5 Debt Collection Basics and a Checklist
The Fair Debt Collection Practices Act (FDCPA) prohibits debt collectors from using abusive, unfair, or deceptive practices to collect debts. A bank collecting its own debt in its own name is not a debt collector and may attempt to collect debts owed in a reasonable manner, including telephone calls to the borrower.
However, banks and other lenders that are not acting as “debt collectors” under FDCPA must still avoid abusive practices and comply with the spirit of the FDCPA.
The Fair Debt Collection Practices Act, which became effective in March 1978, seeks to eliminate abusive, deceptive, and unfair debt gathering practices.
The FDCPA applies only to debt incurred by a consumer primarily for personal, family, or household purposes. It does not apply to the recovery of corporate debt or debt owed for business or agricultural purposes.
Consumer protection extends to shielding debtors from collectors engaging in certain practices, like using abusive language or threatening violence.
The short list of prohibited practices includes:
- Contacting consumers at atypical times, usually before 8 a.m. or after 9 p.m. in the consumer’s time zone.
- Using obscene or profane language; threatening or using violence; or falsely stating or falsely implying an affiliation with the United States or a state government.
- Contacting consumers at their place of work if the consumer has notified the debt collector that they cannot receive calls at work.
- Telling a consumer’s co-workers or friends about the consumer’s debt.
- Abusing or harassing a consumer by, for example, repeatedly calling their telephone or letting it ring continually.
However, the law allows for certain practices. For example, a debt collector can contact friends, neighbors, and co-workers, but only to find out a consumer’s home address, phone number, and work address. In addition, debt collectors can contact the consumer’s attorney, the creditor, the creditor’s attorney, the debt collector’s attorney, and credit reporting agencies (in some cases). Debt collectors may also contact the consumer’s spouse, parent (if the consumer is a minor), guardian, executor, or administrator.
FDCPA Examination Checklist
The FDCPA provides some dos and don’ts for collectors
- Is the institution aware of the circumstances in which the FDCPA applies, and, as appropriate, has it established internal procedures and controls to ensure compliance with the FDCPA?
- Has the institution acted as a ''debt collector'' under the FDCPA by either regularly attempting to collect defaulted consumer debts owed to others or attempting to collect its own consumer debts in a name other than its own? If the answers are ''no,'' the institution has not acted as a debt collector under the FDCPA.
- In attempting to collect consumer debts as a ''debt collector'' under the FDCPA, did the institution communicate with the consumer or any third party in a prohibited manner; adhere to the required debt-validation procedure; use any harassing, abusive, unfair, or deceptive practice or means; collect any more than authorized by the debt instrument or state law; properly apply any payment received in the case of multiple debts owed by the same consumer; and/or bring legal action only in a judicial district permitted under the FDCPA?
In addition, CFPB’s examiners look for potential risks to consumers and whether entities are complying with requirements of federal consumer financial laws, especially the FDCPA. In particular, examiners review the practices of debt collectors in at least the following areas:
- Required disclosures: making certain entities properly identify themselves and disclose the amount of debt owed.
- Accurate Information: assessing if debt collectors used accurate data.
- Consumer complaint and dispute resolution process: complaints must see a resolution adequately, timely and compliantly.
- Communications with consumers: assuring debt collectors have not harassed or deceived consumers.