Businesses Take Heed: New Regulations for the Fair Debt Collection Practices Act Establish Important Requirements For Consumer Credit Transactions

Alexander E. George
ageorge@kmksc.com
(414) 962-5110

The Fair Debt Collection Practices Act (“FDCPA”) applies to consumer transactions. Most companies that engage in business-to-business sales of goods or services on credit or business-to-business loans need not comply with the Fair Debt Collection Practices Act (“FDCPA”), except when the credit transaction turns out to be a consumer credit transaction.

For example, when HVAC Co. sells products on credit to a contractor to install in the home of the contractor’s customer, that credit sale to the contractor is a business transaction. However, if Mr. Homeowner buys goods on credit for his home, that sale is a consumer credit transaction because the debt owed to HVAC Co. was incurred by Mr. Homeowner for his personal, family or household purposes.

The goal of the FDCPA is to protect consumers from abusive collection practices of “third party collectors” (e.g., law firms that collect consumer debt). In the above example, HVAC Co.’s collection efforts would not be subject to the FDCPA because HVAC Co. is the owner of the debt. However, if HVAC Co. decides to ask a firm to collect the debt owed by Mr. Homeowner, it will be very important for HVAC Co. to engage a firm with a strong knowledge of the requirements of the FDCPA, because any failure by the firm to comply with the requirements of the FDCPA can come back to haunt HVAC Co. It is not unusual for a consumer to sue the creditor for the failures of the creditor’s collection firm to abide by the FDCPA’s requirements, as the FDCPA provides consumers with significant remedies arising from even technical violations of the law and its regulations.

Last fall, the federal Consumer Financial Protection Bureau put into place new regulations that significantly change the rules for collecting consumer debts. The changes include new requirements regarding the type of information that must be provided to the consumer by the debt collector and the format of the “validation notice” that must be sent to the debtor as part of the initial communications with the debtor. The regulations also set new requirements for communicating with the debtor via phone, email, text and social media and include rules that allow the debtor to limit the ability of the debt collector to contact the debtor. A failure to abide by these new rules (in addition to the “old” rules still in place) can give rise to legal action by the debtor against the creditor and the debt collector under the FDCPA. Depending on the circumstances of a FDCPA violation, a creditor and debt collector may be subject to substantial statutory and compensatory damages, and can be responsible for the debtor’s attorneys’ fees and costs.

It is as important as ever for creditors seeking assistance in collecting claims to retain a firm that has the ability to recognize when a debt is really a consumer debt and has the experience and knowledge to pursue the collection of consumer debt in full compliance with the FDCPA.

If you have questions regarding FDCPA regulations, or if you would like a compliance review of your current debt-collection practices, please contact KMK Attorneys Alexander E. George (ageorge@kmksc.com) or Darrell R. Zall (dzall@kmksc.com). Both can be reached at (414) 962-5110.