Draw the Law – (Lack of) Payment Issues, Part V: Fair Debt Collection Practices Act

Ahh, it’s the Friday before Christmas and I am sure you all are shopping rather than thinking about legal issues OR if you are a small business owner, you are manning your shop to get those extra sales in. Well, if you have time, this is still an interesting topic for you all. When the dust settles and the after Christmas sales settle, a month or two for now when payments are due for your new tv or that enthusiastic customer is trying to ask for more time try to remember this post!

Who are You Gonna Call? DEBT COLLECTING AGENCY!

Today is all about when you extend credit and that person kind of disappears. How do you get your money? Generally, for most businesses they have a debt collection agency handle this type of situation. Here are some signs to look for when you think it might be time to contact a collection agency:

  • No response from the customer via e-mail/phone;
  • Debtor did not meet payment terms and has made no excuse or reason;
  • Debtor is making unfound complaints to avoid payment or is in denial;
  • Debtor keeps changing their information (workplace/home address) and is consistently late with payment;
  • And similar to the prior one, debtor disappears, but does not notify you.

Fair Debt Collection Practices Act

Now, those are situations for you to call a third-party collection agency, but say you want to handle your own debt collection? Well, you have to watch out for the Fair Debt Collection Practices Act (FDCPA), and any other relevant state laws that regulate debt collection practices. Now, FDCPA is meant for collection agencies; the majority of rules and regulations apply to them. However, there are several rules as a small business owner-creditor that you need to be aware of if you are going to collect on your customer’s debt:

  • Contact: mail, in-person, or telephone AND unless in writing you may not contact them at inconvenient places or times (i.e. after midnight);
  • Workplace: if employer forbids employees from being collected, you don’t contact them there, a debtor can specify what times/places are inconvenient;
  • Representation: if the debtor has a lawyer for this matter, you speak only to the lawyer;
  • Leave Me Alone: if the debtor writes to the collector that they wish to be left alone, the collector can confirm they will no longer contact them and that some legal action may or will be taken;
  • Leave Me Alone pt. 2: if debtor states within 30 days they are disputing the debt they must leave them alone, unless collector provides proof;
  • Who/What/When/Where/How: must send written notice within 5 days of first contact – stating the following: (1) name of creditor; (2) what is owed; (3) debtor has 30 days to challenge if the debt is genuine; (4) how the debtor must proceed to clear the debt if they do not believe they owe it; and (5) the name and address of the original creditor if the creditor has changed;
  • Locating: a debt collector may contact ANYONE to locate the debtor BUT cannot speak to the more than once, nor mention the debt;
  • Mean-Spirited: No, harassing, oppressing, or abusing anyone OR specifically, no doing or mentioning violence, defamatory or profane language use, no irritating or annoying behavior, no making them pay for contacting them, no lying or cheating. Basically, don’t be an a**.

As you can see a long laundry list of things that you cannot do in pursuit of money owed to you, which is generally why most businesses prefer to use collection agencies.  Despite the headaches associated with granting credit, remember that most people will pay and that you have expanded your customer base. The goal is to manage acceptable levels of loss versus that of growth of sales.

Anyway, I hope you have a Happy Holidays and see you in the New Year for Draw the Law. Draw the Law will be going under some changes next year, and actually I will be accepting questions for Draw the Law from you startup and small business owners that have questions. So start thinking (after the presents are open) and consider giving me the gift of your questions!

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*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.