What Practices Should Businesses Avoid in Debt Collection?

Use these links to jump to different sections:

• What Is the Goal of the Fair Debt Collection Practices Act? 
• What Types of Debt Collection Practices Are Forbidden? 
• Questions for an Attorney 

“In general, cash flow is the lifeblood of just about every small, closely held business,” says Wisconsin debtor-creditors’ rights attorney Seth E. Dizard.  

To stay operational, a business needs to get paid for its goods or services. When a consumer doesn’t pay their invoice, the business is well within its rights to take action to collect the money owed.  

However, creditors must be careful not to cross the line into abusive collection practices. Collecting debt is legitimate, but engaging in harassing or unfair behaviors is not and can land businesses and debt collectors in serious legal trouble. 

“People trying to collect need to seek professional legal advice to know when they’ve gone from aggressive to abusive,” says Dizard. “There’s a federal law, the Fair Debt Collection Practices Act, which everybody should be aware of, and there are also state laws… [that are] what I could call a trap for the unwary.” 

“If you’re not sure what the rules are and whether they apply to you or not, ask [a lawyer] before rather than after you find yourself having… violated a state or federal law.” 

This article will cover the practices businesses and debt collectors must avoid when engaging in debt collection. Once you understand the general prohibitions, it’s essential to seek legal help for your particular situation. 

What Is the Goal of the Fair Debt Collection Practices Act? 

The federal Fair Debt Collection Practices Act (FDCPA) is designed to protect consumers from abusive, deceptive, and unfair debt collection practices.  

The FDCPA applies to several common types of consumer debt, including medical bills, student loans, credit card debt, mortgages, and car loans. It does not apply to business debts. 

Additionally, the FDCPA applies to third-party debt collectors who collect debt on behalf of creditors, such as: 

• Debt collection agencies 
• Other parties who regularly collect debts (such as attorneys) 

The FDCPA does not directly apply to creditors trying to collect on their own behalf.  

For example, say you owe an electronics retailer money for a home security system you purchased. The retailer has been calling you to collect what you owe. In this case, the retailer is a creditor trying to collect, and the FDCPA’s regulations don’t apply to them.  

On the other hand, say several months have passed since you purchased the security system. The electronics retailer has been unsuccessful in collecting your unpaid invoice.  

In this case, the retailer might hire an agency specializing in debt collection to deal with the issue going forward. Once the debt collection agency takes over, the FDCPA applies to its activities. 

Though the FDCPA only applies to debt collectors, it doesn’t mean businesses are free to engage in abusive practices. Many state debt collection laws apply to creditors as well as debt collectors. 

It’s important to be aware of all regulations governing debt collection in your state before taking any action that could run afoul of the law. 

What Types of Debt Collection Practices Are Forbidden? 

The FDCPA prohibits debt collectors from engaging in abusive and unfair debt collection activities, including: 

• Threats of harm or violence to intimidate debtors into paying 
• Obscene or profane language, including insults and slurs 
• Repeated phone calls or calls before 8 am and after 9 pm 
• Deceptive practices such as:  
• Lying about the amount of money you owe  
• Claiming the agency is filing a lawsuit against you or will garnish your wages when they are not actually planning to 
• Claiming they are law enforcement, a government agent, or an attorney 
• Exposing your debts to the public or shaming you 
• Collecting more money or fees than you really owe 
• Depositing post-dated checks before the indicated date 

If a debt collector violates these rules, debtors can file a complaint with the Federal Trade Commission (FTC), a government agency tasked with promoting consumer protection, or their state attorney general’s office. 

Debt collectors should also be aware that rules from the Consumer Financial Protection Bureau (CFPB) require them to send consumers written notice of their debt upon first contact or soon after. 

These debt validation notices must include essential information about the debt, including the name of the creditor, the agency’s contact information (phone number, mailing address, etc.), the amount of the debt, and how to dispute debts.  

Upon receiving written notice, the debtor can respond within 30 days to dispute the debt or to get more information about the debt and the original creditor. 

If a collector fails to provide written notice, the debtor can file a complaint with the Consumer Financial Protection Bureau (CFPB). 

Creditors can also face legal action if they persist in abusive or unfair practices. 

Questions for an Attorney 

The FDCPA is a complex federal law. Additionally, state-level laws governing debt collection practices vary by state.  

Given this legal complexity, it’s vital, if you’re a creditor, to speak with a lawyer about what you can and cannot do before taking any action. Getting counsel ahead of time can prevent serious problems from arising later.  

Many collections attorneys provide free initial consultations to prospective clients, letting the attorney hear about your situation and for you to decide if the attorney meets your needs. 

To see whether an attorney is a good fit, ask informed questions such as: 

• What are your attorney’s fees, and how do you bill your clients? 
• What are your legal services? 
• Do my state’s debt collection laws apply to creditors? 
• What debt collection practices must I avoid? 
• What am I permitted to do in collecting debts? 
• Are there other requirements I should be aware of? 
• When should I consider filing a lawsuit to collect debt? 
• What is the statute of limitations in bringing a lawsuit against a debtor? 

It is essential to approach the right type of attorney—someone who can give you legal help through your entire case. You can visit the Super Lawyers directory and use the search box to find a lawyer based on your legal issue or location.  

If you need legal assistance with collection issues, search for a collections attorney.