Debt collection refers to the action taken by a creditor or collection agency against a consumer who is obligated to repay a debt. Debt collection laws prohibit collectors from engaging in abusive behavior, and help open up the lines of communication between debtors and collection agencies. These laws require full disclosure between the two parties and dictate the actions debtors can take in a collection situation.
Federal Debt Collection Legislation
Debt collection laws are designed to ensure that consumers are protected from illegal or abusive tactics by collectors.
Fair Debt Collection Practices Act
The Fair Debt Collections Practices Act (FDCPA) is one of the most well-known debt collection laws on the books. This federal law dictates which debt collection practices are legal and illegal. According to Beverly Blair Harzog, credit expert and author of the Complete Idiot's Guide to Person-to-Person Lending, this law "protects consumers from abusive collection practices."
Collection agency actions that are prohibited by the FDCPA and other debt collection laws include:
- Harassment/Abuse - Collection agencies and their representatives are strictly forbidden to use foul, obscene, or abusive language. Threats of violence, excessively repeated phone calls, and public harassment are also strictly forbidden.
- Misleading Representations - Debt collection laws require full disclosure and prohibit false claims and representations. For example, a collection agency can't lie and claim to be associated with an attorney, law enforcement agency, or credit bureau.
- Third Party Communication - Collection agencies are allowed to contact your attorney, credit reporting agencies, and the original creditor, but they are not allowed to contact your employer or other third parties to discuss your debt or the amount of money that you owe. However, there is one exception to this rule; collection agencies can contact any third party for the sole purpose of determining your whereabouts.
- Improper Debtor Communications - Debt collection laws are very specific when it comes to communications with a debtor. For example, collection agencies are not allowed to contact you before 8 a.m. and after 9 p.m. They are also prohibited from calling you at work or any other location that you deem inconvenient.
- Other Unfair Practices - If you fail to pay a debt by the agreed upon due date, bill collectors cannot implement unfair practices in their attempt to collect the debt. Specifically, they cannot add on outrageous interest rates and fees, threaten to seize property they are not entitled to, or claim to pursue criminal prosecution. Collection agencies are also prohibited from ignoring debt disputes and communicating false credit information.
Fair Credit Reporting Act
Harzog explains that another law, the Fair Credit Reporting Act (FCRA), is also important for consumers to know about. She explains, "This law protects you against misleading information that has been placed in your credit file by a collector. The law says that you have a right to know what is in your file and that, if it's inaccurate, you have an opportunity to correct the mistakes."
While state laws must be consistent with federal legislation as a minimum, many states hold debtors to more stringent standards, as well as dictate procedures not addressed under federal law. See Nolo for a link to each state's specific laws related to debt collection.
While debt collection laws exist, collectors may not always follow them.
If you feel your rights have been violated, it's important to report the situation to the appropriate authorities. Harzog states, "Consumers who are having problems with a debt collector should contact their state's Attorney General's office, as well as the Federal Trade Commission. The laws can vary by state, but your state Attorney General's office can help you understand your rights within your state."
Complaints against debt collectors sometimes escalate to the point where formal legal action is necessary. Harzog elaborates, "If your rights have been violated, you have the right to sue the collector in a state or federal court, but you must do so within one year from the time of the violation. Whether or not you should get an attorney depends on the individual circumstances of each case. Your Attorney General's office should be able to offer advice on this issue."
Consequences for Violations
Collectors who violate the law can be held accountable. As Harzog indicates, "This will vary by case and the available evidence, but a judge can require the collector to pay you damages if you can prove that you suffered lost wages or other hardships. If you have a good case, you might also be reimbursed for your attorney's fees and court costs."
She clarifies individual versus group actions, stating "When a group of people sue a collector, this is a class action lawsuit. In class action lawsuits, the amount of damages can reach up to $500,000 or 1 percent of the collector's net worth, whichever is lower."
Debt collection laws are in place to protect you. Harzog states, "When it comes to credit, there are many laws in place to protect consumers. Consumers need to know what rights are protected by these laws. If consumers know the laws, they'll know when they're being treated unfairly and when their rights have been violated. She elaborates, "It is important for consumers to empower themselves with knowledge."