Consumer credit is the lifeblood of the world’s modern economies. It allows people to purchase many things that they couldn’t otherwise afford if they had to pay in full for them upfront, from cars to clothing to furniture and more. But, of course, there’s a catch. What is it? Well, the fact is that lenders are risking not getting their money back and, when that happens, they could tend to start lending less or simply charging more interest. So, to limit their losses, they often use collectors to chase those unpaid debts. This keeps credit flowing and affordable for everyone. However, collecting those debts can also be tough on consumers and difficult for creditors to navigate within the law.
The Challenges and Solutions in Nationwide Collecting
In 1977, a law called the Fair Debt Collections Practices Act (FDCPA) was passed. This law aimed to achieve two goals:
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- Protect consumers from unfair and harassing tactics used by some debt collectors.
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- Ensure a fair playing field for ethical debt collectors who operate within the law.
The passage of this act gained support from a wide range of groups, including consumer advocates, labor unions, law enforcement, and even collectors’ industry associations.
If a creditor’s own in-house collectors can’t recover the unpaid debts after a set time (usually six months to a year), they might give up on those accounts. This is what’s called “charging it off”, and what happens next is generally that the debts are sold to a third-party collector that can be either:
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- A contingency agency that only gets paid if they collect.
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- A collections law firm that could charge by the hour or simply take a percentage of the funds collected (aka contingency fee).
Some law firms go a step further and purchase debtor accounts outright. They can then make money by collecting through lawsuits or other legal means (like judicial or non-judicial processes).
Compliance With State and Federal Debt Collections Laws
The Federal Trade Commission (FTC) is the government watchdog that enforces the FDCPA rules and regulations. In addition, consumers can take action against collectors who break the rules. The FDCPA outlaws deceptive, unfair, and harassing collections tactics and also lists specific practices that are completely forbidden. Unfortunately, some collectors still resort to those illegal methods.
Managing Multi-State Debt Collections Efforts
Gone are the days of collectors showing up on a debtor’s doorstep from another state. Today’s collections practices are all about remote communications, like emails, letters, and telephone calls. For larger debts, a Michigan creditor might hire a Virginia lawyer, for example, to sue a debtor in court. But in most cases, it’s much less expensive, not to mention faster, to just handle things remotely.
Here’s how many successful collectors try to get a debtor’s attention:
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- Credit Reporting: They can report the delinquency to the credit bureaus, thereby hurting the debtor’s credit score.
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- Persuasion: They could explain the long-term consequences of bad credit to further encourage full payment.
However, debtors protected by the FDCPA can also stop all communication with collectors by following specific guidelines. This can sometimes delay or frustrate efforts to collect.
Risk Management When Collecting Nationwide
Avoiding uncollectable debts can be a major challenge as you could be accidentally pursuing some debtors that you legally can’t collect from. This could easily lead to stiff fines and penalties for violating regulations. This often occurs because debtors’ situations can change very quickly. For example, a debtor could file for bankruptcy or even pass away, however, if your records aren’t kept up-to-date at all times, you might end up continuing to try to collect from them.
The right software can be an extremely powerful tool for managing risk and staying compliant with regulations and here’s how:
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- Bankruptcy Lookups: Searching public and private databases to determine if a debtor has filed for bankruptcy can help you determine if they’re legally obligated to repay, avoiding collection attempts that violate bankruptcy laws. It’s also important to note that the details, such as the filing type and date can also be critical.
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- Data Scrubbing: By regularly cleaning your debtor list against these databases, you can ensure you’re focusing on valid debts only and reducing the risk of non-compliance.
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- Deceased Records: By identifying deceased debtors to prevent any insensitive or unlawful collecting attempts, you can use risk management tools that access public and private records to streamline your collections process, and always be on the right side of the law.
So, for the purpose of avoiding this risk and improving your risk management, you should consider using a service that regularly scrubs your debtor list against public and private databases. This will help ensure you’re only attempting to collect on valid debts and are always staying compliant with regulations. On the other hand, you could avoid having to keep up with all of that ever-changing data by retaining a law firm that specializes in collecting debts, whether they’re small or large, personal, business, or commercial.
Contact the Best Massachusett Collections Law Firm
So, if you want to avoid the many pitfalls of collecting efforts, then you should contact Massachusetts Debts Collection Attorneys for expert help. They have more than fifty years of combined collecting experience and offer their clients the expertise, know-how, and means of successfully collecting the money that’s owed to them.
Resource Links
(1.) FTC, Collecting Consumer Debts: The Challenges of Change, Feb 2009
https://www.ftc.gov/sites/default/files/documents/reports/collecting-consumer-debts-challenges-change-federal-trade-commission-workshop-report/dcwr.pdf
(2.) FTC, Fair Collection Practices Act, 2010
https://www.ftc.gov/legal-library/browse/rules/fair-debt-collection-practices-act-text