Debt collection laws

Helene Mueller
eCollect support team

Debt collection laws are the main regulator of DCAs’ (Debt Collection Agencies), creditors’ and other debt recovery agents’ actions and methods. Legal actions and pre-legal proceedings have to be in compliance with state and country laws in order to ensure a fair debt collection process. Every harassing method or violation of debtor’s rights is considered as a severe breach of legal acts and regulations and is punishable by law. If the debt collection agent operates on a local level, one has to conform with country laws. If the DCA serves for international debt collection, it has to take into consideration not only state law but also transnational EU laws, which will lead to fair and legal cross-border debt recovery process.

Debt collection laws – anti-harassment acts for consumer protection

Different laws regulate debt agent’s functions and activities. Such are the Fair Debt Collection Practices Act for U.S., the OFT Debt Collection Guidance (Office of Fair Trading) for UK & Wales, the Debt Collection Improvement Act of 1996 for U.S., the Code of Civil Procedure for Germany and Austria (Zivilprozessordnung), etc. For countries, which are part of the EU, there are international acts applicable: the ESCP (European Small Claims Court Procedure), the European Order for Payment- EOP, the European Enforcement Order- EEO, etc. In Australia the Australian Securities and Investments Commission is also a valid regulator for debt collectors’ actions. In Canada the main regulation act is Business Practices and Consumer Protection Act (for Ontario and British Columbia), but it depends on the state (the same is valid for U.S. and U.S. states). Although every country has its own laws and debt collection acts, there is a generalised guidance for debt recovery agents’ authorities and fair recovery of delinquent amounts:

  • According to debt collectors laws, a creditor can collect the debts he owns on behalf of his own company’s trading name (according to OFT and FDCPA); he can also request late payment charges from the indebted subject;
  • A creditor is NOT allowed to charge the debtor a fee as a debt collection agency, as according to the Fair Debt Collection Practices Act and the Office of Fair Trading, such action describes the creditor as a first-party DCA. This means the creditor is not governed as a legal and registered debt recovery agency, therefore he is cannot charge the debtor DCA’s fees and taxes;
  • A debt agent can use tracking methods to locate the debtor and start the collection process;
  • A debt agent is NOT allowed to abuse with debtor’s personal information;
  • A collector can communicate with the debtor, using phone calls, emails and personal letters during the pre-legal actions;
  • A debt collector is NOT allowed to contact the debtor at his workplace;
  • A debt agent can contact the debtor as many times as the agent likes (8am-9pm), unless the subject of debt has specifically mentioned he does not want to be contacted
  • A debt agent is NOT allowed to contact the debtor outside the timeframe from 8am to 9pm;
  • A debt recovery agent can contact debtor’s family members, if he does not reveal the matter of the call;
  • A debt recovery agent is NOT allowed to involve other people than the debtor in the past-due payment issue;
  • A DCA can send reminder letters and letters of demand to the consumer, informing him about his past-due amount;
  • A DCA CANNOT use harassing language and provide false information on the debt collection letters, addressed to the subject of debt;
  • A debt recovery agency can send as many written reminders, as needed, or according to DCA’s policy. After these reminders (i.e. letter before action) the DCA is allowed to transfer the case to court;
  • A debt recovery agency must NOT process the debtor’s case to legal court, unless the DCA hasn’t informed the debtor in writing first about his past-due debt payments;
  • A debt collector can involve a law representative in the collection process, such as debt solicitors and bailiffs. They can perform in-house visits and carry out seizure of personal belongings and debtor’s property;
  • According to debt collections law in different countries, a standard debt collector CANNOT perform seizure of property. He can only propose convenient payment plans for the subject of debt in order to carry out complete debt settlement;
  • A debt recovery agency or a creditor can pass the debtor’s case to court (the so-called court proceedings);
  • A debt recovery agency is NOT allowed to mislead the debtor, threatening him with court proceedings, which cannot or will not be carried out
  • A Debt Collection Agency is allowed to charge the debtor an interest, if that is its policy. In some countries like U.S. and UK this has to be mentioned in a special clause in the contract signed between creditor and debtor;
  • In some countries, e.g. GSA (Germany, Switzerland, Austria), the consumer is obliged by law to pay DCA’s interest, if the creditor has transferred debtor’s case to a private recovery agency;
  • The debt recovery agency is NOT allowed to collect or attempt to collect monetary sum from the debtor, which is different (exceeds) than the total debt amount;
  • A DCA can charge the debtor additional fees, if they are mentioned in the contract and allowed by law;
  • Debt collections law forbids a debt collection agency to charge the debtor additional fees, which are not mentioned in country or international debt collection laws;
  • In compliance with various debt collection laws, a debt recovery agency can request payment of its commission fee from the consumer, in compliance with different laws, which state the exact percentage of a DCA’s interest (5%, 8%, 12%, etc., depending on the country of location);

A debt recovery agency CANNOT charge the debtor an interest higher than the percentage, mentioned in law acts for each country.

Used literature & external links