Debt Collectors and the Rules That Govern Them

The free exchange of goods and services is key to a free economy. Sellers have a right to pursue unpaid accounts lest their businesses fall into financial peril. A time-consuming process, debt collection is often farmed out to third-party agencies. We at the National Service Bureau are well aware of the challenges: three decades of experience and 200 million dollars recovered have taught us much about the complex of rules and regulations imposed by national and state governments for commercial and consumer collections. The bank collection software experts now share with others the fruits of this education.


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We compiled this guide to help businesses comply with the myriad statutes and guidelines governments impose. While the federal government mediates creditor-debtor relations through the Fair Debt Collection Practices Act and Fair Credit Reporting Act, it largely leaves commercial collection regulation to state legislatures and attorneys general. This guide is intended to help companies navigate both types of collection activity in compliance with the laws from each level of government.

What Does “Compliance” Mean Relative to Debt Collection Laws?

Essentially, debt collection statutes recognize certain rights for defaulting parties. For an agency to comply with the laws requires that the agency honor those rights. Specifics appear later. For now, here are some general principles to which collectors should adhere:

  • Always treat the debtor with fairness, recognizing those regulations that apply to the industry in question.
  • Be neither false nor insulting. Avoid harassing and making unsupportable statements in order to induce payment. Respect the obligated party’s late nights and early mornings.
  • Within five days, follow up telephone contact with written communication detailing the obligation.
  • Keep confidentiality between debtor and agency, sharing information on the debt only with authorized individuals.

What Does Non-Compliance Look Like?

Companies that are shown to be non-compliant actually make it harder for all debt collectors to recover payments owed, setting their clients back further. Typical non-compliant practices, as delineated by, include:

  • Attaching nebulous surcharges and penalties that are neither authorized by law nor acknowledged in the original service contract.
  • Reversing a commitment made regarding payment arrangements. i.e. not accepting a post-dated check after telling the debtor it was acceptable.
  • Making threats of lawsuit or arrest when no such action is contemplated.

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Other examples of non-compliance are calling during hours prohibited by law; verbally maltreating the debtor; and making other menacing statements beyond the scope of the collector’s authority. Doing these things can risk fines, civil action or even dissolution of the agency.

Consumer Collection vs. Commercial Collection

Consumer collections concern individuals who are delinquent on bills: mortgage and installment loans; credit cards; medical and retail amounts owed. Commercial recovery is trickier — obliged businesses could be in bankruptcy while vendors and contractors wait in line for their remittances. Collectors must be deft and seasoned regarding the industries involved.

Bankruptcy for Businesses

When a company loses its solvency, it has more than one option offered by United States Bankruptcy Courts. Though distinctions differ by state, basic procedures apply when a bankruptcy petition is presented. The court empowers a trustee to possess and sell off the company’s assets (with certain exemptions), paying secured debts before all others. Any debts left after proceeds are exhausted are once again subject to collections.

Summary and Resources

Noted above are the federal laws covering consumer collections as well as general guidelines regarding collection parameters. For knottier commercial issues, collection agencies benefit from trade organizations like the Association of Credit and Collection Professionals to help maintain legal conformity.


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