Debt collection is the procedure of pursuing unpaid payments of monies owed by individuals or companies to individuals, corporations or other entities. A collection agency is also referred to as a debt collector or collection company. Debt collection agencies to collect outstanding debts through a variety of means; most often, they will utilize contacts made for this purpose by consumers. The most common methods are:
Debt collection can be a lucrative source of income for debt collectors and their associated companies. Some states have laws limiting the use of certain abusive or deceptive practices. In addition, the Fair Debt Collection Practices Act (FDCPA) protects the rights of consumers to seek damages and enforcement of debt collection agreements. According to the FDCPA, debt collectors are prohibited from:
Using abusive or deceptive practices when pursuing debts. – When debt collectors contact a creditor directly, they may not threaten, harass, or abuse the rights of the creditor. Additionally, if a debt collector contacts a creditor by mail, then the debt collector may only send a certified letter – not an aggressive, threatening note – that contains your name, address, and telephone number. If a debt collector fails to include this information, the creditor has the right to sue.
Collecting payments from non-paying third parties – As mentioned above, some states limit the use of certain abusive and deceptive practices, such as harassment and making false claims in an attempt to collect a debt. Other states allow debt collectors to contact non-paying third parties such as bill collectors or debt collectors on behalf of the debt collector, even when the debts do not belong to the collector. However, the collector may only retain these third parties to locate and return overdue debts. These debts must be returned in good faith, in other words, if the creditor does not receive payment within a month, then the debts are not collectible and will not pass into the collection of earnings category.
Retaining debts beyond their collectible status – In addition to violating the FDCPA, most debt collectors will also violate state law, which often involves retaining a debt for a longer period of time than is legally permitted. For example, in many states, a debt collector may retain a consumer for six months after the consumer has fallen behind in payments. Once the six month period has expired, then the debt collector can pursue the consumer for recovery of the remaining balance. However, in almost all states, a debt buyer cannot charge more than double the amount of debt accrued during the six-month period. Debt buyers are not allowed to continue to pursue a consumer after the sixth-month period because that would constitute “caveat emptor” (letting go of a deal). However, if the debt buyer can show that the consumer is in default of the debt agreement before the sixth-month period expires, then the debt buyer may pursue the debt for a period of up to five years.
When debt collection practices such as intrusive, harassing phone calls, improper credit card inquiries, and attempts to contact third parties such as family members, it is imperative that a consumer report to be filed to ensure that these practices do not continue. Furthermore, the FTC, together with state attorneys general, has been working aggressively to educate the public about the illegal and abusive practices of debt collection agencies. This information is available via national and local news stations, consumer rights organizations, and online sources such as the Federal Trade Commission.