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Last month, the CFPB announced “Operation Corrupt Collector,” targeting debt collectors trying to collect on non-existent debts, using illegal scare tactics. Collections has always been a prime target of regulators.   I continue to remind readers that with a few exceptions, the Fair Debt Collection Practices Act (FDCPA) only applies to those in the business of collecting debt owed to others. However, the restrictions of the Act are also good instruction to 1st party debt collectors—those collecting their own debt.

Recall also that creditors may well be subject to state law and regulations that govern debt collection addressed to 1st party debt collectors.  For example, both the Alabama Consumer Credit Act and the Alabama Small Loan Act regulate collection of debt created by licensees under these acts. The basic prohibitions under Alabama’s regulations include:

• Collection by instilling fear of harm
• Committing a trespass
• Collection by simulation of legal process
• Collection calls or visits after 9:00 PM and before 6:00 AM
• Improper repossession
• Holding a check as security for a debt and threatening criminal prosecution relating to the same for non-payment

This is pretty basic stuff.  And, this is not to say that 1st party creditors may ignore the FDCPA.

In looking over the FDCPA, there are three sections that are particularly instructive—Section 806 Harassment or abuse, Section 807 False or misleading representations, and Section 808 Unfair practices. These sections list the following conduct to be avoided in debt collection:

• Use or threat of physical violence
• Use of obscene or profane language
• Publication of “shame lists” 
• Advertisement for sale of a debt to coerce payment
• Any false representation
  • that the collector is affiliated with government
  • that the collector is an attorney
  • that nonpayment will result in arrest or imprisonment
  • that the consumer has committed any crime by not paying the debt
  • that the account has been turned over to a debt buyer
  • that documents are legal process
  • of the name of the party attempting to collect the debt
• Claiming that the collector will take an action that cannot legally be taken or that the collector will not take
• Claiming amounts due that are not
• Taking a post-dated check and then depositing the same before the agreed date

These are the examples of actions that the FDCPA has prohibited 3rd party debt collectors from using.  Although these prohibitions technically apply to 3rd  party debt collectors, 1st party debt collectors should also avoid them because by their nature, they are unfair, deceptive, or abusive. Consequently, these are the types of conduct that I consider off-limits because Congress has already deemed them to be unfair, deceptive, or abusive. 

Practice Pointer: Continue to be mindful of your collection practices.