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Collecting Customer Debt? Review Your Local Consumer Protection Laws First

by NicoleD, Former Moderator

  • Created: January 19, 2011, 2:08 pm
  • Updated: May 18, 2011, 1:30 pm
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15 comments

Many business owners face the frustrating reality of late or non-paying customers. This article explains the laws and regulations that you must comply with when attempting to collect on customer or vendor debt.

 

For a primer on collecting customer debt, read Getting Your Customers to Pay Up; Parts 1 and 2 by Caron Beesley. In part two of her series, Ms. Beesley explains that common options for business owners looking to recoup late or non-payment include developing flexible payment plans, hiring debt collection agencies, or heading small claims court.

 

Before you begin to take any legal action, make sure that you have a thorough understanding of consumer protection and debt collection laws.

 

Usury Laws

Usury laws regulate the charging of interest in excess of maximum allowable limits, which generally vary by state. Usury laws can be complicated to navigate, as there are many exceptions to the general rules.

  • The Truth-In-Lending Act is a federal regulation that controls the amount of interest that can be charged on overdue balances.
  • However, state usury laws may be different (or stricter) than the federal Truth-In-Lending regulations, so it is important to understand your local requirements. For details, contact your local consumer protection agency. A state-by-state listing is available at consumeraction.gov.

 

Other Considerations
Depending on the circumstances, other laws may affect your attempts to collect on debt.

  • If you are dealing with a customer who has declared bankruptcy, you are prohibited from taking further collection actions until the custome-s bankruptcy court settles the matter.
  • If you decide to use a debt collection agency, be proactive in researching whether they have a history of complying with consumer protection laws. The Federal Trade Commission (FTC), the national consumer protection agency, enforces the Fair Debt Collection Practices Act (FDCPA). While the debt collection agency you hire is responsible for complying with the act, you can sour your reputation if you get in business with a company that does-t observe fair debt collection practices.

 

Related Resources

Tags: Community Blogs, Small Business Cents

Comments

photog11 | Window Shopper | 12/11/2012 - 3:36 pm

It's not easy to collect. Sometimes it's not even worth it because of the
negative vibe that it can bring if you(or your outsourced company) will start
harassing your clients
blogger,traveler, wedding photographer and a business owner
Professional Web Site: Toronto Wedding Photography

State of the Agency | Window Shopper | 10/10/2012 - 7:55 pm

There needs to be more transparency of collection agency services.
StateoftheAgency.com Resources for Collection Agencies including Collection Agency Letters
Professional Web Site: State of the Agency

JoeMcClain | Window Shopper | 10/10/2012 - 12:49 pm

Good Article... My question is in relation to this portion of the article.
"If you decide to use a debt collection agency, be proactive in researching
whether they have a history of complying with consumer protection laws."
Does anyone know how or where to go to check out a debt collection company to
see what their history is with complying to regulations?
Thanks,
Joe
Professional Web Site: Credit Cards For Bad Credit

michelle@michelledunn.com | Window Shopper | 3/19/2013 - 5:46 am

Show Replied Text…
Good Article... My question is in relation to this portion of the article. "If you decide to use a debt collection agency, be proactive in researching whether they have a history of complying with consumer protection laws." Does anyone know how or where to go to check out a debt collection company to see what their history is with complying to regulations? Thanks, Joe
Yes and this is very important. Check to see if an agency is a member of any
trade associations, Rotary clubs, Chambers of commerce, the BBB or any
networking groups. You can find this on their websites or call and ask them.
Once you have this information call those groups for a reference on the
agency. Ask them things such as:
How long have they been a member?
Are they a member in good standing?
Have they always been a member in good standing?

Then ask the agency for references, existing customers and past customers.
Call them! Ask them:
How long they used the agency
Were they happy with the agency?
Did they have any problems with them?
Why did they stop using them
What didn't they like about them

Check their BBB profile for any complaints, ask the agency about them if you
are unsure about anything. You can also call the AG's office in the state the
agency is located in and ask them if there have been any FTC violations or
FDCPA violations against this agency.

Sign a contract with any agency you decide to use. Check out my book
"Choosing the right collection agency for your business" for help choosing a
quality agency that won't break the law as they collect for you.
http://www.amazon.com/Choosing-Right-Collection-Agency-Business/dp/1481295276/
Professional Web Site: Michelle Dunn online

HughSwigart | Window Shopper | 8/13/2012 - 10:26 am

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LiveSecurityPlatinum | Window Shopper | 8/5/2012 - 9:53 am

If you are dealing with a customer who has declared bankruptcy, you are
prohibited from taking further collection actions until the custome-s
bankruptcy court settles the matter.

This is a major problem, in the last 4 years i had 5 huge cutomers who
declared bankruptcy.
Professional Web Site: Live Security Platinum

michelle@michelledunn.com | Window Shopper | 3/19/2013 - 5:50 am

Show Replied Text…
If you are dealing with a customer who has declared bankruptcy, you are prohibited from taking further collection actions until the custome-s bankruptcy court settles the matter. This is a major problem, in the last 4 years i had 5 huge cutomers who declared bankruptcy.
I have had this happen to me when I worked as a credit manager. The best way
to deal with this and avoid it happening again is to be proactive. I avoided
having a huge debt written off to Bankruptcy by being on top of the account
when they first became past due, communicating with A/P and working on the
accounts BEFORE any bankruptcy was filed. Once you have that relationship
with A/P or whoever pays the bills at that company, they will normally tell
you when the company decides it is going to file bankruptcy. This is what
happened in my case and I was able to get most of the invoices paid BEFORE
the filing so my company lost less money. Anyone can do this, it just takes
being pro-active on any past due accounts, especially larger accounts.
Professional Web Site: Michelle Dunn online

billcooup | Window Shopper | 4/29/2012 - 8:07 am

You know, I hate such situations when clients are wrong and they have more
rights than I do. Our laws are really unfair at least in some cases and
should be changed.
Professional Web Site: windows and doors

michelle@michelledunn.com | Window Shopper | 3/19/2013 - 5:51 am

Show Replied Text…
You know, I hate such situations when clients are wrong and they have more rights than I do. Our laws are really unfair at least in some cases and should be changed.
Actually the laws are FINALLY being changed! The FTC has recognized that the
FDCPA and FCRA are completely outdated and are working on changing those laws
which may also affect the debt collection laws first party collectors must
follow as well. It is a good idea to keep your eye out for any changes that
may affect you.
Professional Web Site: Michelle Dunn online

FreddyG | Window Shopper | 4/3/2012 - 10:14 pm

I find "Usury Laws" a bit confusing. I need to read more about that.
Professional Web Site: Private Message