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Fair Debt Collection Practices Act (FDCPA): Explanation of Compliance

Complexity:    

Audience: Upper Management, Accounting, Administrators, Compliance

Introduction

The Fair Debt Collection Practice Act (FDCPA), or Regulation F, is a federal regulation intended to protect consumers from abusive practices by debt collectors and to ensure there are rules in place to promote consistency for debt collection practices. It applies mainly to consumer debt incurred for personal, family, or household purposes. In this article we will explain the rules and requirements of the Act. The tenets of the regulation can be divided into 5 main sections:

  1. Debt Collector Communications
  2. Harassment and Abuse
  3. Notice of Debt
  4. Legal Actions
  5. Civil Liability

This article summarizes the main points of the FDCPA. However, the very act of summarizing means we're taking out details, so this is by no means an authoritative or complete guide. We encourage you to consult with your legal team to ensure you stay in compliance with the regulation.

 

FDCPA requirements

Debt collectors have strict rules and limitations in how and when they can contact a consumer regarding their debt in order to prevent harassment, abuse, or misleading representations.

  • Debt collectors are limited in when and what they can communicate with a third party regarding another person’s debt.
  • If a debtor requests that a debt collector stop contacting them, the debt collector must do so.
  • A debt collector must give a notice of debt, or validation notice, on initial contact or send a notice of debt within 5 days of initial contact with a consumer regarding their debt.
  • A consumer can dispute a debt or request the original creditor information about a debt in writing within a 30 day time period after receiving a notice of debt.
  • If a debt collector receives a dispute, they must cease collection of the disputed debt until they obtain verification of the debt or a copy of a judgment.
  • If a consumer requests the name and address of the original creditor, the debt collector must cease collections on the debt until the name and address of the original creditor is mailed to the consumer.
  • If a consumer has multiple debts and makes any single payment to a debt collector, the debt collector must apply the payment according to the consumer’s directions.

The Act regulates which venues a debt collector can bring legal action against a consumer regarding a debt.

The Act regulates factors of civil liability that debt collectors might face, such as amount of damages, court consideration, and jurisdiction.

Who is considered a debt collector?

It might be important to know going into this whether or not you are considered a debt collector. Under the FDCPA, a debt collector is defined as any person who regularly collects or attempts to collect consumer debts for another person or institution or uses a different name when collecting on its own debts.

Debt collector communications

[15 USC 1692 ref. §805]

Since a lot of the collections process involves communicating with the debtor, it shouldn't be surprising that there are strict requirements for what debt collectors can and can't say to consumers and third parties about a debt, and the list of Don'ts is a lot longer than the Dos. Take a look at the following fold for the specifics of what a debt collector can't do without permission from the consumer that owes the debt.

What can't a debt collector do when communicating with the debtor?

A debt collector can't communicate about a debt with the consumer:

  • At any unusual time or place, or a time or place that is known to be inconvenient to the consumer (between 8:00 a.m. and 9:00 p.m. can be considered convenient unless otherwise notified by the consumer),
  • If the debt collector knows that the consumer is represented by an attorney in regards to their debt, the debt collector must contact only the attorney unless the attorney doesn’t respond within a reasonable period of time or the attorney consents to the consumer being contacted, or
  • At the consumer’s place of employment if it is known that the consumer’s employer prohibits the communication.
 
 

When it comes to third parties, the rules are pretty simple. A debt collector can’t communicate with third parties at all regarding the consumer’s debt unless the consumer or a court of competent jurisdiction gives permission, or as reasonably necessary to put into effect a judicial decision.

Acquisition of Information

[15 USC 1692 ref. §804]

While debt collectors can't talk to third parties about another person's debt without permission from the debtor, they can communicate to ask about the consumer's location. If they do so, they must identify themselves and state that they are confirming or correcting location information about the customer. They only have to identify their employer if specifically requested.

What do debt collectors have to avoid doing when communicating to acquire location information on the debtor?

Over the course of this communication, they can't:

  • Say the consumer owes debt,
  • Contact any person other than consumer more than once (unless requested by the person, or the earlier response of the person was incorrect or incomplete—and only if the person now has correct information),
  • Communicate by post card, or
  • Use language or symbols in any communication that indicate the business of debt collection
 
 

If the consumer is represented by an attorney, the debt collector can’t communicate with anyone but that attorney unless the attorney fails to respond in a reasonable time period.

Ceasing Communication

If the consumer informs a debt collector that they refuse to pay the debt, or that they want the debt collector to stop contacting them, the debt collector has to stop all communication other than to advise the consumer that further communications will not occur, to advise that the debt collector may invoke specified remedies, or to notify the consumer that the debt collector or creditor intends to invoke a specified remedy.

Harassment and abuse

[15 USC 1692 ref. §806, §807, §808, and §812]

While it's not something we generally like to think about, the truth is that there have been, and probably still are, a lot of debt collectors that use unethical methods for collecting on a debt. As such, one of the most emphasized points of the FDCPA is to set ironclad rules to prohibit harassment, abuse, deceptive representations, or unfair practices.

What qualifies as harassment or abuse?

  1. Use or the threat of using violence or other criminal means to harm a person physically, their reputation, or their property.
  2. Use of obscene, profane, or abusive language
  3. Publishing a list of consumers who refuse to pay debts to anyone other than a credit reporting agency (CRA).
  4. Advertising the sale of a debt to coerce payment of the debt
  5. Calling repeatedly or continuously with the intent to annoy or harass
  6. Placing calls without disclosing the caller’s identity
 
 

What is considered a false, deceptive, or misleading representation or means to collect debt?

  1. Falsely implicating that they are associated with the United States or any state 
  2. False representations of anything to do with the debt, such as its amount or legal status, or anything to do with services or compensation the debt collector may receive for the collection of a debt
  3. The false representation that an individual is an attorney
  4. Falsely representing the consequences of leaving the debt unpaid (such as stating an individual will go to jail if it is untrue)
  5. Threatening to take action that can’t be legally taken or is not actually intended to be taken
  6. The false implication that any sale, referral, or other transfer of interest will cause the consumer to lose any claim or defense to payment of the debt or to become subject to any consequences prohibited by this regulation
  7. Falsely representing or implying that the consumer committed a crime 
  8. Communicating false credit information to anyone, or failing to communicate that a debt is disputed
  9. Using or distributing any written communication that is falsely represented as being authorized, issued or approved by the United States or any individual state
  10. Using any false representation or deceptive means to collect or try to collect a debt, or to acquire information about a consumer
  11. Failing to inform the consumer that the debt collector is attempting to collect a debt and that any information they acquire will be used for that purpose, and failing to disclose in any following communications that the communication is from a debt collector.
  12. Falsely representing or implying that accounts have been turned over to innocent purchasers for value.
  13. False representations or implications that documents are legal process.
  14. Falsely representing or implying that documents aren't legal process forms or don't require action by the debtor.
  15. Using any name other than the true name of the debt collector's business, company, or organization.
  16. False representations or implications that a debt collector operates or is employed by a CRA.
  17. Creating or giving any form that could be used to instill in a consumer the false belief that any person other than the creditor is participating in the collection of a debt if such a person is not, in fact, participating.
 
 

What practices qualify as unfair?

  • Collecting any amount not specifically authorized by the agreement creating the debt or by the law
  • The acceptance of a check or other type of payments post dated by more than 5 days unless the individual is notified in writing within 3 to 5 business days prior to the deposit of the payment that the debt collector will deposit the payment 
  • The solicitation of a post dated check (or any other type of payment) in order to threaten or institute criminal prosecution
  • Depositing or threatening to deposit a post dated check prior to the date on it
  • Causing charges to be made to a person by concealing the purpose of the communication (collect phone calls)
  • Taking or threatening to take any nonjudicial action to effect property if
    • There is no right to the property as collateral
    • There is no real intention to take the property
    • The property is exempt by law
  • Communicating about debt via post card
  • Using any language or symbol other than the debt collector’s address on any envelope when communicating with the consumer
  • Furnishing information about the debt to a CRA before communicating at least once with the consumer about the debt.
 
 

Validation notice

[15 USC 1692 ref. §809 and §810]

Most regulations that are pertinent to debt collection or lending require a number of notices for consumer protection, and the FDCPA is no different. Debt collectors are required to give a debtor a notice of debt, or validation notice. Unless the notice was given during the initial communication with the debtor, a debt collector has to give notice within 5 days after the original communication about the debt. The notice can be written or given orally as long as it contains all required information and is clear and understandable.

What information does the notice of debt need to contain?

  • A "initial disclosure" that the debt collector is attempting to collect on a debt and that any information obtained will be used for that purpose.
  • The amount of the debt.
  • The name of the creditor the debt is owed to.
  • A statement that unless the consumer disputes the validity of the debt or any portion of it within 30 days after receipt of the notice, the debt will be assumed valid.
  • A statement that the debt collector will provide the name and address of the original creditor within 30 days after a written request from the consumer.
 
 

If the notice of debt is given orally, the initial disclosure must be repeated in the first written communication. In each subsequent communication, it must be disclosed that the communication is from a debt collector.

Three other things important to keep in mind are that:

  1. If a consumer fails to dispute the validity of a debt, it can’t be taken as an admission of liability by the consumer
  2. A communication about a formal pleading can’t be treated as the initial notice of debt
  3. If any type of form or notice is sent as required by a state or federal law other than the FDCPA, that form or notice can’t be treated as the initial notice of debt

Disputed Debts

If the consumer disputes the debt within the given 30 day timeframe, the debt collector has to immediately cease collection of the disputed debt until they have obtained verification of the debt or a copy of a judgment. They must also cease collection attempts if the consumer requests the name and address of the original creditor until the information is mailed. Any collection activities or communications during the 30 day period can’t overshadow or be inconsistent with the disclosure of the consumer’s rights.

Payment Distribution

If a consumer owes multiple debts and makes a payment to any debt collector, the debt collector can’t apply the payment to a debt that has been disputed, and should, if possible, be applied according to the consumer’s directions.

Legal actions

[15 USC 1692 ref. §811]

There are rules debt collectors have to follow if they're bringing legal action against a consumer on a debt. If it’s in regards to enforcing an interest in a real property, they can bring the action only in a judicial district where the property is located. Otherwise, they should bring the action only in the judicial district where the consumer signed the contract or where the consumer resides.

A debt collection can't take legal action on a time-barred debt (a debt that is past the statute of limitations).

Civil liability 

[15 USC 1692 ref. §813 and §814]

A debt collector that doesn't follow the requirements implemented by the FDCPA can be taken to court by consumers on either an individual basis or as part of a class action. If this happens, the debt collector may be held liable for damages depending on the courts decision.

What amount can a debt collector be held liable for?

  • Any debt collection agency may be held liable in amount equal to the sum of any actual damage sustained by the consumer.
  • If it’s an action by an individual, the court may allow additional damages not exceeding $1,000.
  • The same applies for each named plaintiff in a class action. For other class members, the court may award an amount without regard to minimum individual recovery, but can’t exceed $500,000 or 1 percent of the debt collectors total net worth, whichever is less.
  • In the case of a successful action to enforce the liability, the debt collector is responsible for the costs of the action and a reasonable attorney’s fee determined  by the court. If the court rules in favor of the debt collector, the court may award them reasonable attorney’s fees.
 
 

In determining the amount of liability, the court will consider, among other factors, the extent to which the noncompliance was intentional, the frequency and persistence, and the nature of the noncompliance. The same will be considered in the case of a class action, along with the resources of the debt collector and the number of people adversely affected. A debt collector can’t be held liable if they can prove with evidence that the violation was not intentional, and was instead an error that occurred despite procedure reasonably adapted to avoid such errors.

Enforcement of this Act generally falls to the Federal Trade Commission.

 

Resources

What's next?

If you're interested in reading more about compliance, check out our articles in the compliance overview.

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Fair Debt Collection Practices Act (FDCPA): Explanation of Compliance Introduction FDCPA requirements Who is considered a debt collector? Debt collector communications Acquisition of Information Ceasing Communication Harassment and abuse Validation notice Disputed Debts Payment Distribution Legal actions Civil liability Resources What's next?
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