Collection of consumer debts: Methods and limits

Recouvrement des créances des consommateurs : Méthodes et limites

The consumer debt collection market is growing in the United States. Many consumers are still unaware of their rights and available legal remedies, even though deceptive and abusive debt collection practices are prohibited by consumer protection legislation. Since pushy debt collectors often have a motive for doing so, consumers should be aware of the legal options available to them to defend themselves.

Debt collectors

A “first-party debt collector” is a person, business, or government organization that attempts to recover money directly owed to them. He usually has a very clear contractual or legal relationship with the debtor.

Businesses that seek to collect debts owed to other people, businesses, or government entities are known as third-party debt collectors, and the agency they work through is called a third-party debt collection agency. They usually enter into an agreement with the creditor which allows them to keep part of the money received. Some debt collectors pay a large sum to the creditor to buy out the entire debt, unlike first-party debt collectors, who have a direct contractual relationship with the creditor.

Debt collection methods

In addition to any other legal action mentioned in their agreement with the debtor, first party debt collection agencies have the authority to take legal action for breach of contract to recover debts. The choices available to a creditor after obtaining a judgment against a debtor are governed by state law. A creditor may authorize a police officer or other law enforcement official to seize the debtor's nonexempt property in order to satisfy the judgment under most state laws. Wage garnishment is legal in some states to pay off debts.

Did you know ?

Debt collectors are often not allowed to disclose a consumer's debt to anyone other than the debtor, their spouse or attorney.

Since taking legal action involves paying fees upfront by the creditor, the creditor may choose to use a third-party collection agency that keeps a portion of the money recovered rather than going to court. The creditor may authorize third-party collection agencies to take legal action or report unpaid payments to the major credit reporting agencies. Due to their goal of collecting as much money as possible from debtors, some debt collectors use an aggressive technique through phone calls and mailings.

In some jurisdictions, debt collectors employed by a government agency are allowed to send letters on company letterhead to give the impression that they are fully supported by the government. Other dishonest acts are often prohibited by law.

Incorrect or fraudulent debt collection

For a number of reasons, a customer may dispute a debt. Given the number of accounts they manage, there is always the possibility that a third-party debt collector may have simply misidentified a debtor. Customers may also have been victims of identity theft, which resulted in incorrect charges being made in their name.

Family members of a deceased debtor may be targeted by debt collectors in an effort to recover a debt. They cannot normally do this legally unless there is a formal relationship between the parent and the creditor, for example if the parent has co-signed a contract. However, tax refund requests may constitute an exemption.

Some debt collectors may commit fraud by attempting to collect fictitious debts in the hope that the “debtor” will pay to settle them.

Limits on debt collection

The recovery of overdue debts is impossible or at least discouraged by some temporal constraints. In the majority of states, the statute of limitations for contract violations is four years from the date of failure to pay. Credit reporting agencies say negative information generally cannot be kept on a consumer's credit report more than seven years after the date of nonpayment.

Setting the record straight

Depending on the type of debt and state law, the statute of limitations for debt collection often begins to run when a consumer fails to make a payment. (Consumers can contact their state attorney general's office for details). In some regions, if a consumer makes a payment or officially acknowledges the debt in writing, the statute of limitations starts to run again.

Debt Collection Laws and Debtors’ Rights

The Fair Debt Collection Practices Act (FDCPA), a federal law, prohibits certain inhumane tactics used by third-party debt collection agencies. Many state laws provide protections, some of which also cover the collection activities of first-party collection agencies.

The following actions by third-party collection agencies are prohibited by the FDCPA:

● Contacts made before 8 a.m. or after 9 p.m. local time;

● Intentionally causing a telephone to ring constantly or frequently with the intent to annoy or harass;

● Contact the person despite a written request to stop contact from them or a written denial of the validity of the debt;

● Contact the individual at their workplace after being informed to stop doing so;

● Lying about the amount or specifics of the debt or threatening legal action that is not actually feasible;

● Add the person’s name to a “bad debt” file; And

● Giving false information – or threatening to give false information – to credit reporting companies about the person.


According to federal regulations, debt collection practices come with a number of considerations. If your business intends to work with a financial debt collection agency, choose one that meets all of your business requirements.