Debt collection issues arise frequently. Business owners and service providers seeking payment of owed money or persons on the receiving end of harassing or inappropriate debt collection efforts will encounter legal issues relating to debt collection. There are many laws governing debt collection practices and they vary depending on the type of debt and other circumstances. An attorney can assist you in enforcing your rights and resolving collection matters in compliance with all applicable rules.
What Rules Apply to Consumer Debt Collectors?
Consumer debt is a significant issue in the U.S. Debt collection practices and consumers protections are heavily regulated by law. At the federal level, consumer debt collection is primarily regulated by the Fair Debt Collection Practices Act; while in New York, the New York State Debt Collection Procedures Law applies. Both statutes seek to protect consumers from abusive, unfair, or misleading practices by collection agencies. Debt collectors must take care not to violate these laws and to adequately train staff to avoid liability and resolve matters legally.
Federal and State law prohibits “unfair or unconscionable means” in debt collection, including:
· Calling a debtor at odd hours, at their workplace, or repeatedly with the intent to harass or annoy.
· Threatening legal action when no such action is intended.
· Threatening arrest.
· Communicating a consumer’s debt to an employer or family member.
· Misrepresenting one’s identity, including impersonating a law enforcement officer, government representative, judicial body, or attorney.
New York law also prohibits debt collectors from seeking to collect a fee in addition to the debt owed.
Federal and state laws also require debt collectors to follow certain practices, including:
· Notifying consumers that they are debt collectors and that the communication is an attempt to collect a debt.
· Providing the name and address of the creditor on request.
· Sending the consumer a notice of his or her right to dispute the debt.
· Providing verification of the debt on written request.
· Selecting the venue where the consumer lives or signed an agreement if initiating a lawsuit.
Other Legal Requirements
There are several other regulations that apply to consumer debt collection. For example, laws governing fraudulent transfers may empower a bankruptcy court to recover assets transferred to a third party to avoid paying creditors.
In addition, the Uniform Commercial Code applies to secured transactions where the amount owed is secured by the debtor’s property or assets, such as a home mortgage or car loan.
What Legal Rights Do Consumer Debtors Have?
Debtors have specific legal rights under Federal and New York State law. As noted above, they have the right to written verification of the alleged debt upon request and to proper notice of any legal actions filed against them. They also have the right to receive an accurate credit report. This information helps ensure debts are legitimate and that debtors have an opportunity to defend themselves.
In addition, debtors are entitled to retain an attorney and require the collection agency to cease contacting them and address matters to their attorney. This is an important right as a lawyer can assist in disputing the debt or negotiating a settlement.
Consumers have the right to challenge their debt and may have several defenses to a collection action. Debtors can dispute a debt if they believe the debt is not owed, it has been paid, or the amount is incorrect. For example, a debt based on a contract claim may be subject to defenses of unconscionability, mistake, impossibility and other defenses. Alternatively, a payment claim may be time barred even if the debt is valid. An old debt may no longer be enforceable because the statute of limitations has expired. Creditors should be aware of these potential defenses when seeking to enforce a payment obligation or collect a debt. An attorney can assist creditors or debtors to ensure successful resolution of debt collection matters.
Where debt collectors have engaged in prohibited conduct, an attorney may also be able to bring legal action against the collector and recover damages. Consumers can also file a complaint with the Federal Trade Commission, which can sue collection agencies for violations.
Creditors and consumers should consult an attorney to evaluate their matter and determine the best course of action for eliminating or minimizing the amount owed.
How Are Commercial Debts Collected?
Commercial debt collection is not covered by the Fair Debt Collection Practices Act. Instead, commercial debt is typically negotiated by the parties, negotiated through counsel, or resolved in business bankruptcy proceedings.
Debts Arising from Commercial Contracts
When payment issues arise from a commercial contract, parties must consider the contractual language governing their rights and obligations. Where disputes arise, the contract may provide for the method resolution (e.g., arbitration, or litigation in a specific forum) as well as specify what damages are recoverable and whether there are security interests guaranteeing the debt. Creditors may also send the debt to a commercial debt collection agency to try to get payment.
As with any breach of contract action, there may be several available grounds and defenses, which should be evaluated by an experienced attorney.
In addition, certain types of contracts may be governed by the Uniform Commercial Code, such as secured transactions, governed under Article 9. In a secured transaction, a creditor obtains a contractual right to property or assets to satisfy or secure a debt. Any debt collection activities must comply with contractual agreements, applicable Uniform Commercial Code requirements and other applicable laws or rules.
When a commercial debtor files for bankruptcy, other laws apply to debt collection. Bankruptcy proceedings may involve many creditors seeking to be paid from the debtors’ assets and creditors may only recover a portion of what is owed. Creditors have specific rights under fraudulent transfer and conveyance laws, such as The Uniform Fraudulent Transfer Act and The Uniform Fraudulent Conveyance Act, which permit a bankruptcy trustee to recover assets improperly transferred by the debtor. Moreover, a bankruptcy court may require a creditor who has been paid before the bankruptcy filing to return those funds as a preferential transfer, even if the underlying debt is valid.
Debt collection is a heavily regulated area of law and debtors and creditors should be well-counseled about the laws governing debt collection. Parties in debt collection disputes should consult experienced legal counsel to assist them and ensure efficient, legal resolution to debt matters.
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