As a collection agency, we often have debtors attempt to avoid dealing with us by trying to hide behind rights provided by the Fair Debt Collection Practices Act (FDCPA). The FDCPA applies to consumer debt but not to business to business debt collection. Successful commercial debt collectors need to know which rules apply to their collection activities and which laws are not applicable.
Most debt collection is of the consumer variety, known in the industry as ‘retail’ collections, for debt relating to such things as credit card, telephone and medical bills. When a consumer fails to pay a debt to a creditor or a bank, eventually the creditor will stop attempting to make the consumer pay, and they may assign or sell the right to collect the amount owed to a collection agency acting in a third party capacity.
If the creditor or bank sells the right to collect the debt, it is usually for only a small percentage of what is owed. For example, if the amount owed is $1000, they may sell the right to collect the debt to the third party agency for only $10 to $100. Therefore, any amount the agency is able to collect above and beyond the $10 to $100 they spent to buy the right will be to their benefit.
Sometimes when a collection agency contacts a business or business owner to try to collect a debt, the person will be familiar with laws that apply to retail collections. For example, a consumer may send an agency a ‘validation of debt’ letter requesting the agency prove the consumer’s legal obligation to pay the debt. Once the agency receives the validation of debt letter, the FDCPA says they must provide the debt validation within 30 days from their receipt of the request letter.
The agency is required to provide the following consumer debt validation information: an accounting of what the debt is for; a breakdown of how the debt amount was calculated; photo copies of any signed agreements obligating payment of the debt; photo copies or other proof of any judgment (if applicable); proof that the federal and state statutes of limitations that apply to the debt have not yet expired; identity of the original creditor; proof that the agency is licensed in that state; and the agency’s license numbers and registered agent.
In the case of a consumer, if the agency does not respond in writing within the required 30 day window, the agency is required to remove all references to the account and completely delete the debt from the consumer’s credit reports. Also, the agency must provide proof of the requests for credit file deletion that were mailed to the three major credit bureaus.
If, after reviewing the validation documents, the consumer realizes that the debt is owed, then the consumer is legally required to pay off the debt. At this point, it is time for the collection agency to negotiate a resolution.
The FDCPA does not apply to commercial collections. A reputable commercial collection agency will not start on a claim unless they already have appropriate evidence of the underlying debt from their client. If the business debtor requests validation of the debt it helps to promptly provide the relevant information. This gives the collector credibility, keeps the pressure on the debtor, and maintains momentum for the collection process.
The Kaplan Group does only commercial collections, so the FDCPA laws do not apply. It is not uncommon that the owners of small businesses who owe our clients money will be familiar with the FDCPA. Our collectors are versed in the FDCPA laws so they can respond with confidence and authority to these business owners who try to hide behind laws that apply only to consumer debt. This is one more tactic that separates our collection process from other agencies and results in our outstanding success rate.