Debt collectors have been the most complained-about industry on the Federal Trade Commission’s consumer website for many years running. And abuses by out-of-control collectors appear to be getting worse.
Debt collection harassment and abuse can take a particular toll on vulnerable older consumers. The good news is that there are federal and state laws that are intended to protect consumers from debt collection and harassment. These laws apply regardless of whether the consumer owes money on the debt being collected. The bad news is that many collectors still do not comply with the law.
The information below will help advocates counsel clients about what a debt collector can and cannot do and how consumers can protect themselves. It is also important to work with older consumers to help them evaluate which debts are highest priorities and what the possible consequences might be if they are unable to repay all of their debts.
What Can a Debt Collector Really Do?
A debt collector working on behalf of a creditor can do little more than demand payment. If the creditor has not taken the client’s house, car, or other property as collateral on a loan, then legally the creditor can only do three things:
Stop doing business with the consumer.
Report a default to a credit bureau.
Sue the consumer in court. This threat may not be as serious as many consumers think. Many creditors do not follow through on their threats. Even if they do, consumers can raise defenses to paying the debt. And even if the creditor obtains a judgment, this judgment still does not force the consumer to pay the debt. It only gives the creditor the right to try to seize part of a consumer’s wages or property.
How To Avoid Harassment
Federal law and many states prohibit harassment by collection agencies. In many cases, the state laws provide additional protections. For example, the federal law applies only to third party collectors. Some state laws also cover creditors collecting their own debts.
Consumers should consider the following eight steps. In most cases, they will want to consider more than one.
Try to Head off Harassment Before it Starts. It is to the consumer’s advantage to try to deal with the problem before the creditor refers the debt to a collection agency. Consumers should consider calling up the creditor to explain their situation. It is important to advise consumers that they should not over-promise in these negotiations. They should also take into account whether they actually the money or whether they have defenses to raise that would eliminate all or part of the obligation.
The Cease Letter. The simplest strategy to stop collection harassment is to write the collector a cease letter. Consumer rights vary depending on whether the collector is a creditor or a collection agency.
Federal law requires collection agencies to stop their collection efforts (sometimes referred to as dunning) after they receive a written request to stop. The federal law does not apply to creditors collecting their own debts, but even these creditors will often honor such requests.
It is very important for consumers to keep a copy of the written request and to send it by certified mail (return receipt requested). This gives proof that the collector received the letter.
Here is an example of such a letter:
Sample "Cease" Letter
Sam Consumer
10 Cherry Lane
Flint, MI 10886
January 1, 2006 NBC Collection Agency
1 Main Street
Flint, MI 10887
Dear Sir or Madam:
I am writing to request that you stop contacting me about an account number _______ with [name of creditor] as required by the Fair Debt Collection Practices Act 15 U.S.C. section 1692c(c). (Note: Delete reference to the Act where the letter is to a creditor instead of to a collection agency. Some, but not all, state laws prohibit further contact by creditors).
[Describe any harassing contact by the collection agency. If appropriate, provide information about why you cannot pay the bill or do not owe the money].
This letter is not meant in any way to be an acknowledgment that I owe this money. I will take care of this matter when I can. Your cooperation will be appreciated.
Very truly yours,
Sam Consumer
Even though it is against the federal law, not all debt collectors will stop contacting consumers after they receive a letter. Consumers may have to send another letter and once again keep a copy. Advocates should advise clients to keep a careful record of any letters and phone calls received after sending the letter. This record may help if the consumer later decides to sue the debt collector.
The Lawyer's Letter. If a cease letter does not stop collection calls, a letter from a lawyer usually will. In addition, the lawyer may be able to raise legal claims for violations of the federal law that prohibits debt collection harassment.
Federal law requires collection agencies to stop contacting a consumer known to be represented by a lawyer, as long as the lawyer responds to the collection agency's inquiries. Even though this requirement does not apply to creditors collecting their own debts, these creditors also will usually honor requests from a lawyer. A lawyer working for a creditor or collection agency also is generally bound by legal ethics not to contact debtors represented by a lawyer.
Negotiate with the creditor or collector. It is often easier to negotiate with a creditor before a debt is sent to a collection agency, but consumers can negotiate with collection agencies as well. Regardless of the type of deal, consumers should avoid offering too much. Even a small payment to an unsecured creditor is unwise if this prevents payment of mortgage or rent.
Raise Complaints About Billing Errors and Other Defenses. When a collection letter contains a mistake, consumers can write to request a correction. Collection agencies, by law, must inform consumers of their right to dispute the debt. They must do this the first time they communicate with the consumer or within five days after the first communication. If the consumer then disputes the debt in writing within the next thirty days, the collection agency must stop collection efforts while it investigates.
If the dispute involves a line of credit, a credit card, or an electronic transfer of money, you have the additional legal right to require the creditor to investigate the bill.
Complain to a Government Agency. Consumers should consider writing to government agencies responsible for enforcing laws that prohibit debt collection abuse, like the Federal Trade Commission or your state's attorney general's office.
A letter of complaint should be sent to the Consumer Response Center at Federal Trade Commission, CRC-240, Washington, D.C. 20580. Consumers can also call the Commission toll-free at 1-877-FTC-HELP (382-4357) or file a complaint on-line at www.ftc.gov. Copies of the letter should also be sent to the consumer protection division within the state attorney general's office, usually in the state capitol, and also to any local office of consumer protection listed in the local telephone book or on the Internet. Addresses can be obtained from a local better business bureau or office of consumer affairs.
Bankruptcy. In most cases, filing initial papers for personal bankruptcy triggers the "automatic stay." This is a very powerful tool because it stops all collection activity from collectors, creditors, or even government officials. But, as a general rule, a bankruptcy filing is not the best strategy where the consumer’s only concern is debt harassment. Bankruptcy should be saved for when consumers have serious financial problems. Debt collection harassment can usually be stopped without having to resort to bankruptcy. It is a good idea to consult a bankruptcy attorney in these cases.
Sue the Debt Collector for Illegal Conduct. Federal and state fair debt laws provide consumers with strong protections from debt collection harassment. Debt collectors often break these rules because they know that in most cases they can get away with it. Most consumers either do not know about their rights or lack the resources to fight back.
These claims may be brought affirmatively or defensively in response to a collection action.
Federal Fair Debt Collection Practices Act
The federal Fair Debt Collection Practices Act (FDCPA) (15 U.S.C. §1692 et seq.) prohibits collectors from engaging in a wide range of abusive and harassing conduct. Below is an outline of key provisions of this law.
Who is covered?
Only consumer debt transactions, as defined in the law, are covered. Only “debt collectors” are covered. Original creditors and their employees are excluded from the federal law, but attorney debt collectors are covered. Only collectors that regularly attempt to collect debts are covered.
Privacy Protections
The law protects a consumer’s privacy by limiting the ways in which debt collectors are allowed to communicate with consumers. Key privacy provisions include:
Collectors are prohibited from communicating with third parties. The consumer’s spouse, parent (if the consumer is a minor) guardian, executor or administrator are not considered to be third parties.
No communication at any unusual time or place. In the absence of other knowledge, the law assumes that after 8:00 a.m. and before 9:00 p.m. is the only convenient time.
No communication with consumer if the collector knows the consumer is represented by an attorney. Communication must then be with the attorney.
No communication at consumer’s place of employment if the collector knows or has reason to know that the employer prohibits such communication.
If the consumer notifies the collector in writing that s/he refuses to pay the debt or wishes the collector to cease communication, the collector must cease communication with limited exceptions:
to advise the consumer that the collector’s further efforts are being terminated;
to notify consumer that the collector or creditor may invoke specified remedies;
where applicable, to notify the consumer that the collector intends to invoke a specified remedy.
The collector can still sue on the debt. This section limits further communications only.
Harassment and Abuse Is Prohibited
The law includes a non-exhaustive list of harassing tactics, including prohibitions on threats of violence; obscene language; causing a telephone to ring repeatedly; and placing calls without meaningful disclosure of the caller’s identity.
False or Misleading Representations Are Prohibited
For example, collectors may not make false representations of the character, amount, or legal status of any debt. They cannot threaten to take any action that cannot legally be taken.
In addition, the collector must disclose in the initial written communication with the consumer (and in addition, if the initial communication is oral, in that oral communication) that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose, and must disclose in subsequent communications that the communication is from a debt collector.
Unfair Practices Are Prohibited
For example, collectors are prohibited from collecting any amount unless such amount is expressly authorized by the agreement creating the debt or permitted by law; accepting a check or other payment postdated by more than five days (unless certain conditions met); soliciting a postdated payment for the purpose of threatening or instituting criminal prosecution; communicating by post cards; using language or symbols other than the debt collector’s address on any envelope (a business name is allowed only if the name does not indicate the collector is in the debt collection business).
Validation of Debts
Within five days after the initial communication, debt collectors must provide information about the consumer’s right to validate the debt. Consumers have thirty days to dispute validity. The collector must cease collection if validation is requested until the collector obtains verification of the debts.
Private Remedies
Up to $1,000 in statutory damages
Attorney’s Fees
Unlimited Actual Damages
Injunctive Relief generally not available.
There is a one year statute of limitations
Collector’s Defenses
The collector has specific defenses under the law, including a bona fide error defense. This is a limited defense and applies only where violation results from an unintentional error, notwithstanding maintenance of reasonable procedures adopted to avoid the error.
Other Claims
Additional claims to consider in debt collection harassment cases include:
Tort claims such as invasion of privacy or defamation
State debt collection remedies
State unfair and deceptive acts and practices laws
State credit repair organization laws
Unauthorized practice of law statutes
Criminal laws
Useful Information and Web Sites
National Consumer Law Center Publications and Articles
National Consumer Law Center, Fair Debt Collection (5th ed. 2004 and Supp.).
National Consumer law Center, Unfair and Deceptive Acts and Practices (6th ed. 2004 and Supp.).
National Consumer Law Center, Guide to Surviving Debt (2006).
Also see NCLC’s brochure on Dealing with Debt Collection Harassment.
The Federal Trade Commission also has information about debt collection issues. You can get more information on-line at www.ftc.gov.
This brochure was supported by a grant, number 90-AP-2647, from the Administration on Aging, Department of Health and Human Services, Washington, D.C. Points of view or opinions are entirely those of the National Consumer Law Center.
and NCLC