is a frequent lecturer and an author in addition to being a full time collection attorney. He also teaches in the MBA program at Walsh College, Troy, Michigan, live and online (winning an outstanding instructor award for online) He is also sole author of the following books: Handling the Collection Case in Michigan, ICLE, revised, 4th Edition 2009, and Credit and Collections Kit for Dummies (Dummies Series), Wiley Publishing, 2009.
He is also listed in "Who's Who in American Law" (since 1985) and Michigan Super Lawyers in Creditor's Rights (since 2008) by the publishers of "Law and Politics." 33233 Woodward Avenue, Birmingham, Michigan. Email email@example.com; phone 248- 645-2440
- Your calls for collection of delinquent accounts should be made during normal business hours in the debtor's location to avoid harassing the debtor. Typically, calls should be made after 8:00 a.m. and before 9:00 p.m. However, if the debtor indicates in writing that they would prefer to be contacted at another time (they work nights for example) then you must respect that request to avoid harassment under FDCPA.
- Keep in mind the courts operate on a standard of "least sophisticated consumer" in determining whether or not the customer was fooled or mislead or there was a misrepresentation made. You get the idea: the standard is not the responsible person but rather a debtor at the low end of reasonable capacity.
- You may make demand for valid debts, even if it is too late to sue on them (beyond the statute of limitations) but be careful not to threaten litigation. Since the claim has legally expired, a threat of litigation would be a violation of FDCPA.
- Do not use any deceptive forms or letterhead designed to misrepresent who you are (such as representing you are a collection agency, a collection law firm, or a collector for the government). No attorney letterhead can ever be used unless the attorney was actually hired and has reviewed the file. The same principle applies if a credit grantor is using collection letters provided by a collection agency and the account has not been placed with the collection agency. Under the FDCPA this is called "flat rating" and is a violation of the Act.
- Do not accept post dated checks by more than 5 days unless you re-contact the maker and notify them in writing of your intent to deposit those checks. Not more than 10 days or less than 3 business days prior to the deposit.
- Should your debtor request it, stop all communications concerning the debt except to inform the debtor that you may file suit.
- If you are subject to FDCPA, all communications must include the statement (even verbal) that you are a "debt collector attempting to collect a debt".
- Maintain proper procedures such as the following of the guidelines set forth in the bullet points above. Having proper procedures is a defense to any violation of FDCPA because it shows lack of intent to violate the law.
- If you file suit, don't include damages in the suit not specified as part of the contract as that will be misleading, except for statutory amounts such as attorney fees provided by your local or state law.
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