Consumer Debt Collection & Consumers' Legal Rights
Consumer debt collection is a growing industry in the United States. Consumer protection laws prohibit deceptive and abusive debt collection practices, but many people remain unaware of their rights and the remedies that are available to them. Debt collectors often have an incentive to be pushy, and consumers should be aware of the ways the law allows them to push back.
Debt Collectors
An individual, business, or government entity that is attempting to collect a debt owed directly to it is known as a “first-party debt collector.” It typically has a direct contractual or legal relationship to the debtor.
Businesses that collect debts owed to another individual, business, or government entity are known as “third-party debt collectors.” They typically have a contract with the creditor that lets them keep a percentage of the amounts collected. Some debt collectors pay a lump sum to purchase the debt from the creditor outright, which puts them in a similar position to a first-party debt collector, except without the direct contractual relationship.
Debt Collection Methods
First-party debt collectors may collect debts through any method allowed by their contract with the debtor, as well as through a lawsuit for breach of contract. If a creditor obtains a judgment against a debtor, state law determines how the creditor may proceed. Most states allow a judgment creditor to serve a writ of execution, which allows a constable or other law enforcement official to seize non-exempt assets of the debtor to satisfy the debt. Some states allow garnishment of wages to pay a debt.
Litigation requires up-front payment of fees by the creditor, so creditors may prefer to use a third-party debt collector that keeps a percentage of any amounts collected. Third-party debt collectors may be authorized to file suit on the creditor’s behalf, or to report unpaid debts to the major credit reporting bureaus. Since they have an incentive to collect as much as possible as quickly as possible from debtors, some third-party debt collectors take an aggressive approach through telephone calls and mailings.
In some jurisdictions, debt collectors working on behalf of a government entity are authorized to use government letterhead, creating the appearance that they are acting with the full authority of the government. Other misleading tactics are usually prohibited by law.
Incorrect or Fraudulent Debt Collection
A consumer might have any number of reasons to dispute a debt. Given the volume of accounts handled by many third-party debt collectors, it is always possible that the debt collector simply misidentified a debtor. Consumers also may have been the victims of identity theft, resulting in debts in their name that should not belong to them.
Debt collectors may try to collect a debt from the relatives of a deceased debtor. They usually cannot lawfully do this unless some contractual relationship exists between the relative and the creditor, such as if the relative co-signed a contract. Tax debts may be an exception to this, however.
Some debt collectors may engage in fraud by attempting to collect debts that do not exist, hoping the “debtor” will just pay to make them go away.
Limitations on Debt Collection
Several time limits prevent, or at least discourage, collection of old debts. The statute of limitations for breach of contract is four years from the date of default in most states. Credit reporting agencies are generally prohibited from keeping negative information on a consumer’s credit report for longer than seven years after the date of non-payment.
Debt Collection Statutes and Debtors’ Rights
The federal Fair Debt Collection Practices Act (FDCPA) prohibits many types of abusive practices by third-party debt collectors. Many state laws offer similar protections, and some also apply to collection activities by first-party debt collectors.
Prohibited conduct by third-party debt collectors under the FDCPA includes:
- Phone calls before 8:00 a.m. or after 9:00 p.m. local time;
- Causing a phone to ring repeatedly or continuously with the intent to annoy or harass;
- Continuing to contact the person after he or she has submitted a written request to cease communications, or has disputed the validity of the debt in writing;
- Contacting the person at his or her place of work after receiving notice to cease doing so;
- Misrepresenting the amount or details of the debt, or threatening legal action that is not actually possible;
- Publishing the person’s name on a “bad debt” list; and
- Submitting false information about the person to the credit reporting agencies, or threatening to do so.
