Debt and credit

Consumer Debt Collection: Methods & Limitations

The market for recovering consumer debt is growing in the US. Many consumers are still unaware of their rights and the available legal remedies, even though deceptive and abusive debt collection practices are outlawed by consumer protection legislation. Since pushy debt collectors frequently have a motive to do so, consumers should be aware of the legal options available to them to fight back.

Debt Collectors

A “first-party debt collector” is a person, business, or governmental organization that tries to get back money that is owed to them directly. It typically has a very clear contractual or legal relationship with the debtor.

Companies that seek debts owed to other people, businesses, or governmental entities are known as third-party debt collectors and the agency they work in is called a third-party debt collection agency. They typically have a deal with the creditor that enables them to keep some of the money received. Some debt collectors pay a large sum to the creditor to buy the debt from them altogether, in contrast to first-party debt collectors, who have a direct contractual relationship with the creditor.

Debt Collection Methods

Along with any other legal actions mentioned in their agreement with the debtor, first-party debt collection agencies have the authority to take legal action for breach of contract in order to recover debts. The choices available to a creditor after obtaining a judgment against a debtor are governed by state law. A constable or other law enforcement official may be authorized by a judgment creditor to seize the debtor’s non-exempt assets in order to satisfy the judgment under most state laws. Wage garnishment is legal in some states to pay off debts.

Did You Know?

Debt collectors are often not permitted to divulge a consumer’s debt to anybody other than the debtor, their spouse, or their attorney.

Because litigation entails the upfront payment of expenses by the creditor, creditors may choose to engage a third-party debt collection agency that keeps a share of any monies recovered rather than go to court. The creditor may authorize third-party debt collectors to file lawsuits or report unpaid payments to the major credit bureaus. Due to their goal to collect as much money from debtors as quickly as possible, some debt collectors employ an aggressive technique through phone calls and mailings.

In some jurisdictions, debt collectors employed by a government agency are allowed to send letters on company letterhead to give the impression that they are fully supported by the government. Other dishonest acts are often prohibited by law.

Incorrect or Fraudulent Debt Collection

For a number of reasons, a customer may dispute a debt. Given the number of accounts they manage, it is always possible that a third-party debt collector simply misidentified a debtor. Customers might also have been the victims of identity theft, which resulted in erroneous charges being made in their names.

A deceased debtor’s family members may be targeted by debt collectors in an effort to collect a debt. They normally cannot do this legally unless there is a formal connection between the relative and the creditor, such as if the relative co-signed a contract. Tax demands, however, can be an exemption.

Some debt collectors may commit fraud by attempting to collect fictitious debts in the hopes that the “debtor” will just pay to settle them.

Limitations on Debt Collection

Recovery of past due debts is impossible or at least discouraged by a few time constraints. The statute of limitations for contract violations in the majority of states is four years from the date of default. Credit reporting organizations state that negative information usually cannot be maintained on a consumer’s credit record for more than seven years after the date of non-payment.

Resetting the Clock

Depending on the type of debt and state law, the statute of limitations for debt collection often starts to run when a consumer misses a payment. (Consumers can contact the attorney general’s office in their state for more details.) In some areas, if a consumer makes a payment or formally admits their debt in writing, the statute of limitations period will start over.

Debt Collection Statutes and Debtors’ Rights

The Fair Debt Collection Practices Act (FDCPA), a federal statute, forbids certain inhumane tactics used by third-party debt collection agencies. Numerous state laws offer protections, some of which also include the collecting activities of first-party debt collectors.

The following actions by third-party debt collectors are prohibited by the FDCPA:

● Contacts made prior to 8:00 a.m. or following 9:00 p.m. local time;

● Intentionally making a phone ring constantly or frequently in an effort to annoy or harass;

● Contacting the individual despite a written request for contact to stop coming from them or a written denial of the debt’s validity;

● Contacting the individual at their place of employment after being informed to stop doing so;

● Lying about the debt’s size or specifics or threatening legal action that isn’t actually feasible;

● Adding the person’s name to a roster of “bad debts”; and

● Giving fake information—or making threats to give false information—to credit reporting companies about the individual.

The Conclusion

According to federal regulations, there are a number of considerations that accompany debt collection practices. If your company intends to work with a financial debt collection agency, pick the one that satisfies all the requirements your company has.

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