Debt collection law has two basic sides: the laws controlling how creditors can come after people who owe them money and the rights someone has to collect a debt owed.
Consumer Protection from Aggressive Creditors
If a person falls behind in paying bills, creditors may take action to get the payments. Creditors can hire an outside company to pursue payment, or they may even sell the person’s debt outright to another company, usually one in the business of collecting debts. After an outright sale of a debt, the debtor now owes repayment to the debt collection company and not to the original creditor.
Regardless of whom the person owes, or who is doing the work of trying to collect on the debt, a variety of laws protect the consumer from aggressive, coercive, or fraudulent collection efforts.
The primary federal law protecting consumers against aggressive creditors is the Fair Debt Collection Practices Act (FDCPA). The FDCPA prohibits collection agencies from a number of practices, including use of excessive or harassing phone calls, the practice of calling earlier than 8 a.m. or later than 9 p.m., misrepresention of the scope of the debt or the consequences of nonpayment, use of deceptive means to get payment, publication of the consumer’s name on a “bad debt” list, use of abusive or profane language, or threats of reporting false information to a credit agency.
The FDCPA also prohibits a collection agency from threatening legal action unless the agency is specifically considering legal action in that case. The collection agency also cannot threaten legal action of any type that doesn’t have justification in the law.
The FDCPA prohibits more conduct than just the examples given here. Besides providing the protections already discussed, the FDCPA also requires collection agencies to take certain steps. For example, collection agencies must identify themselves when making contact with consumers. An agency must also produce verification of the debt, provide the name and address of the original creditor, and let the consumer know of any rights to dispute the debt.
The FDCPA only applies to collection agencies and does not extend to the original company where the individual incurred the debt originally. However, many states have laws extending similar consumer protections to the collection efforts of the original creditor.
Collecting a Debt
Many businesses encounter challenges in getting payment for invoices and bills. If a business does want to file a lawsuit to get payment of a debt, the lawsuit will almost always need to proceed under state law. The outcome of the lawsuit will depend on the specifics of the contract between the business and person or company owing the money.
However, as a business matter, filing a lawsuit to collect a debt can become an inefficient and costly process. The business may need to choose from several options when deciding how to pursue repayment. For example, the business can hire or sell the debt to a collection agency. If the debt is large enough, a business may decide to use its attorney to negotiate the repayment of the debt instead of filing a lawsuit. Contract laws allow the creditor and debtor to arrive at a mutually acceptable agreement as to how and when the debtor will repay the debt.
In extreme cases, a business can try to force the debtor, whether an individual or business, into bankruptcy in order to get repayment of a particular debt.