Understanding the Fair Debt Collection Practices Act

Even if you haven't personally experienced countless phone calls and messages concerning an outstanding debt, you probably know someone who has. In 2015 alone, the Consumer Financial Protection Bureau returned $360 million to consumers and assessed more than $79 million in fines because of unlawful debt collection practices.

The good news is that you don't have to simply accept aggressive tactics in silence: the Fair Debt Collection Practices Act (FDCPA) has your back. This federal law limits how third-party debt collection agencies can pursue those who owe money.

As a consumer, it is critical that you understand your rights under the FDCPA—as well as your own state's laws—so you can enforce them and avoid being unlawfully hassled regarding debts.

FDCPA provisions

First, note that the FDCPA applies to all kinds of debt, including mortgages, car loans, medical bills, credit cards, and retail refinancing. The consumer is also always entitled to written proof that they owe the money claimed.

The FDCPA prohibits third-party debt collectors from using several types of abusive, deceptive, or unfair practices. These include:

• False statements and misrepresentation. Debt collectors cannot lie in order to collect a debt. For example, they cannot misrepresent themselves or their entity by pretending to be a potential employer so that you will continue speaking with them, nor can they misstate the amount of debt you owe.
• Unfair practices. This provision covers deceptive actions such as trying to collect more money than what your state allows under the law. Debt collectors may also not threaten to take your property unless they have a legal right to do so.
• Harassment. Debt collectors are prohibited from repeatedly contacting consumers by phone, intending to cause annoyance, using profanity or obscene language, or threatening harm. Although they may call the person's friends, family, co-workers, and others to verify an updated address or phone number, they may not contact them for any other purpose.
• Misleading threats or correspondence. Debt collectors are forbidden from threatening legal action that isn't permitted by law and from sending documents that look like official court papers.
• Wage garnishment. Debt collectors cannot garnish wages or take money from bank accounts without a court order.

Overall, if you feel like a debt collector is doing something that doesn't seem quite fair, you should have a closer look at the FDCPA. Chances are good that if the actions don't seem right to you, they just might be prohibited behavior under the act.

FDCPA statute of limitations

A statute of limitations limits the time allowed for one party to bring a claim against another. The period varies according to the type of action as well as state law. That makes it important that you pay attention to your state's statute of limitations regarding debts, as it further places limits on which debts a collector may pursue.

For example, Pennsylvania has a four-year statute of limitations on debts, so once the debt is older than that, the lender may no longer pursue a claim. However, watch out for a loophole in some jurisdictions that resets the clock if a borrower makes a payment on the debt or otherwise affirms its existence. Recently, the Texas legislature moved to close this gap concerning so-called “zombie debts" in its state law.

Collecting debt

If someone owes you or your business money, you may pursue the debtor to recover the outstanding amount without being subject to FDCPA provisions, as the act applies only to third-party collectors such as debt collection agencies and companies that assume bad debt. The FDCPA does not apply to in-house collectors, such as company departments devoted to collecting outstanding amounts owed.

A lender, for example, may choose to send a borrower—especially a mortgage or loan holder—a notice of default to inform them that they have not made the required payments as per the lending contract. A notice of default is generally the first step in the case of a loan default.

A small business owner, on the other hand, may send a demand letter when someone hasn't paid them, informing the other party of a potential legal claim against them for the nonpayment of a debt or breach of contract. Often, a lawyer composes the demand letter to make sure that it complies with the law and provides enough notice to the recipient. However, you can also create the document yourself by using a sample demand letter online or by following instructions on how to write a demand letter.

If you feel that a debt collector has violated the FDCPA while dealing with you, you can file a lawsuit either individually or through a class action. If you are unsure about how the FDCPA affects you, a local consumer protection agency or experienced legal professional can help.