In the U.S., the Fair Debt Collection Practices Act (also known as FDCPA) was created in 1978 as a part of the Consumer Credit Protection Act. Entrepreneurs use this statute when trying to improve their cash flow as a guideline for conducting debt collection practices. However, the law doesn't directly affect entrepreneurs- or "original creditors" as referred to in the legal documents- but rather the companies entrusted by business owners to collect the debts, such as collection agencies.
How The Fair Debt Collection Statute Affects Entrepreneurs
Having said that, some states have enacted similar laws for original creditors, and as the statute has matured over the years, some adaptations have been made to redefine what exactly a debt collector is. For instance, lawyers have been considered debt collectors under the law since 1986. So although many entrepreneurs may not specifically be covered by the FDCPA when collecting their own debts (as opposed to contracting out a company to perform fair debt collection on their behalf), it is still wise to use the same guidelines to avoid legal ramifications.
Fair Debt Collection Do's
The following actions are required of debt collectors under the FDCPA:
- With every consumer contact, letting them know who the person/company is that is contacting them, and that the purpose of the contact is for fair debt collection;
- Advising the consumer during the first interaction that the information collected will be used as data for fair debt collection;
- Provide written confirmation of the debt within 30 days of a consumer request, including the name and mailing address of the entrepreneurial venture that extended the credit;
- Inform the consumer of their right to dispute the debt with the company asking for the debt (in this case the business itself), which must be sent in writing to the consumer in question within five days of "initial communication";
- Offer proof of the consumer debt owing should the person in question request it in writing. The business asking for the debt to be paid must then reply within 30 days, or stop fair debt collection efforts altogether. All communications along these lines must also be reported to the credit bureau(s) involved. Proof requires at minimum the name and address of the person who signed the contract for products/services and the amount owing.
Please note that none of this list should not be considered exhaustive regarding fair debt collection practices. If an entrepreneur requires more information, they should review the Fair Debt Collection Practices Act in full (PDF file), and/or speak to a business advisor with expertise on the subject.
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