Compliance with the Fair Debt Collections Practices Act (FDCPA)

When the economy begins to slow, consumers often begin to fall behind in payments and businesses commonly turn to debt collection agencies, or attorneys, to obtain payment on past due invoices.  While this is an unfortunate circumstance, both for creditors and debtors, it can be made much worse through abusive collection practices and FDCPA violations.

The Fair Debt Collection Practices Act became effective in 1978.  Congress passed the FDCPA in order to protect consumers from abusive, deceptive and unfair collection practices.  Violations of the act carry harsh per penalties to enforce debt collectors to act in strict compliance.  In light of this act, businesses need to establish policies and guidelines for their collections departments.

The FDCPA is limited in scope.  It only applies to the collection of a consumer debt which is collected under a name different from the name of the company to whom the debt is owed.   This can be broken into two separate parts.  First, the debt must be a consumer debt – the debt must be incurred primarily for personal uses.  Second, the act does not apply when a company is collecting its own debt under its own name.  Acme, Inc. may attempt to collect a debt from Bob Debtor under their Acme, Inc. name and the FDCPA will not apply.  On the other hand, if they hire a debt collector, an attorney, or even collect their own debt under a different name, they will be subject to the requirements and penalties of the FDCPA.  Businesses should consider this provision when setting up their collections departments.

If the FDCPA does apply to your company, you will need to carefully analyze your collections procedures to make sure you are acting in compliance.

Who may you contact? The FDCPA puts a high premium on privacy.  This portion of the act is especially important because a violation may also make you liable for defamation.  You may only contact the consumer (defined as the person liable for the debt, their spouse, executor, administrator, or their parent – if they are a minor), the consumer’s attorney, a reporting agency, the creditor and their attorney, and a debt collection attorney.

Make sure that you don’t tell other parties about the debt.  If you have to contact a third-party to get information, such as an address, you may only state your name and that you are verifying contact information.

When can you contact a consumer? The FDCPA states that a debt collector may not contact a consumer at an unusual time; though the act allows for a case-by-case judgment of this. The general limits are not before 8:00am or after 9:00pm.

Where can you contact the consumer? You may not contact the consumer at an inconvenient location.  Specifically, you may not contact the consumer at work if you have reason to believe that the consumer’s employer prohibits such communications.

When must you stop contacting the consumer? If the consumer requests that you cease communications, refused in writing to pay the debt, or retained an attorney to represent them, you must cease communications with them immediately.  There are some exceptions, such as if their attorney is non-responsive, you wish to notify them that the collections effort has been terminated, or that certain remedies are being enforced.

What types of collection efforts are abusive? You may not use obscene or profane language.  You cannot threaten to use violence or other criminal actions.   You may not publish lists of debtors.  You may not advertise a debt as being for sale to embarrass the consumer into payment.  You may not make phone calls without properly identifying yourself, except as allowed to obtain contact information.  Finally, you may not annoy, harass or abuse by calling the consumer repeatedly.  Generally, your communications with the consumer should be professional and respectful.

What types of misleading collection efforts are not permitted? As a debt collector you may not use false, misleading, or deceptive practices and information to obtain payment.  Some examples include: falsely claiming, or implying to be an attorney, threatening legal action which isn’t intended, falsely implying to the consumer that they have committed a crime, using any name which isn’t the true name of your company, and falsely representing the amount, character, or legal status of the debt.

What constitutes an unfair practice? You may not use unfair practices to collect a debt.  Some examples of an unfair practice include: collecting a fee which isn’t in the original agreement (a collection fee, attorney’s fee, interest, late fees, etc.), taking a check that is postdated by more than five days unless you notify the consumer within three to ten days before depositing it that you plan to deposit it, threatening to deposit a postdated check early, and threatening to take legal action which you do not have the right to take.

What is the biggest pitfall that debt collectors fall into? The most common mistake made by debt collectors is failing to disclose, in the initial correspondence, that you are a debt collector and any information obtained will be used for the collection of a debt.  In subsequent communications, you must remind the consumer that the communication is with a debt collector.  Don’t just assume that since you’ve spoken to the consumer before that they remember who you are and why you’re calling.  Make it a standard practice to say who you are, the name of your business, and that you are a debt collector every time you contact a consumer, either on the phone or in written correspondence.

What Are The Penalties Under The FDCPA? FDCPA penalties include 1) any actual damages suffered by the consumer as a result of your violation; 2) costs and a reasonable attorney’s fee; and 3) punitive damages up to $1,000 for an individual or up to $500,000 in the case of a class action or 1% of the debt collector’s net worth, whichever is less.

In conclusion, the FDCPA was enacted to protect consumers from abusive collection practices, not to protect them from paying their debts at all.  Due to the strict penalties, it is important for you to set procedures and guidelines for your business to follow when collecting consumer debts.  As it is impossible to convey the nuance and ambiguities in the FDCPA through a blog post it is advisable that you retain an attorney versed in the FDCPA if you are setting up your internal policies, have complaints filed against you, or need to collect outstanding debts in compliance with the FDCPA.