Debt Collection Laws

There is a federal law that dictates how debt collectors may—and may not—deal with consumers. It’s called the Fair Debt Collection Practices Act (FDCPA), and it applies to personal debts, including money owed for an auto loan or home loan, for medical care and for credit card accounts. Click here for a free debt consultation.

According to the Federal Trade Commission (FTC), under the FDCPA, a debt collector:

• may not call you before 8 a.m. or after 9 p.m.;
• may not call you at work, if the debt collector knows that your employer does not approve of such phone calls;
• may not harass, oppress or abuse you;
• may not lie, and may not falsely imply that you have committed a crime;
• may not use unfair practices to try to collect a debt;
• must identify himself or herself to you on the phone; and
• must honor a written request from you to stop further contact.

The March 1999 Arizona federal court decision Michelle Caron v. Charles E. Maxwell, P.C., a Professional Corporation, et al. applied some of the critical elements of the FDCPA.

Caron owned a home in a development that included big homeowners’ association dues. She fell behind in her dues—and the association turned her account over to Charles E. Maxwell, “an attorney engaged in the business of collecting consumer debts.”

Maxwell used a variety of threats and aggressive tactics to collect the overdue dues. Caron sued him and her homeowners association under the FDCPA.

Specifically, she claimed that Maxwell violated the law by “falsely representing that he would be entitled to collect accruing attorneys fees and costs pursuant to the terms of a judgment obtained by [the association and] by threatening to take action that cannot legally be taken.”

She said that Maxwell sent her a letter stating that, if she did not respond within 10 days, the homeowners’ association would exhaust all of its legal remedies against her, including a Sheriff’s sale of her property. She complained that Maxwell’s conduct was “extreme and outrageous.” And she argued that the homeowners association should be held liable for his bad actions.

The trial court pointed out that the FDCPA imposes liability only on debt collectors—not on creditors. So, the association was off the hook.

But Maxwell wasn’t. He asked the court to dismiss Caron’s charges against him. It would not. The court noted that the purpose of the FDCPA is to

eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses.

And this description seemed to apply to Maxwell’s actions.

Another important part of the FDCPA states that collection agencies have to be specific about what a debtor owes when they try to collect. The March 2004 United States Court of Appeals (Seventh Circuit) decision Caldean M. Chuway v. National Action Financial Services shows why this is important.

National Action Financial, a debt collection agency, mailed Chuway a letter which identified its client (a credit card company) and stated that the “balance” Chuway owed the company was $367.42. The letter added that the company had “assigned your delinquent account to our agency for collection. Please remit the balance listed above in the return envelope provided. To obtain your most current balance information, please call [a toll free number].”

Chuway didn’t know whether the collection agency wanted just $367.42 or some unknown greater amount that she could find out only by calling the toll free number. Instead, she sued, arguing that—under the FDCPA—the letter failed to state clearly how much was owed.

The trial judge disagreed, ruling that the letter stated “the amount of the debt” and therefore did not violate the statute. Chuway appealed. And the appeals court thought better of her arguments.

At trial, National Action Financial’s lawyers had admitted that the entire debt that the company was hired to collect was the $367.42 listed as the “balance.” But the letter suggested that the amount due might be different. The appeals court noted:

…if the letter had stopped after the “Please remit” sentence, [National Action Financial] would be in the clear. But the letter didn’t stop there. It went on to instruct the recipient on how to obtain “your most current balance information.”

The appeals court ruled that this was an unfair tactic for the collection agency to use:

Suppose she had called and discovered that her current balance was $567.42. She wouldn’t know whether to mail $367.42 …or $567.42, without making a further inquiry. She might pay the larger amount thinking she would be sued otherwise, even though the extra $200 might not yet be due, let alone overdue.

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