The main laws that can affect collections are:
1. The Fair Debt Collection Practices Act (FDCPA)
2. The Fair Credit Reporting Act (FCRA)
3. The Health Insurance Portability and Accountability Act (HIPAA)
4. The Truth In Lending Act and Fair Credit Billing Act
5. State laws
In this article we’ll cover the basics of how each of these relates to collection accounts.
1. The FDCPA
The Fair Debt Collection Practices Act does essentially what the name says. It describes "fair practices" for debt collectors. It says what debt collectors can and can’t do.
Some things they can’t do?
* They can’t contact consumers before 8:00 AM or after 9:00 PM.
* They can’t harass or abuse consumers
* They can’t lie in order to collect the debt (this includes the common practice of pretending to be an attorney or the "legal department" when they, in fact, are not)
* They cannot threaten legal action if they don’t intend to take it or if they don’t have the legal right to do so
The list goes on. There is a long list of common abusive collection practices and the FDCPA, in one way or another, pretty much covers them all.
The FDCPA is what gives consumers the right to stop bill collector phone calls.
Another commonly discussed aspect of the FDCPA is the requirement of the collector to "validate" the debt upon request from the consumer.
Debt validation is a big topic on its own, and we won’t go into it here. It certainly deserves more discussion than the few paragraphs that it gets in the FDCPA, though.
Needless to say, if you have collection accounts on your credit report or have collectors calling you, then the FDCPA is an important law to be familiar with.
We’ll dig more into the nitty gritty details of the FDCPA at a later date.
2. The Fair Credit Reporting Act
There are two main interactions that a collection agency can make with a consumer’s credit report.
A. They can place an inquiry (i.e. request a copy of the credit report.)
B. They can report the collection account on the consumer’s credit report
From the bill collector’s perspective, the ONLY logical reason for doing anything related to the consumer’s credit report is to COLLECT THE DEBT.
In other words, credit reporting is a "collection activity" for bill collectors. It’s part of how they attempt to collect debts and get paid.
This is probably why collectors tend to violate the FCRA by doing things like re-aging accounts. Re-aging, from their perspective, would make the account look newer (more damaging) and would keep it on the consumer’s credit longer (in theory, increasing their chances of collecting on it). Re-aging is still illegal though!
The truth is, debt collectors violate the FCRA all the time… perhaps not as much as they violate the FDCPA, but the violations are still substantial.
In 2004 NCO (NCO Group, Inc.) settled FTC charges over violations of the FCRA in a 1.5 million dollar settlement. The FTC complaint was that NCO failed to properly report the Date of Last Activity. In other words, they re-aged the debt.
Because bill collectors report accounts and place inquiries on consumers’ credit reports, they are subject to the requirements of the FCRA that relate to those activities. They have to report accurate data. They must have a permissible purpose for inquiries.
FCRA Rules regarding investigations into the validity of debt, direct dispute rules, and rules about inquiries all apply to debt collectors whether they abide by them or not.
3. HIPAA LAWS
HIPAA stands for "Health Insurance Portability and Accountability Act", and refers to the 1996 privacy laws designed to protect personally identifiable health information.
Under the law, any information about the individual’s care or payment for care is protected.
A special tactic utilizing HIPAA laws and the HIPAA complaint process can be used to remove medical collections where payment in full has already been made to the care provider, or where the consumer CAN make payment in full to the provider.
4. The TILA and FCBA
The Truth in Lending Act requires full disclosure of any and all terms related to credit transactions.
The Fair Credit Billing Act allows consumers certain rights related to credit accounts and billing. It is designed to protect consumers against billing errors.
While neither of these laws apply to collection accounts directly, they can still be useful.
Examples might be:
* A contract that is not compliant with the TILA could be rescinded.
* If the creditor failed to comply with the FCBA and the account has been placed with a collection agency, this can be used as leverage for negotiating with the creditor to take the account back, settle it, and remove it from the consumer’s report.
* If a billing error has been reported by the consumer to the billing inquiries address of the creditor and a billing error investigation is in progress, the creditor cannot try to collect on the disputed amount. If the amount gets referred to their collection department and any attempts are made to collect on the disputed amount, then they are in violation of the FCBA.
If the creditor has violated either of these laws then the chances of the collection account being removed can increase substantially.
It’s important to be familiar with these laws and be on the lookout for potential violations, even if the account has gone to collections.
5. State Laws
The main state law that will apply to collection accounts is the statute of limitations.
The statute of limitations on collection of debts varies by state, but is important as it puts a time limit on the enforceability of a collection account.
An expired SOL doesn’t mean a consumer won’t be sued, but it gives them a solid defense if they are.
From the collector’s perspective, it drastically reduces the likelihood of being paid and makes them much more likely to settle the account for pennies on the dollar.
This has been an overview of some of the laws that may affect collection accounts. Keep in mind that it is not meant to be all inclusive or exhaustive, and certainly shouldn’t be taken as legal advice.