Americans carry a lot of debt. When you include mortgages, car loans, student loans, and credit cards, the average American adult has over $90,000 in debt. For many Americans, most of their working life is spent in debt, and they only become debt-free around the time that they retire.
For some Americans, the debt becomes overwhelming, and they fall behind on their payments. Often, this is not the fault of the debtor. Medical bills are the cause of nearly two-thirds of bankruptcies in the U.S. For these debtors, a medical emergency or long-term illness triggered a cascade of financial difficulties that left them with no practical way to pay all their debts.
Whether your debt issues are caused by job loss, medical bills, or other financial disasters, debt collectors can be relentless. They seem to prioritize their debt collection over everything else, including feeding your kids or paying your electric bill. When you receive dozens of calls and collections letters every day, you might wonder, “What are the laws on debt collection?”
Here are some of the laws on debt collection and how you can stop the collectors from calling:
What Are the Laws on Debt Collection?
There are two main federal laws on debt collection. The U.S. government enforces the Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Reporting Act. Specifically, the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau collect complaints from debtors about practices that violate these laws. These agencies can bring enforcement actions against debt collectors who failed to comply with these laws.
Additionally, every state has adopted a version of the Unfair and Deceptive Acts and Practices Model Act. These laws prevent debt collection practices that are either unfair or deceptive. These laws will vary depending on your state but are primarily based on the trickery used by debt collectors to collect debts. For example, a debt collector is not allowed to deceive your accounting firm into giving up confidential information about your finances.
What Does the FDCPA Cover?
One of the most important answers to ‘what are the laws on debt collection?’ are the federal laws enforced by the FTC. The FDCPA covers most forms of consumer debt, including mortgages, medical debt, credit cards, student loans, and other personal or household debts. These laws do not cover business debts.
Under the FDCPA, debt collectors cannot:
- Call anytime: Under the FDCPA, debt collectors cannot call before 8 a.m. or after 9 p.m. local time to collect a debt. This is one of the most common violations of federal law. With computers that track which time zone you live in, this kind of violation is easy for debt collectors to avoid.
- Contact you after you ask them to stop: Under federal law, you can ask debt collectors to end the constant annoying calls. Once you ask them to stop, they can only contact you to inform you that they are taking a specific action, such as filing a lawsuit. If you inform the debt collector that you have a lawyer, the debt collector is supposed to communicate only with your lawyer.
- Talk to anyone else about your debt: Debt collectors cannot speak to anyone else about your debt. Only the debtor, which includes you and your spouse, can receive communications from the debt collector. This means that a debt collector cannot talk to your employer, relatives, or bank about your debt. If you have a debt relief attorney, you can authorize the lawyer to talk to the debt collector on your behalf.
- Harass you: Debt collectors must be reasonable in the number of calls they make. They must also avoid using threatening or obscene language.
- Lie to you: Debt collectors cannot tell you they can do something they cannot legally do. For example, a debt collector cannot say that your debt will double in three days if you do not pay now unless it is in the original contract. Lying to you to pressure you into paying is illegal. Debt collectors cannot lie about who they are or what the law allows them to do. A debt collector could not lie to you by saying they are from the prosecutor’s office and will have you arrested unless you pay your bill.
- Use unfair practices: Debt collectors cannot charge unconscionable fees unless in the original contract. They cannot charge credit card payments early or deposit a post-dated check before the date. They cannot take your property unless they have a court order or other legal document authorizing them to take it.
What is Covered by the Fair Credit Reporting Act?
Another major answer to ‘what are the laws on debt collection?’ is the federal Fair Credit Reporting Act. This law covers the credit reporting bureaus that calculate your credit score and keep your credit history.
These bureaus are powerful. Your credit score will determine which loans you can get, how much you can borrow, and even whether you can open a bank account or rent a car. As a result, the federal government has an interest in making sure the information they collect and use is accurate and fair.
Under the federal Fair Credit Reporting Act, you are entitled to one free credit report every year from each of the major credit reporting agencies. The Consumer Financial Protection Bureau authorized a website to help consumers request their free credit reports.
Once you have your free credit reports, under the debt collection laws, you have the right to:
- Verify: When an employer requires a credit report, the bureau must verify that the report is accurate. Occasionally, your records get mixed up with someone else’s report. A credit bureau must double-check your credit report to make sure it is the right one.
- Notify: The credit bureau must notify you if information in your credit report has been used to deny credit or other transactions. For example, if you apply for bad credit loans and your credit history was accessed, this must be reflected in your credit report.
- Resolve disputes: The credit reporting bureau must provide a dispute resolution process for you to challenge incomplete or inaccurate information in your credit history. If the dispute is resolved in your favor, you have the right to force the credit bureau to fix your credit report to reflect the correct information.
- Remove information: Negative credit history should be removed after seven years. This means an unpaid bill from the urgent care must be removed seven years after it went onto your credit report. The only exception is bankruptcies. A bankruptcy can remain on your credit history for up to ten years.
What are the Laws on Debt Collection in the States?
In addition to the federal laws, every state has laws against deceptive and unfair debt collection practices. Many of their restrictions mirror the federal laws. For example, like the federal government, states usually restrict debt collectors from impersonating a law enforcement or government official in debt collection calls.
One variable in state debt collection laws is who is covered. Some states only apply debt collection laws to debt collectors. Debt collectors usually include lawyers hired to collect a debt or debt collection agencies that buy outstanding debts. In states that only apply laws to debt collectors, the original creditor may be exempted from the debt collection practices laws. In these states, this means that a bank that issued conventional home loans might be allowed to engage in practices that a debt collection agency cannot.
Other states apply their debt collection laws to everyone, including the original creditor. This includes creditors that are not commercial creditors, such as judgment creditors. This is important to know for people who do not normally collect debts because they could inadvertently violate state debt collection laws. Thus, suppose someone wins a judgment in a personal injury case against a driver who caused a car crash. The accident victim could get sued by the at-fault driver if they break the debt collection laws while trying to get the driver to pay the debt.
Stopping Creditors Through Bankruptcy
If you want to stop creditors and debt collectors from contacting you, there are other options besides asking, ‘what are the laws on debt collection?’ If you declare bankruptcy, creditors and debt collectors must cease all collection activities. This means that any lawsuits to collect your debts must be stayed.
It also means that all the debt collection calls and letters must cease. If a creditor or debt collector is notified of the bankruptcy and continues its collection efforts, the bankruptcy judge can hold them in contempt. They could be penalized and have to pay fines to the court and damages and attorney’s fees to the person in bankruptcy.
During bankruptcy, your bankruptcy lawyer will work with an accountant or other financial accounting services to develop a repayment plan. This plan is presented to the creditors and debt collectors. They can challenge the plan, but the bankruptcy judge will probably approve it if the accounting is sound.
Instead of challenging the plan, the creditors and debt collectors might negotiate for better terms. Depending on the type of debt, you might be willing to accommodate them. For example, negotiating with your Medicare insurance agents might help you to keep your supplemental insurance coverage instead of losing it for non-payment.
Stopping Creditors Through an Agreement
Another way to stop creditors and debt collectors without having to research ‘what are the laws on debt collection?’ is by entering into an agreement with them. Even if you do not file for bankruptcy protection, the threat of filing for bankruptcy can help you negotiate a payment plan with your creditors.
Many know that a bankruptcy court would discharge their debts with little or no repayment. By entering into an agreement with you for repayment, the creditor or debt collector can recover some or all of the debt. For example, if a debt is 100% dischargeable in bankruptcy, a creditor could get nothing if you file a bankruptcy petition. But if they agree to cut the debt in half, they at least get a portion of the debt paid instead of losing it all in bankruptcy.
To negotiate an agreement, you need to talk to your creditors or debt collectors. This means you can turn their annoying calls into an opportunity to negotiate your debt. But be sure to get documentation of your agreement. Not all debt collectors have the authority to negotiate debt, and you do not want them to continue to pursue you after you have lived up to your part of the agreement.
Stopping Creditors Through Debt Consolidation
Yet another way to stop creditors and debt collectors from contacting you is debt consolidation. Instead of relying on laws to stop them, this process uses credit counseling and a new loan to stop them. Thus, instead of asking, ‘what are the laws on debt collection?’ you should ask, ‘how does debt consolidation work?’
In most cases, credit counseling services can help you figure out what you owe and how much it costs you. For example, credit cards might charge interest as high as 20%-25%. Home loans usually charge around 5%-7%. This means that credit card debt is much more expensive than mortgage debt, even if the payments are higher. A credit counselor can provide debt help by finding the expensive debts to pay off.
After figuring out what needs to be paid, you can then refinance or consolidate your debts into a single low-interest loan. This can stop the bleeding simply by reducing your monthly payments while still paying all of your debts.
Debt collectors can sometimes cross the line. But understanding what are the laws on debt collection and the other options for stopping debt collection, you can shut them off for good.