Debt collection laws for businesses: a creditor's guide.

The FDCPA: consumer debts and third-party collectors

The federal Fair Debt Collection Practices Act (FDCPA) regulates "debt collectors" collecting "debts." Two definitions in 15 U.S.C. § 1692a do most of the work:

• "Debt" means an obligation of a consumer to pay money arising from a transaction primarily for personal, family or household purposes. Business-to-business debts are therefore generally outside the FDCPA.
• "Debt collector" generally means someone whose principal business is collecting debts, or who regularly collects debts owed to another. A creditor's own employees collecting in the creditor's name are generally excluded, but a creditor that uses a different name suggesting a third party is collecting can be treated as a debt collector.

Among other things, the FDCPA restricts the time and place of contact with consumers, communications with third parties, harassment, false or misleading representations and unfair practices, such as collecting any amount not authorized by the agreement or permitted by law. It requires validation information to be provided to consumers. Consumers can sue for violations, and the statute sets the damages and fee rules.

Regulation F

The Consumer Financial Protection Bureau implements the FDCPA through Regulation F (12 CFR Part 1006), which covers communications, prohibited conduct, validation information, time-barred debts, disputes and record retention. Collectors of consumer debt should be able to explain how they comply.

Commercial (B2B) debts

Because the FDCPA covers consumer debts, collecting from a business is governed mainly by contract law, the Uniform Commercial Code as adopted by each state, general laws against fraud and unfair or deceptive practices, and any state licensing or registration rules that reach commercial collectors. Commercial collectors have more latitude than consumer collectors, but threats, misrepresentations and harassment can still create liability. A personal guaranty owed by an individual can raise additional questions, so get advice before collecting against a guarantor.

State laws

The FDCPA says it does not override state laws except where they are inconsistent, and that a state law giving consumers greater protection is not inconsistent (FDCPA § 816). Many states therefore have their own collection-practices statutes. Some of them also apply to original creditors collecting their own consumer debts, not just third-party agencies. States also set:

• Licensing, registration and bonding for collectors (see collection agency licensing)
• Statutes of limitations for suing on debts
• Interest-rate and late-fee limits
• Garnishment limits and exemptions for judgment enforcement

Our state pages give general orientation. Confirm specifics with a licensed attorney.

Other federal laws that can come up

• FTC Act: prohibits unfair or deceptive acts or practices in commerce, enforced by the FTC.
• Fair Credit Reporting Act: governs reporting debts to credit bureaus and using consumer reports.
• Telephone Consumer Protection Act: restricts autodialed and prerecorded calls and texts.
• Bankruptcy Code: the automatic stay generally stops collection once a debtor files.
• HIPAA: applies when healthcare providers share patient information with collectors.

Practical compliance tips for creditors

• Classify each account as consumer or commercial before choosing a collector.
• Only charge interest, late fees and collection costs your agreement and the law allow (see our late fee calculator and credit application template).
• Collect in your own name in-house. Using a different name can change your legal status.
• Place consumer accounts only with collectors that are licensed where required and follow the FDCPA and Regulation F.
• Stop and get advice if a debtor files bankruptcy, disputes the debt in writing or is represented by counsel.
• Keep good records of contracts, invoices, communications and disputes.

Official sources: FTC: FDCPA text · CFPB: Regulation F · 15 U.S.C. § 1692a definitions (LII).

Related

• B2B debt collection guide
• Debt collection agency licensing
• Debt collection laws for businesses
• Free templates (DOCX & PDF)

Not legal advice. This page is general information, not legal advice, and laws vary by state and change over time. CollectionPlacement is a referral service, not a law firm or collection agency. Consult a licensed attorney about your situation.