Fair Debt Collection Practices Act Issues – Part 1
Fair Debt Collection Practices Act Issues – Part 1
Most landlords will collect debts at various times during their careers as owners of rental properties. This is true even when a landlord tries to do everything right – including employing methodical and detailed screening procedures.
A common misconception regarding debt collection legislation is that it benefits people who willfully refuse to pay their valid debts. However, studies of consumer debt show most consumers who obtain credit fully intend to repay their debt. When credit defaults occur, it is generally due to an unexpected life event.
The unforeseen events of unemployment, serious illness, or divorce sometimes make it difficult to fulfill credit obligations no matter how much the debtors, including tenants, would like to do so. If the consumer has already overextended his/her ability to repay debt, financial disaster may occur when such events occur. In attempts to collect past due accounts, some debt collectors have used aggressive tactics that denied debtor’s rights, invaded privacy, and misrepresented material facts.
The federal Fair Debt Collection Practices Act requires that debt collectors treat consumers fairly and prohibits debt collection abuses and invasions of individual privacy. Failure of the landlord to obey the restrictions within the Act can result in costly consequences.
Fair Debt Collection Practices Act
Title VIII Fair Debt Collection Practices Act (FDCPA) is a federal law that was enacted in 1977 to amend the Consumer Credit Protection Act to prohibit abusive practices by debt collectors. Alarmed by the increased number of incidences of abusive collection practices that harmed consumers through emotional distress, invasion of privacy, damaged reputations, intimidation, and forced personal bankruptcies, Congress created guidelines for the conduct of business by debt collectors, defined the rights of consumers in dealing with debt collectors, and imposed penalties for violations of the Act. The Act provides protections and remedies for debtors while allowing debt collection agencies to collect legitimate debts.
The purpose of the Fair Debt Collection Practices Act is to:
- Eliminate abusive debt collection practices by debt collectors;
- Insure that those debt collectors refraining from using abusive debt collection practices are not competitively disadvantaged; and
- Promote consistency among states regarding consumer protection against debt collection abuses.
The FDCPA is the national standard for collection agencies and is enforced by the Federal Trade Commission (FTC). A full copy of the Act and related information may be found on the FTC web site.
While some critics have labeled the Act complicated and difficult to follow, the provisions of the FDCPA fall into standards of common sense and common courtesy. Legitimate debts can be collected without threats, harassments, or unfair practices. The FDCPA guidelines provide collectors with specifics on what not to do and what must always be done in their communications with debtors. Debtors are provided guidelines to dispute outstanding items as well as remedies to address collectors who violate the law.
The Fair Debt Collection Practices Act restricts coverage to personal and non-commercial transactions of consumer debt. Debt is defined as the obligation or alleged obligation of the consumer to pay money arising from a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purpose, whether or not such obligation has been reduced to judgment. Common examples would be purchase of a vehicle, medical treatment, retail financing, mortgages, credit card purchases, and of most immediate interest to landlords, rent and damages related to rental of residential housing.
The Act specifically addresses consumer debt and thus debts owed by businesses would not be regulated under the Act. However, if a business extends credit to its customers, or allows the purchase of goods and services on account, the business owner should be aware of the customer’s rights under the provisions of the Fair Debt Collections Practices Act. Any action taken by the business owner should be in conformance with FDCPA provisions.
The act has specific meaning to owners of residential rental property owners and/or property managers of such property who in the course of business extend credit to tenants for occupancy rights. Landlords and property managers must be fully compliant in their collections efforts regarding payments of rents and legal procedures for evictions.
There are some debt collection activities that are not covered under FDCPA. A creditor that collects its own overdue accounts is generally not subject to the federal provisions. In other words, the FDCPA generally applies to third party debt collectors, not to the original creditor. A debt collector is any person who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. The term includes any creditor, who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts. Some states, however, have consumer protection laws which include original creditors, so landlords must be knowledgeable about both federal law and the statutes of their particular states.
Rent collection activities by a rental property manager are generally not covered under FDCPA because in most cases the property manager works for the property owner. However, if the property owner uses an attorney to collect unpaid rent and the attorney regularly collects unpaid rent for other business owners, then the collection activities will fall under provisions of the FDCPA.
The activities of government employees whose official job responsibility is to collect debts are not covered under FDCPA. Such activities might be collection efforts for student loans or for debt owed to the Internal Revenue Service. If, however, the debt collection is outsourced to an outside agency, then provisions of the FDCPA would apply.
Two other examples of activities not covered by the FDCPA are (1) process servers in their efforts to attempt to serve a copy of a court order for enforcement of payment of debt and (2) consumer counseling services that are non-profit organizations and receive payments from the debtor for distribution to the creditors.
Again, we remind you that the FDCPA is not the only law that regulates debt collections. Some states have collection laws that offer greater protections to consumers than does the federal law and cover a broader range of debts. For example, California law applies to not only third party collectors, but also to creditors that collect debts for themselves. Certain states have limitations on the number of collection calls a consumer may receive during the year.
While there is no federal license or registration for collection agencies, some states require debt collectors to register or apply for a state license. Bonding may also be a state requirement. In some situations, the laws of more than one state must be taken into consideration if the debt collector is located in a different state than the debtor’s state.
More information regarding state collection laws can often be found on the web site of the state, of the office of the state’s attorney general, or of the state’s consumer protection agency.
Future parts of this series will provide additional discussions regarding regulations related to debt collection.