Debt collection act

Helene Mueller
eCollect support team

A debt collection act is generally connected with all laws and acts for a fair debt collection process. Such regulations control the whole debt recovery process carried out by private debt collection agencies (DCAs), creditors or debt buyers. A debt recovery act has a vital role in performing fair debt collection and not violating debtor’s rights and authorities. It is always connected with regulating collection attempts of different debt recovery organisations. A default collection act can be valid on a state/ country level or can be based on international laws and regulations, e.g. various EU directives generalising and governing the debt collection procedures & practices. Debt collection acts are to be used either when there is a violation of consumer’s rights, or when a recovery agency has to verify information needed for performing fair debt collection.

Debt collection act & fair debt collection practices

In every country, a debt recovery act is a measure and a regulator for ethical debt collection, also in compliance with different state and local laws. In Australia, the debt collection laws controlling the recovery process and providing fair debt recovery practices, are the Australian Consumer Law (source:
), Australian Securities and Investments Commission (source:
), the Australian Competition and Consumer Commission, etc. According to Australian debt collection laws, as a debt recovery agent or a debt collector is considered every individual or organisation, which attempts to recover a delinquent amount from a second party (a debtor). Such agent can be the creditor, collecting the debts he owns, or a private DCA operating on behalf of the lender.

For U.S. debt recovery act regulators are the Consumer Credit Protection Act, the FDCPA (Fair Debt Collection Practices Act), the Consumer Financial Protection Act, etc. According to the FDCPA, an individual who shares common ownership with the original lender, OR is not officially engaged in the debt recovery sphere of actions, is not considered as a debt collector. He can perform debt collection process but the FDCPA cannot regulate his actions during the collection process.

In the United Kingdom and Wales is valid the same rule as above. According to the Office of Fair Trading, first-party debt recovery agencies are not recognised as official collection organisations and their debt recovery practices cannot be controlled by the OFT. As these first-party DCAs are not acknowledged as registered agencies, they do not have the right to charge debtors with a DCA’s interest fee but can charge the indebted subjects with late payment fees according to the same Office of Fair Trading debt collection act. The OFT also offers thorough information and guidelines for defining fair debt collections practices and ethical debt recovery process.

The Fair Debt Collection Practices Act

The FDCPA represents a regulation originated from the U.S. and valid for U.S. states, which aims to eliminate unfairly and harassing debt recovery practices performed by private debt collection agencies or by creditors. This debt recovery act represents the preservation of debtor’s rights and authorities as a consumer and carries out the formation of guidelines for fair debt collection process. This fair debt collection act, however, protects consumers only from third-party debt collection agencies- private organisations not implicated in the contract between the creditor and the debtor; they are only hired by the lender and act on his behalf. According to FDCPA, a third-party DCA can use pre-legal, legal actions and court proceedings for the recovery of delinquent amounts. Such agency can also offer negotiation payment plans to the indebted subject if he is not in the financial condition to settle the debt at once with one single monetary payment. The U.S. debt collections act does not regulate first-party collection agencies, which act within creditor’s company and are employed by the same lender. These debt recovery organisations are permitted to perform debt collection, but cannot charge their clients a DCA’s commission fee. Apart from this, first-party collection agencies follow the legal and ethical debt collection guidance of the FDCPA.

The FDCPA applies only to particular types of debts as well. This debt collection act controls only individual debt recovery and is not addressed to corporate and business-to-business debts and commercial loans. A consumer debt recovery refers to collection practices and procedures for recovering default amounts, deriving from individual loans, such as mortgages, credit card debts, education/student loans, etc. Here the debtor is a consumer and the creditor is an organisation. A commercial debt is connected with corporate loans, where the lender and the consumer are both businesses. There is a corporate debt recovery act for each country, which is valid only for commercial debt collection.

Used literature & external links