Many small business owners agree that as long as receivables are current, the company is successful. However, when customers are behind in their payments, it can slow operations significantly and small businesses can easily find themselves in trouble if they do not begin attempts to collect on the debts owed. However, it is crucial to understand the federal and state laws that apply to debt collection agencies, whether public or private. For your education and information, here are several frequently asked questions about debt collection for small businesses.
1. Question: Do Debt Collections Have to Follow Any Laws?
The Fair Debt Collection Practices Act (FDCPA) is the primary federal law that oversees debt collection practices in the United States. The FDCPA forbids debt collection agencies from using deceptive, unfair, or abusive practices to attempt to collect on past due debts from consumers. It also manages the fair collection of medical debts, credit card bills, mortgages and other accounts mainly for household, family, or personal purposes. It pertains to personal debts, not usually those made for business purposes. It also does not concern collection by the individual from whom the debtor first borrowed the funds or purchased goods, also called the original creditor.
2. Question: Can Debt Collectors Reveal Information About Debt to Employers, Family, or Friends?
One popular consumer criticism is that a debt collector is communicating a consumer’s friends, family, or employer in an endeavor to collect a debt. However, there is a section of the Fair Debt Collection Practices Act (FDCPA) that governs illegal debt collection calls to third parties. Congress was so concerned with debt collection techniques that included harassing other people to pressure a consumer to repay a debt that it passed the Telephone Consumer Protection Act (TCPA). The TCPA prohibits debt collection agencies from making unauthorized, automated calls to a debtor’s place of work, friends, or family. On top of that, a debt collector cannot contact a third-party more than once unless that person requests them to do so. Even if a debt collector contacts a third party, they cannot share any details about the past due debt.
3. Question: Can Debtors Sue if a Debt Collector Violates Their Rights?
Yes. In addition to the federal law, many states have also passed individual laws governing debt collectors. While many of the laws reflect the primary characteristics of the federal law, some are a little more comprehensive. For instance, federal law only gives you one year from the violation to file the lawsuit; some states don’t limit the timeframe. The TCPA is another federal law designed to protect consumers by prohibiting harassment by fax or telephone. The Consumer Finance Protection Bureau will also help with the investigation of complaints against debt collectors.
4. Question: What Information Can Be Sent to a Private Debt Collector?
Private collection agencies (PCAs) concentrate on collecting delinquent debts. A PCA will attempt to find and communicate with a debtor by sending collection letters, making telephone calls, and searching through various databases. After the debtor is found and reached, the PCA will encourage the debtor to repay the debt. It is legal for the original creditor to supply the following information about a debtor to a PCA:
- Name and address
- Social security number
- Date of birth
- Account number
- Payment history
The law does not require that debtors communicate with debt collection agencies. In fact, consumers can stop contact by telling the collection company in writing to refrain from communicating with them. At that point, the debt collection company must cease contact after they receive the written request and can only communicate with the debtor to inform them that all contact will stop, or to let them know that the original creditor intends to file a lawsuit.
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