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There are many laws regulating the consumer credit ecosystem. You may even already be familiar with a few of them, such as the Fair Credit Reporting Act (FCRA)—the federal statute that confers many rights to consumers regarding their credit reports. Another statute that plays a role in the credit industry is called the Fair Debt Collection Practices Act, or FDCPA.
The FDCPA is a federal statute that was signed into law in 1977 with one primary purpose: to set the rules as they pertain to the actions of third-party debt collectors or, informally, collection agencies.
What Is a Third-Party Debt Collector?
As defined by the FDCPA, a debt collector is any party whose primary business is collecting or attempting to collect debts owed to another party. These debt collectors are generally called collection agencies, and they may be employed by companies looking to collect from customers who have defaulted on debts. In exchange for successfully collecting outstanding debts, the collection agency is generally paid a percentage of the amount they recover.
For example, if you default on an apartment lease and you owe the landlord or property owner $1,000, it's not uncommon for them to hire a debt collector to attempt to collect what they are owed. To that end, a debt collector may call you, send you collection letters, report the debt to the credit reporting companies as a collection account, and even go so far as to sue you in civil court and attempt to obtain a judgment.
How Does the Fair Debt Collection Practices Act Work?
The FDCPA not only provides a variety of consumer protections from abusive debt collection activities, but also sets the rules that apply to debt collectors. To understand the FDCPA, it's important to understand three major components of the law: who it applies to, how it regulates debt collector communication and the practices it prohibits.
Who FDCPA Applies To
Third-party debt collectors only: The FDCPA does not apply to the internal collection department of your bank, credit card issuer or other service provider. An exception to this rule is if the collection department goes by a different name than that of the creditor or service provider.
Consumer debts only: The use of the term "consumer protections" has specific meaning as it pertains to the FDCPA. The act only applies to the collection of consumer debts, and not commercial debts. This means the law legally protects you if you are personally liable for a debt, like a car loan, student loan, credit card, apartment lease or similar personal debts.
Businesses, however, are not protected by the FDCPA if they default on commercial or business debts. The exception to this rule would be if you signed a personal guarantee for your company's business debt. In that scenario, the FDCPA would also protect you from abusive debt collection practices because of the personal guarantee. For all intents and purposes, when you personally guarantee a commercial debt, it becomes a consumer debt.
How FDCPA Regulates Debt Collector Communication
Contact limitation: The FDCPA puts limits on the parties debt collectors can contact and when they can do so. Debt collectors are only allowed to contact debtors between 8 a.m. and 9 p.m. And contrary to what you may have heard, they are allowed to call you at work—but only if your employer allows you to receive such calls.
Third-party disclosure requirement: Except in certain cases, debt collectors are not allowed to communicate via a third party when it pertains to your debt. For example, a debt collector cannot call your next-door neighbor and tell them about your defaulted debt.
If, however, a debt collector doesn't have the debtor's contact information, they are allowed to call relatives, neighbors or associates. They are only allowed to ask for contact information and cannot reveal that they are a debt collector or discuss your debt.
Mail communication rules: Debt collectors are allowed to communicate with you through the mail but can't do so via postcards. If the debt collector chooses to send you a collection letter, the exterior of the envelope cannot include the debt collector's logo or language that would identify that the letter is from a debt collector.
Debt collector "mini-Miranda": Whenever a debt collector communicates with you, regardless of the method, they must disclose upfront that they are a debt collector. This means they can't conceal or lie about their identity when they get you on the phone.
Debt collectors must also disclose that they are trying to collect a debt and that any information they obtain from you may be used for the purpose of assisting them to collect a debt from you. This is commonly referred to as the mini-Miranda disclosure due the fact that it's similar in nature to the Miranda warning that's recited by U.S. law enforcement when an arrest is made.
Credit reporting agency communication: Debt collectors are allowed to report accurate information about your collection account to the credit reporting agencies (Experian, TransUnion and Equifax). Additionally, debt collectors have the legal right to access your credit reports to assist them with the "collection of a consumer's account"—something that's formally referred to as a "Permissible Purpose" in the FCRA.
Debt Collection Practices Prohibited by FDCPA
In general, the FDCPA prevents debt collectors from engaging in abusive or harassing behaviors. And while the act does not clearly define what is considered "abusive or harassing," there are many actions that could be considered a violation. Some of these prohibited practices include:
- Calling the debtor repeatedly to harass them, or calling any time outside of the aforementioned 8 a.m. to 9 p.m. time limit.
- Threatening to sue the debtor, unless the debt collector actually intends to do so.
- Threatening violence or physical harm against the debtor.
- Communicating with the debtor if the debt collector knows an attorney is representing the debtor as it relates to their debt.
- Using obscene language with the debtor.
- Publishing your information as part of any list of consumers who, allegedly, refuse to pay their bills.
- Misrepresenting their identity when they call you.
- Making any threat of action that cannot be legally taken, such as suing to collect debts for which the statute of limitations has expired.
- Depositing a post-dated check, sent by the debtor, earlier than the date on the check.
- Adding interest or fees to the amount collected, unless it's allowed contractually or by law.
What Is Your Legal Recourse Under FDCPA?
If you believe your rights have been violated and you've been subjected to abusive or illegal debt collection practices, you may be able to take legal action.
Generally, you will have one year from the date of the alleged violation to file a lawsuit against a debt collector. After one year, the statute of limitations expire. You can either file the lawsuit on your own, or hire an attorney to file on your behalf.
You can recover up to $1,000 of "statutory" damages, which is the limit set by the FDCPA. Actual damages you may have suffered have to be proven at trial. Because the FDCPA is what's formally referred to as a "fee-shifting statute," you may be able to cover your attorney's fees if you win at trial.
You can also report what you believe is an FDCPA violation to the Consumer Financial Protection Bureau using their online complaint form. You'll be able to identify the exact alleged violation from their list of options.
Check Your Credit Reports for Collection Accounts
If you have received calls or letters from debt collectors, you may want to check your credit reports to ensure the debt is being reported correctly. You can normally check your credit reports for free once every 12 months from each of the national consumer credit reporting companies. However, you can now check your credit reports for free every week through April 2021 using the same website you would normally use to check your free annual credit reports, AnnualCreditReport.com. You can also use Experian's free credit monitoring service to keep an eye on your Experian credit report and FICO® Score☉ , and get alerts about inquiries and other changes to your credit report.