Collections law

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Helene Mueller
eCollect support team

A collections law is a constitutional document that regulates the debt collection process and the actions of debt recovery agents. It certificates a DCA (Debt Collection Agency) to execute fair debt collection via precise rules for legal debt recovery, and defines whether an action is considered as harassing or as ethical. Collections laws govern different acts and organisations and they serve as legal instruments for controlling the whole debt recovery financial area. Their role and main aim is to provide legal protection for consumers from unfair and abusive practices, carried out by debt recovery agencies and collectors; and to prevent any kind of fraud in the business and financial market. This is why such regulators are also known as consumer protection laws or consumer protection regulators. However, a collections law not only ensures debtor’s rights to be respected, but also authorises debt collection agents and organisations to perform a debt recovery, when failed payments are in evidence and the consumer has become a debtor. According to these collections acts, a creditor is fully authorised to pursue these payments by all legal and ethical means.


Collections law in U.S.

In U.S. and all its 50 states bill collectors and agencies act in compliance with the Fair Debt Collection Practices Act, which serves as the fundamental controlling document in United States. The FDCPA protects consumers from unfair practices performed by third-party debt collectors in connection with individual unsecured debts. In accordance to this act, only third-party collectors are considered as registered debt collection agencies. If a creditor aims to recover the debts he owns on behalf of his own company, he cannot be controlled by the FDCPA, as such lenders are regarded as first-party debt recovery agencies.

United States operates with both state and federal collections law and acts to control unfair collection practices. Other organisations and legal acts in U.S. are the: Federal Trade Commission, which enforces most of the consumer protection laws, its Federal Trade Commission Act and its Bureau of Consumer Protection; the Fair Credit Reporting Act, the Commercial Collection Agency Association, the Truth Lending Act, the Federal Debt Collection Procedures Act, the Consumer Financial Protection Bureau, etc. A collections law in U.S. also includes special acts for credit card debts and defaults: the Fair Credit Billing Act, which is part of the Consumer Credit Protection Act (source: https://www.fdic.gov/regulations/laws/rules/6500-200.html#fdic65001002.3), the Equal Credit Opportunity Act (answering for anti-discrimination actions on the base of race, origin, sex, age, etc.) and others.


UK collections laws

There are various organs of regulations and different acts and laws, which govern the performance of fair debt collection. A collections law for UK and Wales is the Consumer Credit Act. Other acts, managing the debt collection process and protecting consumers are: The Unfair Contract Terms Act, the Limitation Act 1980 (defining the limitation period of statute-barred debts and within what period can they be pursued for payment), Late Payment of Commercial Debts Act (for corporate debtors & business-to-business debts), the Consumer Protection Act, etc. Another active collections law in UK and Wales is the CRPs- the Consumer Protection from Unfair Trading Regulations (http://www.legislation.gov.uk/ukdsi/2008/9780110811574/contents). Although consumers cannot complain directly to these organisations, they can file their issues to the Citizen’s Advice Bureau or the Citizens Advice Consumer Service.

Until April 2014 the OFT, Office of Fair Trading, was the main regulator for UK & Wales. Today its authorities are spread and divided between different legal organisations for debt collection regulation. The Office of Fair Trading is similar to the U.S. FDCPA in reference to the types of DCAs and debts governed. Like the FDCPA, the OFT controls only third-party debt collection agencies, as according to this organisation, first-party recovery agents are not considered as legitimate debt agencies. They have the right to collect their own debts, using company’s financial subdivisions, but they cannot request a commission fee from the debtor, as it is valid only for registered DCAs. Yet, every creditor collecting the debts he owns using his own company’s trading name, is legally authorised to pursue additional fees from the subject of debt, which fall under the definition “late payment charges”.

All these acts and laws allow debt collectors and creditors to request payment from the consumer, if there are default amounts owed by the debtor. DCAs are legally authorised to pursue payment from the consumer by all legal and ethical means. Every non-adherence to a collections law or act will be deemed as disrespect for authority and is punishable by law. This is valid for not only debt collectors and creditors, but for consumers as well. A collections law generally prohibits unfair practices between consumers and creditors (or DCAs acting in lender’s name) and forbids submission of misleading information and aggressive collection tactics on behalf of recovery agencies.


Used literature & external links

http://definitions.uslegal.com/c/collections-debt-collection/ 

http://en.wikipedia.org/wiki/Consumer_protection 

http://www.federalreserve.gov/creditcard/regs.html 

http://www.findlaw.co.uk/ 

http://www.hg.org/consume.html 

http://www.investopedia.com/articles/pf/10/know-your-consumer-protection-laws.asp 

http://www.rctcbc.gov.uk/en/advicebenefits/tradingstandards/fairtrading/fairtrading.aspx