Debt collection agencies must follow federal and state guidelines when recovering delinquent consumer debts. Both the Fair Debt Collection Practices Act (FDCPA) and certain state laws dictate the actions debt collectors may take in the course of debt recovery. Should a collection agency fail to follow the FDCPA's collection laws or those in the debtor's state, the debtor has the right to sue the company for violating his rights as a consumer.
Contact and Disclosure
Collection agencies have the right to contact a consumer about her debt but can only discuss the debt and potential payment options with the debtor. Collection agencies do not have the authority to disclose an individual's debts or financial information to any third party, even family members. The FDCPA notes that a collection agency loses the right to communicate with a debtor if she sends the company a letter notifying it that she does not wish to engage in further contact with the agency.
Credit Reporting
Under the Fair Credit Reporting Act (FCRA), all companies that file reports with the credit-reporting bureaus, including collection agencies, must take extreme care to file only accurate reports. A collection agency cannot alter any information within its report that would make a negative notation remain within a debtor's credit file for longer than the seven-year period the FCRA permits for collection accounts.
Collection Activity
A collection agency can conduct collection activity as a method of recovering debts and increasing company profits, but it must follow specific federal guidelines. Traditional collection activity involves letters and telephone calls. Both collection letters and telephone calls must notify the debtor that the communication is from a collection agency. All collection letters must also include the warning that the company will use any information it collects in an effort to recover the unpaid debt.
During the course of collection activity, debt collectors cannot verbally harass debtors by using profanity and vulgar language. The FDCPA also prohibits collectors from threatening to use collection tools, such as wage garnishment, if they do not have the legal right to follow through with the threat.
Debt Collection Lawsuits
When a collection agency cannot recover payments voluntarily, it has the right to sue the uncooperative debtor in court. When filing a lawsuit, however, the collection agency must adhere to the statute of limitations in the consumer's state. The statute of limitations often ranges from three to six years and notes the length of time any creditor has to sue a consumer over his unpaid debts. Although some unethical collection agencies file lawsuits on debts that are no longer legally valid, an expired statute of limitations provides debtors with a solid legal defense against a debt collection lawsuit.
