Debt collection

Helene Mueller
eCollect support team

A fair debt collection broadly refers to the ethical and legal debt recovery practice and collection process. Such procedure is carried out by specialised DCAs (Debt Collection Agencies) acting on behalf of an original creditor, or as a part of their organisation. A debt recovery operation is known as fair default collection when the recovery agency utilises ethical and legal methods for debt recovery. These procedures have to be in compliance with different state and country laws and are not supposed to breach debtor’s rights as a consumer. There are different laws, protecting consumers against illegal and harassing debt recovery. All these acts fall under the definition of “fair debt collection practices laws and regulations”.

Fair debt collection laws & regulative organisations

In order the recovery process to be associated with fair debt collection, the debt collection agency has to operate in accordance with various local and international laws and acts. These regulations vary depending on whether the DCA tenders services on a national or transnational level and whether the collection agency operates for recovery of consumer or commercial debts.

The organisations and laws, controlling the fair debt recovery, are divided into groups according to each country of operation. Fair debt collection associations do not act as a legal regulator for debt recovery agencies, but control their DCA members and can apply different penalties of DCAs, which use harassing or unethical practices. If these practices are illegal as well, the debt collection agencies can become legally convicted by law.

In the U.S. the fair debt recovery generally falls under the Fair Debt Collection Practices Act, which protects consumers (debtors), but controls only third-party debt recovery agencies. Another regulator in the United States is the Consumer Financial Protection Bureau (ext. link 4), which coordinates the legitimate debt collection not only of third-party DCAs but also of first-party agencies and debt buyers. Other U.S. directives and organisations are: the Federal Trade Commission, the American Commercial Collection Agency Association (website:
), the Commercial Law League of America, the Consumer Financial Protection Bureau (independent organisation, protecting consumers in the debt financial sector, controlling all types of collection agencies and providing information about legitimate debt collection practices), etc.

In the United Kingdom and Wales, valid laws and regulation organisations are the Limitation Act 1980(providing timescales for statute-barred debts and protecting consumers from unfair practices after the specified debt time-frame)- ext. link 5; the Consumer Credit Act (providing protection in the matter of loan agreements and credit card debts), the Late Payment of Commercial Debts Act (applicable for business debts only). Also the Competition and Markets Authority- CMA, stands for controlling fair debt recovery competitive activities; the Financial Conduct Authority (a non-government UK organisation, authorised to charge financial markets and DCAs different penalties, if these agencies process practices different than the standard fair debt recovery, i.e. harassing or unethical methods of recovery), etc.

Lawful debt collection practices – procedure techniques

Classically a fair debt recovery procedure will begin with series of reminding letters. These reminders will be typically sent by post or via email and will generate the name of creditor’s organisation, the name of the debt collection agency, and the full debt amount. Debt agents will also try to contact the indebted subject by phone, leave a number of voicemails, text and fax messages, etc.

The next step of the fair debt recovery practices is sending recovery agents to perform personal visits. If the agents have standard authorities, they can only negotiate with the subject of debt, offering different payment plans to settle the debt, including selling some of the debtor’s belongings to clear the default. If the entities, representing the DCA, are bailiffs or debt solicitors, they will try to negotiate at first as well, but can also forcefully seize debtor’s assets using court orders of confiscation. Forcibly deprivation of property is considered as fair default collection, as long as it is performed by authorised legal entities.

If the first reminder letter does not result in positive, a second one will be sent, known as a formal or final letter of demand. It will include all information mentioned in the first reminder letter, plus a deadline for settling the debt. There will also be specified a date, from which court actions will take place.

The last step of a legitimate debt collection includes filing a lawsuit against the DCA on behalf of the lender. This is used in the last resort, as court procedures can be costly not only for the creditor but for the other two parties as well- the collection agency and the debtor.

A fair debt collection is not only the legal recovery process but the ethical one as well. All debt collection agencies are to treat debtors with dignity and respect, excluding abusive phone calls, providing false information, revealing the matter of the call to outsider entities not relevant to the debt issue, etc.

Used literature & External links