Debt recovery letter

Helene Mueller
eCollect support team

A debt recovery letter serves a pre-legal method for collection of bad debts and past-due payments. It represents a written form of a reminder addressed to the subject of debt, sent by a creditor, a DCA (Debt Collection Agency), a debt buyer or a private debt recovery law company (debt solicitors, attorneys, etc.). When forming the content, the sender has to comply with different debt laws, controlling the tenor of a debt recovery letter. There are various regulations, depicting a fair debt letter’s substance: the Fair Debt Collection Practices Act for the U.S. (controlling only third-party recovery agents), the Office of Fair Trading and the Financial Conduct Authority- FCA, for UK & Wales, etc. A debt recovery letter can be generally divided into three sections: early letters, late letters and warning letters (before action or for future court proceedings).

Debt recovery letter- description and types

Debt collection letters are classified into several categories, depending on the tone of the letter and the time of the dispatching. If it is the first debt recovery letter, the tone is friendly and informing and is used as a courteous reminder addressing the subject of debt. The content includes general information about the total size of the debt amount, creditor’s and DCA’s companies’ names and also methods for settling the debt. Usually, in the first sent document there is no particular date specified, but the letter itself urges the debtor to undertake actions as soon as possible. The letter will specifically point out whether the debtor has to transfer the amount to the lender or to the representative debt recovery agency. First reminding letters try to keep and preserve the relations between the creditor and the customer, and at the same time try to motivate the debtor to settle the amount, using polite, but firm tone.

If the consumer takes no actions in order to clear the past-due amount, a second reminder letter will follow. The tone will be more demanding, but still professional and diplomatic. It focuses more on the payment date and urges the debtor to settle the amount before further and more serious actions are to be taken. Normally, there will be from two to four general reminders before late debt collection letters are sent, but it depends entirely on creditor’s or DCA’s policy for debt recovery proceedings.

Late recovery documents consist of more demanding letters, where the approach is very formal and a deadline for payment is mentioned before undertaking legal actions. If the creditor has passed the case to a professional debt recovery agency, the letter will also include DCA’s fees and taxes applicable to the debtor. In some countries like the GSA region (Germany, Switzerland, Austria) if a lender transfers the debtor’s profile to a debt collection agency, the indebted subject is obliged to pay the DCA’s interest fee (the percentage is regulated by law). If the debtor does not settle the bad debt amount until the date specified, legal actions and court proceedings will occur. Such formal written reminders are the demand letters for debt payment.

The letter of demand and letter before action represent formal documents, written and sent by a legal representative (a debt lawyer or a private solicitor’s bureau) on behalf of the creditor. The role of such documents is to prevent court actions. If the debt is settled right after sending these letters, the collection process stops and the case is considered as closed. Such documents are sent to exercise final pressure upon the indebted subject within the legal boundaries. A standard letter of demand and a letter before action provide information about the full amount of debt, a strict time-limit, and optional further actions if the monetary sum is not transferred until the specific deadline for payment.

The letter before action is sent after the demand document and also includes a specific date, after which the case will be filed to the court. represents the final reminder before continuing with court procedures. If there is no response from the debtor after the letter before action or none actions are taken to settle the debt, the creditor / DCA / debt solicitor will send last letter, which is not reminding but only informs the subject of debt that his/her case is transferred to court and from a specific date the legal process will begin. The letter will also implicate a second date on which the indebted subject has to appear in front of court and optionally file his defend.

Unfair collection letter content

A debt recovery letter is considered as unfair, when it includes misleading or false information, as well as harassing and illegal threats addressed to the debtor. A debt recovery letter is generalised as unfair, when:

  • There is a false information about creditor’s company name;
  • The name of the debt collection agency, representing the creditor, is not the real registered trading name of the recovery company;
  • Together with the full debt amount, there are other taxes and fees included, which are not specifically pointed out in laws and regulations of the relevant country of debtor’s residence;
  • The debtor is threatened with court or legal actions, which practically cannot or will not be undertaken in the particular case;
  • Using profane and impolite language in the debt recovery letter, impairing the subject of debt’s dignity and violating his rights as a consumer

Used literature & external links