A creditor may seek to collect an outstanding debt in several ways: through direct communication with the debtor, by filing a lawsuit against the debtor, by seeking to take possession of or sell property securing the debt or by hiring a debt-collection service. Faced with “abundant evidence of the use of abusive, deceptive and unfair debt-collection practices by many debt collectors,” in 1978, Congress enacted the Fair Debt Collection Practices Act (fdcpa).
The act provides debtors with a means for challenging payoff demands and for determining the validity and accuracy of asserted debts. Perhaps more importantly, the act establishes ethical guidelines for the collection of consumer debts. It is difficult to argue with the need for such guidelines: The Federal Trade Commission provides Congress with an annual report covering enforcement activities regarding the act and summarizing consumer complaints of alleged violations of the act by debt collectors. Congress targeted such behavior because it found that “[a]busive debt-collection practices contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs and to invasions of individual privacy.”
Preliminarily, the Fair Debt Collection Practices Act generally applies only to third-party debt collectors; the statutory scheme was not intended to cover the conduct of the original creditor. However, some states have enacted consumer-protection statutes that provide broader coverage than the act, and they may include the conduct of the original creditor. The act permits such state laws.
The act also provides that debt collectors may not harass or annoy debtors, threaten debtors with arrest or threaten legal action unless litigation actually is being contemplated. Additionally, in their first communication with the consumer, debt collectors are required to notify debtors about their ability to challenge the validity of a debt and to provide other basic information. This includes informing the debtor of his or her right to ask the collection agency to “validate” the debt.
With respect to its ethical guidelines, and in addition to the mandatory disclosures a debtor collector must make in its initial communication with the consumer, the act details the conduct of debt collectors when communicating with third parties in an effort to locate the debtor and prohibits third-party debt collectors from contacting a debtor directly if they know the debtor is represented by legal counsel. The act also provides that debt collectors may not contact debtors before 8 a.m. or after 9 p.m., but it does not prohibit debt collectors from contacting debtors on holidays or weekends unless they know or have reason to know that doing so would be “inconvenient” to the debtor. The act even gives debtors the right to demand that the third-party debt collector terminate all further communications, but the demand must be in writing.
In addition to administrative enforcement, the Fair Debt Collection Practices Act provides for private rights of action against debt collectors and permits debtors to recover actual damages, statutory damages and attorneys' fees and costs for violations of its terms.
The content on this page was developed in partnership with the Legal Information Institute, Cornell Law School.