The Admin recovery Act (FDCPA) was originally designed to protect debtors against abusive actions taken by collection agencies when they are pursuing a debt. There are numerous violations that may cause penalties against the debt collector to be paid to the borrowers or applied to the balance of the account. Two of the most important are prohibitions regarding communications with third parties and harassment of debtors.
Throughout the history of the FDCPA, court cases have been defining what is and is not a violation of the Act. Collection agencies and collection lawyers are the types of business that receive the most complaints by consumers though the Federal Trade Commission. The two most common complaints the FTC receives regarding collectors involve claims of harassment and collection agencies pursuing more than is really due.
A number of recent decisions in court cases have helped flesh out some of the issues regarding harassment and collectors contacting third parties (such as a borrower’s brother or coworker). In many cases, debtors that just defend against such actions can uncover numerous violations of the law by collection agencies. The borrowers may owe the money, but if the collector can not prove it owns the debt or has broken the law, its claims to recover may suffer severely.
In terms of communications with third parties in the collection of an account, debt collectors are not allowed to leave messages with family members of the debtor and request that they be conveyed through the third party to the borrowers. Failing to leave required notices may also be considered a violation of the Fair Debt Collection Practices Act.
Debt collection companies and lawyers must also protect borrower information when sending letters in the mail. One court found that a collector violated the FDCPA when it sent a letter to debtors with a window envelope where anyone could see information about the debt being referred to, including the creditor and the account number.
As well, debt collectors are not allowed to discuss or sell borrower information to nonaffiliated third parties. Collection agencies may not be allowed to make even more money from taking the personal information of debtors and selling them to marketing partners, poor credit card partners, transfer credit card partners, and others. This would be a clear action of communicating with third parties while collecting a debt.
Harassment is also a huge complaint of borrowers against collection agencies, as mentioned above. Collectors may call at all hours of the day, at work, home, on cell phones, and to family members of the debtor. While they are required to cease such communications if informed by the borrowers, collection agencies have been known to keep pursuing debts in violation of such laws. Repeated rude, threatening phone calls have been found to be a violation of the FDCPA.
For example, one collection agency actually had its agents visit a borrower’s home to deliver lawsuit papers and shout outside in a loud voice. They repeatedly yelled the debtor’s name and shouted things like “you need to get your ass out here and open your gate now,” and “you need to come out and get these legal papers now.” One court has found this behavior to be a violation of the prohibition against harassment.
Debtors should also watch out for collection agencies attempting to get them to admit things both the borrowers and debt collector know to be untrue. Even though the collector’s own records showed that a payment had been made, it attempted, though the court discovery process, to get the borrowers to admit it had not been made. The court found this behavior to be abusive, unfair, and an unconscionable practice which violated the FDCPA.
Collection agencies use a lot of devious tactics to pursue debts that they do not even really own. They seem to rely on harassment, deception, and embarrassing borrowers to extract money to keep them quiet. But once they come across a borrower willing to pursue the issue and challenge the debt and the collection practices in court, debt collectors are often found to be in violation of federal lending laws. If the debts they are collecting are legitimate, why is it so difficult for these companies and lawyers to follow a few simple laws?
A collection agency can contact your family, friends or references that you have listed as a way to establish where you can be reached at. They are never allowed to threaten your family or friends. They are not to discuss anything about your debt other than to seek where they can contact you. If your family and friends are being called, you can request that the collection agency cease in their contact attempts. If they are giving out information regarding your debt or will not stop contacting your friends or family members, you need to file a complaint with the FCC.
How long will the collection attempts from collection agencies stay on my credit report?
Here is the bad news: once a debt is sent to a collection agency and the agency reports it to your credit…it is going to be there for a number of years. If you pay the debt off it will be marked as “paid” but it will still be there. Most marks remain on your credit for at least five to seven years but some can be there for as long as ten years. This could have very negative effects when it comes to getting new credit lines.
One of the reasons small businesses write off a great deal of loss is that they don’t realize how easy and affordably it can be to hire collection agencies to recover bad debt. Developing a success-driven mindset and taking action like your larger competitors is the first step to growing your business. Many of today’s collection agencies are small business friendly and can improve your company’s bottom line drastically with smart solutions for collecting bad debt.
Look for collection agencies that offer several collection tier levels
Small businesses often don’t utilize collection agencies like their larger competitors because they feel the debt owed may be insignificant to large collection agencies. Small businesses should look for collection agencies that offer different collection amount tiers. Debts as low as $1000, regardless of the size of the contacting business can be easily recovered by collection agencies.
Verify that the collection agency uses legal collection methods
The days of collection agencies harassing friends and family and calling late at night in an attempt to collect unpaid debt is long gone. To comply with today’s regulations, collection agencies must adhere to strict laws that require them to use more brains than brawn in an attempt to collect debt. Check to make sure that the collection agencies you’re considering belong to either the International Association of Commercial Collectors or the American Collector’s Association. Admittance to either requires that collection agencies adhere to the legal standards and ethics of third party collection agencies.
Collecting the debt yourself verses contracting a collection agency
First party collectors (i.e. business owners) are not bound by the same set of federal regulations when it comes to collecting debt. However, attempting to collect debt if not handled properly can result in poor client relations at best and a hefty fine at worst. A systematic, proactive first party collection approach works well for the first 30-60 days of delinquency. If the client hasn’t paid by that point, you’re at risk statistically for losing a substantial part of the balance.
A timeline of diminishing returns
Statistically, the longer a debt becomes overdue, the less likely that you will ever recover the full amount from the customer. Figures from collection agencies show that after 3 months of non-payment you can expect about a 73% return on every dollar, 50% on every dollar after 6 months, and 25% after one year. If you’ve got bad debt that’s piled up over long periods of time, your time may be better spent by hiring a collection agency to recoup some of your old debt and implementing a plan to prevent new bad debt.
Partnering with a collection agency
Some collection agencies offer an accounts receivable management program to help businesses manage their AR effectively. With this service, collection agencies print and send letters on your letterhead, contact clients under your name, handle disputes, and send the payment directly to your company. Most business owners don’t enjoy trying to track down their payments. It’s draining, frustrating, and most would rather spend their time working on creative ways to bring in new clients. For collection agencies, securing payments is what they do best.
