Laws That Govern Debt Collection


A debt collector is a company or person assigned to collect unpaid debts that are past the deadline of payment. This work is assigned by credit card issuers and banks and the collectors paid on commission. This industry was brought to existence in the early 1900s when the government of America began selling off assets from savings and loans from banks that failed. Since then, over 500 firms have been established from a dozen in 1996. It should be noted that not all debt collecting agencies are involved in the illegal practices discussed above. However, most of them use tactics that would trick consumers into paying their debts and hence violating their rights. One should select an agency with a good reputation, if they want to be involved with collection.

Laws that govern debt collection

Fair Debt Collection Practices Act

It has been observed that most consumers are reluctant in picking calls from debt collectors or even reading their debts from credit cards. They should acknowledge these facts but also know that there are rights and protections put in place for them. Consumers are to stop being illiterate of their rights since knowledge is power. The place where to go to when one needs to check the limits of debt collector’s calls is in the Fair Debt Collection Practices Act. The law provides a consumer with the right to sue the debt collectors, as an individual or corporately, for violating the law and also protection against violent threats, harassment, excessive calls with abusive language.

The law prohibits calling of debtors at inappropriate time like before 8 or even after 9 pm as well as revealing the existence of debts to other parties without authorization. These parties include friends and next of kin of the debtor. Consumers have the right to seek for proof for the existence of their debts to banks

First Contacts: When approaching a customer for the first time, the debt collectors are to inform the consumer of their rights to object the existence of a debt. This is commonly referred to as the “mini- Miranda” disclosure. The collector is to inform the customer of the amount owed as well as the name of the creditor. Validity of the debt not disputed after 30 days should be brought to the attention of the consumer. Verification could be sought by the customer. As per the law, this information should reach the consumers via telephone or in writing, five days before the first telephone call is made.

Disputing of debts: When a consumer disagrees with the debt stated, he/ she is to contact the creditor for verification, in writing, within 30 days of the first call. A verification letter should also be attached as well. Contacts to the consumer are to be stopped until verification is completed. Correct evidence of the existence of a debt by a consumer is to be provided to the latter.

Unwanted calls: In the event of debt collectors calling at odd hours like when they know that the consumer is busy at work, or excessive calls, a cease communication letter could be sent. The consumers could request that the collectors contact through writing only or stop any form of communication at all. After this, the collector would inform the consumer of the ceased communication or a lawsuit case that would be filed against him/ her.

Harassing and abusive language: According to the fair debt collections law, it is illegal for a collector to use threats and violence as well as harming them together with their property. The use of obscene, abusive, profane and offensive speech is prohibited by the law. Inappropriate calls involving hanging up or calling and not speaking or making anonymous phone calls are prohibited. The family of the consumer is not entitled to phone calls intended to annoy or abuse. In the case of such, a consumer is to write a very detailed cease communication letter informing the collectors of the violation of the federal laws, and that then request for the elimination of abusive language and harassment. Debt collectors are also prohibited by the law to put the names of debtors who have refused to pay, unless t authorized authorities like original creditors.

Misinterpretation: The federal law prohibits the debt collectors from using defensive and false techniques in approaching consumers. The use of a police title is not accepted and in the event of this, the consumer is to inform the nearest police post about the incident. Apart from police titles, the collectors are not to introduce themselves as attorneys or credit reporting agencies if at all they are not.

Post-date checking: Debt collectors are advised not to pay post-date checks to the consumers. This act creates issues which include depositing of the checks before its due date. Many debt collectors have a habit of pressurizing the consumers. In the case that the written date on the check is more than five days, the collector could prematurely cash the money. They are to inform the consumer in writing, three business days before depositing the checks. This is because the law allows collectors to acquire the debts in post-checks or other means of payment like the electronic means. Unfair practices like taking interest or charges on the original debt are prohibited by the law.

Confidentiality: The existence of a debt by a consumer is considered a private aspect. Any efforts done by the collectors to disclose this information to unauthorized personnel is prohibited by the law. Only authorized people, who include the attorneys representing the debtor or a spouse with a connection to that debt, can be contacted about the consumer’s debts. Letters pertaining to the collection business should be addressed as from debtors or any collection agency. Their logos too are not to be included (Leonard, 2011).

Penalties: Consumers, who may have not been treated as per the requirements of the law, can file a suit against the collectors. This however has to be done within the first year of the violation of the laws. If their cases win, the consumers are paid for the violation, including all losses and damages incurred. Consumers filing the cases can be paid up to $500,000 or 1% of the collector’s net worth. The lower option is used. However, consumer advocates have stated that the original damage cap set when the law enacted, $1000, is very low according to the present standards (Hobbs, 2000).

Fair Credit Billing Act (FCBA)

The Fair Credit Act is a U.S federal law that was enacted in 1975. It was formed to amend the Truth in Lending Act. Its purpose is to ensure correct and accurate billing and to provide mechanisms to tackle billing errors in credit accounts like the credit card or the charge card accounts, (the original, 2007). Examples of billing errors include wrong amounts of charges. Charges not made by a consumer, charges for services and goods not delivered to a consumer, calculation errors, mailing of statements to wrong addresses. The FCBA gives a consumer the chance to dispute the charges by writing a notice stating the dispute to the creditor. The consumer is to send a dispute notice via mail to the “billing inquiries” address on the credit card statement. Within 60 days of the statement date, the dispute should be with the creditor. This date should be on the account statement that contained the billing error at first, (Dlabay, 2009). On the reception of the dispute, the credit issuer is supposed to acknowledge it within 30 days and then investigate on the dispute. Within 90 days, the credit issuer is to make the necessary corrections or send a statement to the consumer explaining why there was no billing error. Documents proving the no billing error claim are also sent to the consumer for validity. FCBA also ensure that billing statements are sent 14 days before payments are due for credit accounts under grace period, before addition of charges.

When banks report of outstanding debts past the due date, FCBA states that disputed charge must too be reported. For payments done in form of checks or cash, merchants are to be granted discounts from the credit card companies.

Ethics in debt collection

Debt collectors’ behaviors have to be monitored and standardized to the fullest. In addition to the consumer rights as enacted by the law, some policies have been put forward to act as ethic guidelines. Consumers are not only to be treated with both care and respect, and not harassed or abused, but also communicated to in an honest manner with integrity. Furthermore, other collection activities are to stop when a consumer requests for debt verification. Proper investigations are to be undertaken when a consumer requests for verification. This is done by identifying the legitimate payer of the debt, identifying the amount of money owed and accuracy of debt collector information. Collectors are not to threaten consumers of initiating a legal action on the debts that are beyond the limitations of the statute or be involved in dishonest conduct or misinterpret themselves. They are prohibited form threatening, harassing or using any tricks on consumers. However, they are to try their best to maintain and safeguard confidentiality of the consumers’ information and treat it with integrity.

Creditor possession and disposition of collateral

Sometimes, creditors are not able to obtain the full payment of debt from consumers. They in turn inform agencies, attorneys or other persons to collect the consumer’s property. This taking of property is known as repossession. They may acquire possession of collateral or even render the collateral unusable and then dispose it from the consumer’s premises. This is made possible either through a judicial process or not depending the party wanting to breach the peace. After the secured party is in control of the collateral, it may sell it, license it or dispose off the collateral so long as it “commercially reasonable” since the debtor would be required to pay for any loss obtained during the sale. The disposition of the collateral is done in a recognized market and at a price that is currently sold for. The whole deficiency is not forfeited if the disposition is not commercially reasonable. The secured party would recover claimed deficiency without the loss caused by it not selling (Jasper,1998).

Rights of a debtor after default

As soon as a buyer defaults, the secured party issues a notice to the debtor of the plans to dispose off the collateral. A goods transaction should contain the debtor, the secured party as well as the collateral’s full description. A detailed description of how the collateral would be disposed off by the secured party as well as a statement showing the date, time and place of the sale, if it would be done in public is also a requirement in the transaction are also requirements of the goods transaction. Moreover, a full description of any liabilities for the amounts the debtor still owes after the disposition of the collateral is to be included. The telephone contacts of the debtor would reach if he/ she wanted to find the amount to be paid so that the collateral is redeemed should not be forgotten since it ensures continuity of communication.

Merits and demerits of debt collectors

Merits: Debt collector agencies are often considered since they not only reduce the stress undertaken on pursuing debts from the company, but also combine both debt collections with sales ledger management. Collectors keep one within the law, since one has to keep applying its requirements. Importantly, an effective negotiation debt collection sometimes means a continuity of custom.

Demerits: Debt collection agencies have to admit that debt collection is a costly venture. This is because one trades off the debt collection against the charges put forward by the agency or a certain percentage of the money. Moreover, the debt collection company establishes a long- term relationship with one’s customers which could be easily destroyed if invoices are not dealt with courteously and in a diplomatic manner, (Dlabay, 2009).


Collection of debts can be easily successful. Debt collectors are to be aware of the fact that consumers are everyday becoming knowledgeable of their rights and should hence follow all procedures and requirements of the law in all their collection practices. Gone are the days when naivety and ignorance were tolerated since consumers can report of any harassment from collectors. Collection agencies are to strive hard to create and maintain a good name to the public so that all their undertakings are trusted and respected by the latter. In the long run, a good relationship between agencies and consumers would be developed.


Dlabay, R. (2009). Introduction to Business,.Mason Ohio: South-Western Cengage Learning.

Hobbs, R. (2000). Repairing a Broken System: Protecting Consumers in Debt Collection Litigation and Arbitration. New Jersey: Dale Publishers.

Jasper, M. (1998). Commercial law. Washington: Oceana Publications

Leonard, B. (2011). Fair Debt Collection Practices Act. New York: DIANE Publishing.

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