Debt Laws Ensure The Right Practice To Collect Business Debts


Assuming that you are into business you will surely have debts in many forms but that does not mean you will implement any ways to recover it from the people who owe you money. You will have to follow the laws that government has laid for collecting debts which is not only meant for the banks and debt collection agencies.

Therefore, if you have delinquent customers and need to collect the dues, it is essential that you make sure that you understand the pertinent laws and the peripheries before you proceed.

As such, collecting dues from people who cannot or will not pay is the trickiest part for debt collectors and even for businesses, especially the small businesses.

  • If you are too lenient there is a high chance that you will go bankrupt
  • On the other hand, if you are too strict then there is a possibility that the good customers will turn away who just required a little more flexibility and
  • If you are too aggressive in your collection approach then there is all possibility that you will end up on the wrong side of the law and find yourself being sued by the federal agency or by the attorney general of the state.

Under all these three conditions, your business will face dire consequences in the end.

The legal scene

If you take a deeper look at the debt market as well as the collection process by researching on the internet and going through different debt consolidation reviews and others, you will see that a lot of debt collection practices generate hundreds and thousands of consumer complaints in a year.

Since this figure is more than any other given regulated activity, both federal and state government agencies found that it is essential to lay a few specific laws that will regulate the collection practices by any creditor, businesses and debt collection agencies. The features and intent of these laws are very specific and result driven.

  • These laws if enacted properly will help the government to crack down those agencies and other entities that are aggressive in their debt collection approach and follow illegal debt collection practices.
  • Most of these debt collection laws laid down by the governments are focused on levying a fine on the agencies for following illegal practices for debt collection and in extreme cases the government may even shut down such a shady debt collection agency.

However, though these laws are designed to prevent any willful run to afoul the law or use of any illegal means to collect the debt, sometimes due to the complicated legislation and the fact that there is large number of government agencies working together the innocent debtors can get caught accidentally in the middle.

It is for this reason and to provide relief to these innocent debtors that the Fair Debt Collection Practices Act or FDCPA became law in 1977. The features of this law include:

  • This is the law that specifically governs the debt collection practices.
  • The law chiefly regulates companies involved in the business of collecting debts on behalf of the creditors
  • It also regulates the companies that buy debts from the creditors at a discount price in order to collect it later.

Over the years this Act has changed hands and there has been a lot of amendments made.

  • Since 1977 till 2010, this FDCPA was enforced by the government and all the legal aspects were overseen by the Federal Trade Commission, FTC. This government wing even investigated and sued companies that are alleged for any “unfair and deceptive trade practices.”
  • However in 2010, the Dodd-Frank Act moved the responsibility of primary enforcement of the law from the hand of FTC to the Consumer Financial Protection Bureau, CFPB. According to this Act, the CFPB has the power to issue rules, regulations and guidance.
  • Further in January 2013, the CFPB was also given the right to oversee debt collection and focused on the time and have more than $10 million in revenues related to debt collection.

However, if you fall under the $10 million line there is no reason to believe that you do not have to care for the debt laws. There are specific scenarios when you try to collect your business dues from your debtors can simply trigger provisions in the debt collection law that can make you subject to this law. There are typically three such scenarios:

When you act like a debt collection agency, the FDCPA may exempt you if you are collecting your own debts. But if use any other name other than the official name of your company to collect debt or a third party to ‘dun’ management, you will trigger the FDCPA and abide by the law.

If you live in a state where you are by default considered as a debt collection company then your efforts will be regulated by the state laws that are designed by the attorney general of the state. Therefore know the laws of your state before collecting as no state is below the FDCPA but are free to go above it to enact their own laws.

If you are identified as a debt collection agency by the CFPB within its power and flexibility it will define what is considered to be “unfair, deceptive or abusive acts or practices” and prohibit you from following these acts. Though as a small business you may not fall under such regulations directly, the companies that you hire or those that hire you might.

Play it safe

Always play safe if you need to collect debts to avoid legal obligations. Know your jurisdiction and the laws and comply with it and if you have to hire someone make sure that they know about the FDCPA, FTC and CFPB rules and follow then strictly.

Always hire a reliable and reputable third party for collecting larger debts making sure that they are compliant with the state and federal regulations applicable very seriously. Research well to hire carefully so that you are not sued for the illegal acts of your debt collectors and not see the money you employed them to collect.