The Fair Debt Collection Practices Act for Small Businesses

If you are a small business with customers, chances are you'll need to use some measure of debt collection as your customer base expands. Many small businesses find that working with a reputable collection agency is wise.

A collection agency for small businesses can help resolve delinquent accounts and save your company time and resources. Any debt collection agency your company uses must adhere to the Fair Debt Collection Practices Act (FDCPA).

Congress passed the FDCPA, 15 U.S.C. 1692 et seq., to improve debt collection for debts incurred by a consumer for primarily personal, family, or household purposes. Such debts include the following:

• Credit card debt
• Outstanding automobile loans
• Unpaid medical bills

Congress intended the FDCPA to do the following:

• End abusive, deceptive, and unfair debt-collection practices
• Protect reputable debt collectors from unfair competition
• Encourage consistent state action to protect consumers from abusive debt-collection practices

The FDCPA does not cover commercial debt collection. A debt collector collects debts owed to others. To fall under this definition, a debt collector must collect such debts regularly. The FDCPA only applies to debt collectors. The statute does not apply to the company owed the debt. State laws can also address what creditors may do.

This article discusses key points of the FDCPA, what actions a collection agency must avoid, and how the rules relate to small business debt collection practices.

FDCPA Basics

Debt collectors must be keenly aware of the Fair Debt Collection Practices Act. This became federal law in 1978. It doesn't allow debt collectors to engage in particular behaviors. Such behaviors include the following:

• Deceptive
• Unfair
• Abusive

In 2010, the Dodd-Frank Act made the Consumer Financial Protection Bureau (CFPB) the first federal agency with authority under the FDCPA to make rules about debt collectors. In 2021, the CFPB final rules became effective. These rules install substantive requirements and prohibitions on debt collection. The Federal Trade Commission (FTC) enforces the FDCPA.

Under the FDCPA, debt collectors must treat debtors fairly and can't use certain debt collection methods. The FDCPA improved the debt collection process for consumer debt. Before the FDCPA, debt collectors could call consumers anywhere at any time, and borrowers felt threatened and harassed.

A 'Debt Collector' Defined

A debt collector is a defined term under the FDCPA. A debt collector regularly collects consumer debts for another person or business. A person or entity that collects its own debts or does so only in isolated instances is not considered a debt collector.

Debt Collectors Covered by the FDCPA

You or your business may not be subject to the FDCPA. But you should understand it as it relates to small business debt collection and the relationship between businesses and their third-party debt collectors.

If your business uses a debt collection agency to collect on past due invoices and fails to follow the FDCPA, it could directly impact your business. Entrepreneurs could experience a public relations crisis or face legal action if the selected collection agency fails to comply with the FDCPA.

Debt Collectors Can Contact Debtors

A collector may contact a debtor about non-payment of debt. Debt collectors can contact debtors in any of the following ways:

• In-person
• By mail
• By email
• Telephone calls and voicemail messages
• Text messages
• Private messages on social media

A debt collector can't contact a debtor at inconvenient places or times, including earlier than 8 a.m. or later than 9 p.m., unless the debtor agrees.

The FDCPA prohibits certain actions. A debt collector can't contact a debtor at work if the collector is aware that the debtor's employer disapproves of such contact. Further, a debt collector can't privately message on social media, email, or text debtors about the debt if asked to stop. But, the original creditor or lender could still sue the debtor. The debt collector may also be entitled to sue the debtor. The original debt does not go away if the debtor owes the debt.

Validating the Debt

A debt collector must validate the debt. The debt collector must do this when they first communicate with the debtor or within five days of the first contact. The validation must include the following information:

• The debt collector's name and mailing address
• The name of the creditor owed
• The amount owed on the debt, including interest, fees, payments, and credits
• The consumer's debt collection rights, including the right to get information about the original creditor if requested within 30 days of getting the validation information from the debt collector

If a debtor does not recognize the debt or doesn't think the debt belongs to them, they should send the debt collector a dispute letter. The debtor must send the dispute letter within 30 days of getting the validation. At that point, the debt collector must stop trying to collect the debt until it sends written notice that verifies the bill the debtor disputes. A copy of the original bill can serve as a verification.

Prohibited Debt Collection Practices

Debt collectors can't do certain things. Below are some of the prohibited practices.

Harassment

Debt collectors may not harass debtors. Other banned behaviors include oppressing or abusing a debtor. Debt collectors may not do any of the following:

• Use threats of harm or violence
• Publish a list of debtors (except for providing credit information to a credit bureau placed on a credit report)
• Use obscene or profane language
• Repeatedly use the telephone to annoy someone
• Call a debtor more than seven times within seven days
• Call debtors within seven days after talking with the debtor on the phone about a particular debt

False Statements

Debt collectors can't use false or misleading statements during the debt collection process. Debt collectors may not do any of the following:

• Imply that they are attorneys or government officials when they are not
• Imply that the debtor committed a crime when there is no basis for the accusation
• Falsely say that they operate or work for a consumer reporting agency
• Misrepresent the amount of debt
• Falsely say that papers to the debtor are legal forms
• Say that arrest is possible if they don't pay the debt
• Say that the collector will seize, garnish, attach, or sell the debtor's property or wages. The collection agency can only make this claim if it is legal and it intends to pursue that route.

Unfair Practices

Debt collectors may not engage in shocking or unfair practices during debt collection. Collectors can't do any of the following:

• Collect debtor funds exceeding the debt unless state law allows the charge
• Deposit a post-dated check prematurely
• Illegally threaten to take (or take) the debtor's property
• Contact the debtor by postcard
• Unlawfully add interest or fees to the debt
• Solicit post-dated checks by threatening criminal prosecution

Unlawful Third-Party Communications

A third-party communication is any communication a debt collector tries to have with anyone other than the debtor. These rules apply only to debt collectors. The FDCPA rules do not apply to the company owed the debt. State laws in various jurisdictions ban what creditors may do. The debt collector can't:

• Contact parties other than the debtor's attorney (or a credit bureau). A collection agency may contact a third party to locate the debtor.
• Collection agents contacting third parties must identify themselves. The collection agency may only state that its purpose for the contact is to confirm or correct the debtor's information.
• Repeatedly contact a third party. But the debt collector can contact a third party if they believe a previous response was wrong or incomplete.
• Communicate with third parties in a way that reveals that the communication is about collection, such as by postcard.

A collection agency cannot contact the debtor represented by counsel unless the debtor gives the debt collection agency specific permission.

Get Legal Help With Debt Collection

As a small business owner, it's critical to understand how the Fair Debt Collection Practices Act works. Whether your business is working with a debt collection agency or may do so in the future, it's critical to work with a company that complies with the FDCPA. Otherwise, your company can face consequences based on the debt collector's actions.

If you have concerns about your debt collector's practices or have other questions about the FDCPA, contact an experienced business and commercial law attorney. They can provide helpful legal advice tailored to your business.