Jul 21, 2022
Written by: Rodney Wheeland, CCE
This Federal Act (1977) attempts to address “abusive collection practices”. Specifically, this Act addresses third parties collecting consumer debt, such as Consumer Collection Agencies, or Creditors using a different name.
Trade Credit managers often note that FDCPA does apply to B2B collections. While this is generally accurate, Trade Credit operations should avoid actions that might be considered harassment or abusive if B2B collections were covered by FDCPA provisions.
The Act has several sections addressing the collection process. Regarding communications with any specific Debtor, the Act requires the Collector to identify by name, although a “professional name” may be used. The Collector may not communicate or discuss the debt with third-parties, with the exception of the Debtor’s Attorney, the Collector’s Attorney, and credit reporting agencies. In attempting to communicate with the Debtor, the Collector may not use a postcard or language on an envelope indicating a debt is involved. If the Collector is aware the Debtor has an Attorney, the
Collector must communicate with that party, unless the Attorney is unresponsive. Regarding telephone communications with the Debtor, such may not take place at any unusual or inconvenient time or place.
Provisions of the Act “define and prohibit harassment or abuse” in the attempt to collect payment, including use or threat of violence or other criminal means; use of obscene or profane language; publication of a blacklist; failure of the Collector to disclose identity in making contact; and repeated telephone contact or attempts to contact.
The Act also prohibits “false or misleading representations”, including Collector affiliation with the government; the Collector claiming to be an Attorney, unless this is true; the amount of the debt or legal status of Debtor; a false statement of intentions or a claim Debtor is guilty of a crime; or threat of unlawful action, including arrest and imprisonment. The “unfair practices” provisions include the attempt to collect any amount not expressly authorized by the agreement between the parties or law; creation of any charges to Debtor, e.g., collect calls; or taking or threatening nonjudicial actions without the legal right.
The Act also includes a validation process requiring the Collector to provide notice of the amount of the debt, the legal name of the Creditor, and Debtor’s right to dispute the debt and a resolution process. If Debtor requests more information or disputes the debt, the Collector must cease all collection actions until such is resolved.
As you may have noted, none of these provisions are especially onerous or labor-intensive, and most Trade Credit operations generally comply. The Company Credit Policy & Procedures should address such practices and should comply with FDCPA provisions not because of legal requirements, but because these practices establish a systematic approach that respects the interests of the Customer and helps avoid claims of “harassment or abuse”. Also, such an approach helps avoid a future congressional reaction to such claims by the business community. Questions about FDCPA and the company’s practices should be directed to your company attorney.
Practice tips for the Trade Creditor:
- Be clear about the expectation of payment and the Creditor’s legal right to pursue.
- Be direct and accurate about the debt, including the original contract, POs, invoices, billing, etc.
- Listen carefully to the Customer’s reason(s) for delinquency and take appropriate action.
- Do not swear or use language that might be seen as demeaning or threatening.
- Do not overshadow. For example, do not put PAST DUE in six-inch high letters on a bill printed in 10 pt. type; do not send a pushy, demanding individual to a Customer’s office to collect the debt. Overshadowing may be considered just another form of threatening.
- Know the legal rights and responsibilities of both parties. Do not assert rights the Creditor does not have.
- Avoid being overly demanding. Rather, be systematic and consistent. Follow through on assertions made to the Customer: If you tell Debtor you intend to turn the debt over to an Agency or an Attorney for collection, or if you intend to sue, do so unless the Debtor provides a substantive reason not to take such action.
- Subscribe to the New York Times rule: Would you be comfortable with actions taken appearing on the front page of the NYT? This also may be known as the “Would your mother approve?” rule.
NACM Commercial Services offers a 10-week class in Credit Law, beginning in September. More information about this class is available at nacmcommercialservices.org.
Rod Wheeland, CCE served as the senior executive of NACM Commercial Services and predecessor companies for twenty-three years. He has worked in and around trade credit for four decades, and before coming to NACM in 1995, he was Corporate Credit Manager for Pendleton. Rod served for seven years on the NACM Commercial Services Board of Directors, which he chaired in 1991-92.