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Collecting Customer Debt? Review Your Local Consumer Protection Laws First

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Collecting Customer Debt? Review Your Local Consumer Protection Laws First

By NicoleD
Published: January 19, 2011 Updated: May 18, 2011

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.

 

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Comments:

Before borrowing customers, clients or debt then we should seek to understand the rules for borrowing.
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
There needs to be more transparency of collection agency services.
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/
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.
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.
I find "Usury Laws" a bit confusing. I need to read more about that.
Article is the best I read

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