Debt Collection & Laws Protecting Borrowers
Debt allows people to pay for their purchases over time. Common types of debt incurred by people include home loans, school loans, car loans and credit card debt. However, debt does pose a danger for those who do not have adequate financial reserves to service their debt. Sometimes, an unexpected event such as a layoff or a large hospital bill can upset a borrower's finances and affect his ability to pay his monthly debt obligations. If loans are not paid in a timely manner, the lender will seek to recover the amount owed. Lenders may contact the borrower themselves, or they may negotiate with a debt collector or debt collection agency to recover the debt. Debt collectors typically purchase a borrower's loan from the original lender for less money than the debt is worth. The debt collector then uses a number of tactics to recover the total amount due from the borrower. Fair debt collection refers to the regulation of the debt recovery industry. At the federal level, the Fair Debt Collection Practices Act (FDCPA) regulates debt collection. Many individual states have also enacted laws to ensure that debt recovery is reasonable and fair to both borrowers and lenders.
Fair Debt Collection Practices Act
The FDCPA, enforced by the Federal Trade Commission, was enacted to protect the rights of consumers by prohibiting certain methods of debt collection. The FDCPA applies only to the practices of debt collectors. A debt collector is a person who collects debts owed to others. The FDCPA does not apply, therefore, to lenders seeking to recover their own debts. State laws regulate abusive collection practices by original lenders. Under the FDCPA, a debt collector must follow certain procedures when contacting a consumer. Debt collectors are obligated to identify themselves, state their purpose for contacting the consumer, provide the name and address of the original lender and notify the consumer of the right to dispute the debt. The FDCPA prohibits a debt collector from using abusive and deceptive tactics to collect debts. Abusive and deceptive tactics include calling consumers early in the morning or late at night, contacting consumers after receiving written notice that the consumer does not want further contact, lying about their identity in order to gain access to the consumer, publishing the consumer's name on the "bad debt" list, threatening the consumer with arrest or legal action when there are no grounds for such action, and revealing the consumer's debts to third parties. In short, a debt collector is expected to respect the borrower's right to privacy, their right to honest and accurate information, and their right to be free from harassment and abuse.
Remedies for Unfair Debt Collection
Borrowers should report abusive and unlawful behavior by debt collectors immediately to the state Attorney General's office as well as the Federal Trade Commission. If a debt collector violates the FDCPA or a state debt collection statute, a borrower may also sue the debt collector and recover their losses in state or federal court. The statute of limitations for FDCPA violations is one year from the date the statute was violated. Thus, the borrower must file a claim within that time period or they will be barred from pursuing further legal action. Recovery under FDCPA includes damages in the amount suffered plus an additional amount up to $1,000. If the debt collector can prove that the violation was the result of a "bona fide error," the debt collector may be relieved of liability. If the debt collector can further convince the court that the consumer filed the suit in bad faith, the debt collector may recover attorneys fees.
