It is very important for consumers as well as creditors to have a hang of debt collection and the way it works. Here is an insight into what constitutes debt collection.
Debt collecting process
Debt collection is a structured process and creditors/collectors are legally bound to adhere to this process. Different debt collection strategies can be put into use depending on the stage at which the process stands. So, here is a procedural route to tap erring debtors…as followed by creditors/debt collectors:
1. Verbal reminders: The first step of the debt collection process is to call the debtors and draw their attention to the outstanding dues. Provide them the details of the debt and urge them to repay debts.
2. Written reminders: If several verbal reminders haven’t worked, it’s time to resort to written measures. Creditors/debt collectors write to the debtors reminding them about the debts. They clearly state the letter’s purpose: providing details of the debtor’s dues and debt recovery. The first debt collection letter essentially entails a 30-day period for the debtors to check the details and challenge them in case the information is found to be incorrect.
What follows the first debt collection letter is a series of letters (generally 6 to 7), and stress on the urgency of the situation. Creditors/debt collectors also offer options of part or monthly payments for the debts. The payment schedule, amount and other details should clearly be mentioned. In case all the letters fail to work, creditors/debt collectors write about the legal course that shall be initiated against the debtor.
3. Legal action: It’s time to enforce legal action against the debtor. The action can be pursued by hiring third party debt collection agencies or through in-house attorneys, depending on the case. Lawsuits can be filed against debtors. Some creditors, alternatively, sell off “bad credit” accounts to third party debt collectors at throwaway rates that are much lower in value than the unpaid debts. These agencies then pursue the debts independently.
Legal debt collection
Here are a few procedures that hold legal acceptance in debt collection matters:
1. Third party debt collection agencies: These are autonomous agencies registered with the state they operate in. These agencies are roped in by creditors for procuring unpaid debts. A third party agency is required to follow the Fair Debt Collection Practices Act and other laws specific to the state they operate in. The agencies report bad credit accounts to credit bureaus and either charge a fixed fee to their clients or acquire a cut in the recovered debts.
2. Debt collection attorney: A debt collection attorney is an attorney with professional competence in recovering debts, handling finance disputes and lawsuits. Collection attorneys are hired by creditors and lenders to handle debt recovery. Attorneys can alternatively, also be hired by debtors to respond to lawsuits or recovery cases filed against them.
3. Fair Debt Collection Practices Act (FDCPA): The legal confines of debt collection are best summed up in the FDCPA. The FDCPA lists down stringent guidelines for debt collectors and is applicable to third party agencies and collectors. In-house debt collection agencies are exempted from most of the clauses of the FDCPA. Here is a brief look at the some of the most prominent clauses of the FDCPA:
- Collectors can make calls to debtors only after 8 am and before 9 pm. In case the debtor has categorically specified hours during which calls should not be made, the collectors need to follow.
- No harassment is permitted. Abusive language and threatening undertones (verbal or written) attract strict action against the collectors, who are also forbidden to embarrass the debtor by publicizing his account status.
- The collectors cannot call at a debtor’s workplace in case he/she wishes not to.
- Cases can be initiated against a debtor only in the state where a debtor resides, or in state where an agreement between the creditor and debtor was initially signed.
- Debt collectors cannot divulge a debtor’s account to anyone except the debtor’s attorney, spouse or the debtor. All correspondences should be made via the debtor’s attorney, in case he/she has one.
- The debt collectors should provide proof of debts, if asked for by a debtor and provide their true identity to the debtor.
- Collection agencies need to inform debtors about their rights.
The best way to avoid debt collection measures is to be penny wise.