Collection agencies must follow specific federal and state laws when contacting individuals regarding debt collection. These laws are enforced to protect debtors from potential harassment by Collection Agencies. Not following these laws can result in penalties, lawsuits, and other legal implications. Proper training for debt collectors is mandatory and can save thousands of dollars in fines later. The most common federal laws that collection agencies need to follow are FDCPA, GLBA, TCPA, HIPAA and FCRA.
Note: We have tried to keep this information short and reasonably accurate, but as you can imagine, there are extensive details behind these laws. We recommend you use this article only for your basic understanding and visit the relevant government websites or an expert lawyer for the most up-to-date information and all those extensive details.
FDCPA (The Fair Debt Collection Practices Act)
This federal law enforces limitations on what debt collectors can say or do when collecting certain types of consumer/individual debt (B2C collections). The FDCPA prohibits debt collection agencies from using abusive, unfair or deceptive practices to collect debts from a debtor. The FDCPA does not cover business debts (B2B collections).
Suppose a consumer sends a written dispute or request for verification within 30 days of receiving the notice. In that case, the debt collector must either mail the consumer the requested verification information or cease collection efforts altogether.
A debt collector cannot:
- Continue to call a debtor after they notify the collector to stop contacting them. But this does not prevent the debt collector from pursuing other legal ways to collect money, including a lawsuit or reporting this debt to a credit reporting company ( Like Equifax, Experian or Transunion).
- If a debtor has requested a collection agency to validate the debt, they are being contacted or pushed hard for debt collection during the validation period.
- Calling a debtor before 8:00 A.M and after 9:00 P.M. local time is prohibited.
- Using foul language or blackmailing the consumer.
- Threatening to arrest, file police complaint, informing the employer and threatening of other legal actions.
- Reporting false information to the consumer’s credit report.
- Contacting a debtor at work ( despite the debt collector knowing that a debtor is not allowed to receive such communications at work).
- Call or engage any person in telephone conversation repeatedly or continuously.
- Call the debtor’s friends or coworkers regarding the debt or discuss anything related to the debt with them.
- Attempts to intimidate the debtor are not permitted.
- Threaten the consumer with negative credit reporting.
- Make automated robocalls in an attempt to collect.
- Seek an unjustified amount.
- Use obscene or profane language, racial slurs or insulting remarks.
- Representing that the consumer has committed a crime or disgraceful conduct.
- Not disclosing that he is only a debt collector, or falsely representing some other entity (ex: IRS, FBI, Police, etc.) to pressurize the debtor to pay.
- Fair Debt Collection Practices for Service-members Act (H.R. 5003) protects the defense service-members more than civilians.
If a debt collector knows that an attorney is representing a debtor about the debt, the debt collector must directly contact the attorney instead.
A debt collector cannot sue a debtor in court after the statute of limitations has expired. These are usually between three and six years.
GLBA: (Gramm-Leach-Bliley Act)
As per FTC, starting June 9, 2023 all collection agencies will be treated as financial institutions. This means all collection agencies must secure consumer data nearly the same way as banks.
Failure to comply with GLBA can have severe consequences for the collection agency, especially the owners and the higher management. Each violation can result in fines of up to $100,000 and may extend to criminal penalties.
FCRA: (Fair Credit Reporting Act)
This law governs how the debt should be reported to the credit reports. A collection agency will typically require a creditor to provide “SSN” and/or “Date of Birth” of the debtor to ensure they do not place this debt on some other person’s credit report.
This legislation was enacted to promote the accuracy, fairness and privacy of consumer information reported to the consumer reporting agencies. It protects consumers from the willful and/or negligent inclusion of inaccurate information in their credit history reports.
Three major credit bureaus are Experian, Equifax and Transunion. A 180-day waiting period exists before unpaid medical debts can appear on people’s credit reports.
New Consumer Financial Protection Bureau (CFPB) Rules – Nov 30, 2021
Broadly speaking, Collection agencies must contact the debtor first through phone, mail, message or other electronic media and give them sufficient time to respond ( typically 15 to 30 days), before the debt can be reported to Credit Bureaus. This is good because several collection agencies have unfairly started using credit reporting as a tool to recover debt. They cannot threaten to recover a debt that is uncollectable or if it has hit the Statute of Limitations. They must also provide disclosure information on their demands and list all payments, interests from the Date of Debt or service.
TCPA: (Telephone Consumer Protection Act)
This federal law is designed to safeguard consumer privacy. It restricts telemarketing communications via voice calls, SMS and fax. It also applies to debt collections, meaning they cannot call the debtor’s cell with an auto-dialer, or call his cellphone unless the collector has the debtor’s permission to call his cell phone.
Even if a debt collector calls on a debtor’s cell phone, they have the right to tell the caller not to contact them. It is recommended to notify your contacting preference to the collection agency in writing with a letter sent by certified mail. Calls to cellphones using robocalls or pre-recorded voice without consent are also illegal. Voicemails in which the debt collector speaks about the debt you owe are not permitted because other people can listen to them.
The TCPA prohibits any telephone solicitation before 8 a.m. and after 9 p.m. local time. A penalty can be imposed, ranging between $500 to $1,500 per call or text. There are also laws around the DNC (do-not-call) list that a debt collector must follow.
HIPAA: (Health Insurance Portability and Accountability Act)
This legislation provides data privacy and security provisions for safeguarding medical information, including the medical condition of a patient (or debtor). HIPPA laws do not protect a patient from his billing information being shared with a Debt Collection Agency since that forms the basis of all recovery efforts and verification of the debt if required.
The exact nature of services received by the patient is considered his private information; therefore, full medical records cannot be submitted to a collection agency. Debtors who discover that the collector knows too many details of his diagnosis and treatment may file a complaint with hhs.gov in the context that their privacy has been violated. This complaint must be filed within 180 days of the violation. Office for Civil Rights (OCR) may ask the debt collector to take a corrective action or impose civil money penalties.
State Debt Collection Laws:
Many states have also enacted their own laws to protect consumers who are dealing with debt collectors; sometimes, it includes original creditors too (first-party) and not just the collection agencies (third-party). Debt collection is very tricky and better left to the experts.
California Fair Debt Collection Laws
Rosenthal Fair Debt Collection Practices Act, is California’s version of the Fair Debt Collection Practices Act (FDCPA). Rosenthal act provides consumers protection from first-party creditors as well.
Florida and Colorado Fair Debt Collection Laws
It prohibits debt collectors and creditors from using deceptive and abusive tactics to collect debts.
Georgia Fair Debt Collection Laws
The Georgia Industrial Loan Act applies to consumer loans less than $3,000 with a loan length less than 36 months and 15 days.
Illinois Collection Agency Act
The Illinois collection agency act (ICAA) requires all debt collectors to have a license before being operational.
New York City:
Debt collectors must be licensed as debt collectors by the NYC Department of Consumer Affairs and cannot call the debtor more than twice a week about a debt.
Louisiana also has Fair Debt Collection Practices Act § 3552 and 3562
Not all states and cities specific debt collection laws have been covered here.
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