By Robert L. Cain, Copyright 2022, Cain Publications, Inc.
“Deadbeat! Just wait until I put you on the deadbeat list that I’m going to show everybody! My law firm and I will hound you forever! I’m going to have you arrested, too! Did you get that court order I sent you? Just wait, deadbeat!”
There might have been a time when it was legal to say any and all that to a debtor, but now danger lurks. Already it was mostly illegal under 15 USC 1692 (d-f). But under the Fair Debt Collection Practices Act (FDCPA) with Regulation F added protections were implemented Nov. 30, 2021.
These updated regulations, aimed specifically at some less-than-ethical collection agencies, also apply in many cases to creditors themselves attempting to collect a past-due balance from a customer or tenant. Creditors include landlords owed rent when a tenant moved out one midnight and business owners owed a debt and who haven’t been paid for 90-plus days by a customer.
One trick some less-than-ethical collection agencies used was to buy up old debt, debt that aged out past the statute of limitations, and attempt to collect it. They’d sue the debtor and count on him or her not showing up in court, resulting in a summary judgment against the debtor. If the debtor showed up with evidence that the debt had passed the statute of limitations date, the judge would dismiss it. Most often, though, they just didn’t show up in court and the judge issued a summary judgment.
Under the new Regulation F, the collection agency must first prove the debt is current before it can sue.
Some small debts take too much effort and time to try to collect. Collection agencies and some creditors would simply report the debt to the credit reporting agencies without the debtor knowing. When they pulled their own credit report, the debtor was in for a surprise. Under the new FDCPA regulations, the creditor must get in touch with the debtor by mail, email, or text to tell him or her the debt will be reported. Until that contact, the creditor may not report to the credit reporting agency.
The question arises, then, can a deadbeat tenant or customer hide out or just return mail as undeliverable, bounce a text, or have an email come back as undeliverable and avoid having the debt reported? The answer is a qualified no. After considerable comments from collection agencies, inserted in Regulation F came the provision that the creditor must wait 14 days for the letter, email or text to come back undeliverable before reporting the debt. They are entitled to make “judgment calls” regarding compliance with the FDCPA and hope their “judgment” meets with the approval of the federal authorities and courts. One method that requires no waiting period or contact with the debtor is reporting to a check verification company. How effective? It’s debatable.
Constant Phone Calls
Another annoying trick collection agencies used was the hourly phone calls, harassing the debtor at all times of the day and night to beat them down so they’d pay the debt. I don’t know how well that worked to collect what was owed, but it did hound the debtor. Under the new Regulation F provisions, a creditor can call, text, or email only seven times in seven days, and if the creditor has spoken to the debtor on the phone, the company must wait seven days before making another call to that person.
Within five days of the first contact with the debtor, the collector, that’s either the creditor him or herself or the collection agency, must send the debtor a Notice of Debt. The collector needs to provide a Debt Validation Notice (available from consumerfinance.gov), which includes detailed information including one of five different dates such as the last statement date, the charge-off date, date of last payment, the judgment date, if there was one, or a couple more found on the form along with the name and address of the original creditor. That is supposed to ensure the debtor knows what the debt is for. The form also provides a way to dispute the debt, says under what circumstances the collector has to stop trying to collect, a way to ask for the name and address of the original creditor, and a way to ask about payment options.
Debt validation can throw a monkey wrench into the workings of collection agencies because they often don’t have the name and address of the original creditor. They may have bought the debt from another agency but without any original creditor information. They would have to get all that information from the original creditor who may not have any reason to provide it since the original creditor won’t get any of the money collected.
If a company does its own collecting, the same provisions apply as those for collection agencies. Still required is supplying complete information to the debtor and following the same non-harassment rules. In addition, here’s one more vital concern. If they hire a collection agency and that agency violates any of the harassment or procedure rules, the creditor can and will be held responsible since the creditor is responsible for any and all actions of its agent. Thus, it pays to research any collection agency thoroughly before hiring them.
At least one technique survives. If a creditor gives up and figures the debt is uncollectable, it can let the IRS be its collection agency. No, there won’t be any money coming to the creditor, but it likely will result in an IRS audit of the debtor. Use the 1099-C form, forgiveness of debt if the debt is more than $600. Most likely the debtor won’t know it’s been filed and so won’t include it as income on his or her tax return. Come April 15, you can, albeit vicariously, imagine what the IRS will do to your debtor.
Debt collection just got more restrictive, but you can still get your money. Deadbeats are still on the hook for the debt. It just might be more complicated and maybe take a little longer to collect. Have a concern or question? Call an experienced regulatory attorney because some provisions of Regulation F might conflict with portions of the Fair Debt Collection Practices Act. Consumerfinance.gov warns that “substantial monetary penalties” await the unwary and indifferent violators of this regulation.