Credit and Debt Blog

This is a federal act enacted in 1977 with the goal of preventing abuses by third-party debt collection agencies. These abuses were believed to be one of the main causes of the increase in bankruptcies filed at the time.

These third-party debt collectors covered by the Act are either hired by the credit card company or bank to collect outstanding debt, or they buy the debt completely and have the right to collect the full amount of the debt.

Some of the basic guarantees of the FDCPA include:

• Right of consumers to sue debt collectors for violating the law
• Protection against harassment, like non-stop phone calls, abusive language and threats
• Prohibiting collectors from contacting consumers at inconvenient times like before 8 a.m. and after 9 p.m.
• Protecting the right of the consumer to seek proof that s/he actually owes the debt trying to be collected from him/her
• Protecting the consumer’s right to privacy
• Prohibiting collectors from engaging in misleading conduct

When a collector first contacts a consumer, s/he must inform the consumer of his rights to dispute the debt. The collector must tell the consumer:

• How much is owed
• Creditor’s name
• Consumer’s right to dispute the debt within thirty days or it will be considered valid
• Consumer’s right to ask for proof of the debt

Law states that these rights may be communicated over the phone or in writing within five days of the first phone call.

If the consumer wants proof of the debt, he must send a verification letter within thirty days of first contact with the collector. When the collector receives this letter, collection calls and letters must stop until the consumer receives verification. To prove the debt, the collector must provide information about the identity of the original creditor.

The consumer can stop incessant phone calls at the workplace or harassment of friends and neighbors by sending a cease communication letter. This letter can require the collector to only communicate via letters or stop communication altogether.

Once this letter has been sent, the collector can only tell the consumer that the collection has been abandoned or that a lawsuit or other action has been filed. If the consumer has an attorney, the collector must communicate directly with him/her.

Law prohibits harassment and abuse by collection agencies. Threatening violence or harm to the consumer, his property or his reputation is illegal under the Act, as well as obscene, vulgar or offensive language. Phone calls intended to annoy and harass are prohibited. Consumers can stop these abuses, again, with a cease communication letter. Perhaps a more strongly worded letter, accusing the agency of violating some of the laws outlined in the FDCPA.

Collectors are not allowed to mislead a consumer about their identity or threaten legal actions they don’t intend to take. Collectors have pretended to be police officers threatening consumers with arrest if they don’t pay their debts. They’ve also impersonated attorneys and credit bureau agents in attempts to collect debts. Such practices are prohibited by the FDCPA.

Collectors are also not allowed to encourage consumers to write post-dated checks. Writing these sorts of checks can cause all sorts of problems, not the least of which is the collector gaining access to the routing and account numbers of the consumer. Also, collectors often cash the checks before the date indicated by the consumer and penalize the consumer for the bounced check.

Collectors may not attach any extra fees, interest or charges to the balance of the debt that are not stated in the original contract or permitted by law.

The FDCPA protects consumer confidentiality in a couple ways. Collectors are not allowed to inform unauthorized parties of a consumer’s debt. Also, any correspondence a collector sends must not have writing on the outside that references “collection” or “debt.” It must not be obvious that the letter is being sent by a collection agency regarding a debt.

Consumers who believe a collector has violated the rights given to them by the FDCPA may file a civil suit, but must do so within one year of the violations. Successful suits can be awarded damages for actual losses, court and attorney’s fees, and up to $1,000 in additional damages.

At the beginning of this article, it was mentioned that third-party collection agencies are bound by the rules set forth in the FDCPA. This means that “in-house” collection departments of banks and other credit issuers are not covered by the Act.

At the time, it was assumed that these departments would be more interested in maintaining good customer relations and avoid the abuses addressed by the Act, but that has not been the case. In fact, the FTC reported that complaints about these “in-house” collection departments almost doubled from 2003 to 2006.

When a consumer is being contacted by a collector, the best thing to do is keep good records of all the correspondence received. With the increase of debt purchasing by third parties recently, some debt has been bought and sold multiple times. Thus, a consumer could be contacted by several collection agencies about the same debt. Keeping accurate records will help a consumer recognize this.

A final, and extremely important, aspect of the FDCPA is as follows: this Act is not a way for consumers to avoid paying debts they actually owe. Basically, the FDCPA was designed to protect consumers from abusive collectors, but consumers need to realize that their debt is still real and being proactive about it will pay off greatly in the long-run as opposed to ignoring its reality.