A collection agency is a business that specializes in collecting debt payments that are owed to other businesses or individuals. They are usually hired by businesses to collect debts owed by consumers, but sometimes by other businesses as well.
Collection agency law generally covers the scope of the agencies’ authority, and the kinds of practices that are allowed when engaging in debt collection. While these laws may vary by state, collection agencies generally cannot engage in acts that are illegal, deceptive, or abusive in order to collect debts. This applies whether they are owed by businesses or individuals.
In the process of collecting debts, a collection agency must maintain well-kept records from both the lender and the borrower (debtor), in order to be able to provide accurate and truthful accounting.
What Are Some Common Legal Disputes Involving Collection Agencies?
Collection agencies are frequently involved in legal disputes. This is mostly due to the fact that the borrower may continue to refuse payment of the money owed, in which case legal action might become necessary. Disputes are also common between the collection agency and the business that employs it.
The debt collection activities of collection agencies are regulated by four bodies of federal law. They are:
- The Fair Debt Collection Practices Act;
- The Fair Credit Reporting Act;
- The Telephone Consumer Protection Act; and
- The Health Insurance Portability and Accountability Act.
Additionally, many states have their own laws designed to regulate the activities of collections agencies and protect debtors from abusive and deceptive practices.
The Fair Debt Collection Practices Act (FDCPA) contains a lengthy list of conduct in which debt collectors cannot engage. Some examples are:
- A collector may not continue to call a debtor after the debtor notifies the collector to stop calling them. The collector may still use other legal means to collect the money owed, including a lawsuit or reporting the debt to a credit reporting agency;
- A collector may not use obscene or offensive language;
- A collector may not blackmail the consumer;
- A collector may not threaten to arrest a debtor, or file a complaint with a law enforcement agency
- A collector may not inform the debtor’s employer about the debt.
These are only some of the limitations on a collector’s practices in connection with debt collection. A debt collector should become familiar with the provisions of the FDCPA.
The Fair Credit Reporting Act (FCRA) regulates how the debt can be reported to the credit reporting agencies. A collection agency must ensure that it places a report of a debt on the report of the right debtor and not that of another person. Furthermore a debt collector must not willfully or negligently include inaccurate information in the credit history report of a debtor.
The Telephone Consumer Protection Act (TCPA) is designed to protect consumer privacy, but it also applies to debt collectors. This means they cannot call the debtor’s cell phone with an auto-dialer, or call a cellphone at all unless the collector has the debtor’s permission to call them on a cell phone. Calls to cellphones using robocalls or pre-recorded voice without consent are also illegal.
Even if a debt collector calls on a debtor’s cell phone, the debtor has the right to tell the caller not to contact them. If a debtor wants to stop a collector from calling, however, the best way to do this is to notify the collector in writing with a letter sent certified mail.
The TCPA prohibits any telephone contact before 8 a.m. and after 9 p.m. local time. A penalty can be imposed for violations, ranging from $500 to $1,500 per call or text. There are also laws relating to the federal Do-Not-Call registry that a debt collector must follow.
The Health Insurance Portability and Accountability Act (HIPAA) protects data privacy and security provisions for medical information, including the medical condition of a patient (or debtor). HIPPA laws do not prevent a person’s billing information from being shared with a collection agency. Collection agencies can still work to recover debt from unpaid medical bills.
However, there are limits on the medical information that can be shared with a debt collection agency. For example, the exact nature of medical services given to the debtor is considered private information; therefore a person’s full medical records cannot be given to a collection agency.
A debtor who finds that a collection agency has too much information about their diagnosis and treatment may file a complaint for a violation of their privacy with the federal Department of Health and Human Services (HHS). This complaint must be lodged with the HHS within 180 days of the violation. The federal Office for Civil Rights (OCR) may require the debt collector to take corrective action. Or, the OCR may impose a monetary fine on the collection agency.
Some other common legal disputes involving collection agencies may include:
- A borrower’s continuing refusal to pay the debt;
- A hiring company’s complaint against its collection agency for not making diligent efforts to collect the debt; the agency is usually bound by contract to make reasonable efforts to collect the debt;
- Illegal, deceptive, or unethical collection tactics, such as harassment or fraud; these can lead a debtor to file a lawsuit against the agency;
- Unauthorized practice of law; a collection agency can be found guilty of the unauthorized practice of law if they go beyond the scope of their practice and give legal advice;
- Principal/Agency relationships: In some cases, the collection agency assumes a principal-agent relationship with the business for which it is collecting. If the debtor has a reason to sue, they can sue both the business and the collection agency.
Are Businesses Creditors Responsible for Violations Committed by a Collection Agency?
As stated above, a business and the collection agency may on occasion assume a principal-agent relationship, in which the collection agency acts as the agent for the business. This type of relationship is usually stated explicitly in the contract between the business and the agency. If the collection agency becomes an agent of the business for which it is collecting a debt, then the business might be liable for any violations of law committed by its agent.
Otherwise, business creditors are generally not responsible for any violations of law, negligence, or crimes committed by their collection agency. Most often, however, the collection agency remains an independent contractor and is solely responsible for its own conduct.
Therefore, determining liability in a collection agency lawsuit can sometimes be complicated and may depend on the individual details of each situation.
Do I Need a Lawyer?
Collection agency law may require the interpretation of a lawyer as it can vary from state to state. If you are facing any legal issues involving a collection agency, you may wish to speak with an experienced debt collection lawyer immediately.
An experienced debt collection lawyer in your area can help represent you in a court of law, and may be able to assist you in obtaining a damages award in connection with the collections issue you are facing.