Are You a Debt Collector Under The Fair Debt Collection Practices Act?
Kegler Brown Litigation Newsletter January 1, 2007
The purpose of the Fair Debt Collection Practices Act ("FDCPA") is to eliminate abusive debt collection practices. 15 U.S.C. Section 1692e. The FDCPA prohibits improper communications, harassing or oppressive behavior and false or misleading representations by debt collectors, a detailed discussion of which is beyond the scope of this article. The FDCPA also imposes certain restrictions and obligations on debt collectors. It is limited to consumer debt. "Consumer debt" means any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance or services which are the subject of the transaction are primarily for personal, family or household purposes, whether or not such obligation has been reduced to judgment. 15 U.S.C. Section 1692a(5).
It is important to know whether you or your employees are a debt collector. If you are not a debt collector, the FDCPA will not apply to your company. There are several ways you and your company can avoid the label of "debt collector", and thus fall outside of the restrictions imposed by the FDCPA. Under Section 1692a(6), a "debt collector" is defined as any person who uses interstate commerce "in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect from a directly or indirectly, debts owed or due or asserted to be owed or due another." The term does not include "any officer or employee of the creditor [who] while, in the name of the creditor, collect[s] debts for such creditor [.]" Id.Therefore, if you are the actual creditor to whom the debt is owed, you are not a debt collector. It is only when you are collecting for another party that you become a debt collector. Attorneys that have a debt collection practice will be subject to the FDCPA. If the right to collect a debt is assigned before you collect any payments, you are not a debt collector under the Fair Debt Collection Practices Act. Also, if you assign a note before a default occurs you are not a debt collector. 15 U.S.C. Section 1692a(6)(F)(iii).
Determining whether the nature of your business makes you a debt collector is important. If you fall with the definition, you can be subject to severe restrictions on collection activities under the FDCPA. If you do find you are a debt collector, you need to make sure you follow all of the restrictions set forth under the FDCPA.