• Commercial Collections Law
  • Creating the Debt
  • Improving Collections
  • Establishing Procedures
    • Contact the Debtor
    • Filing Suit
  • Federal Regulation of Debt Collection
    • Communication
    • Validation of Debts
    • Prohibited Practices
  • Methods of Collection in Florida
    • Consumer Debts
    • Commercial Debts
  • Resources

Businesses often face the difficult task of collecting debts owed to them by consumers or other businesses. Creditors have an indisputable right to seek payment on outstanding debts, and there are various methods by which to do so. However, there are also a variety of state and federal laws that regulate collection practices to protect both consumers and businesses. This chapter outlines some methods for improving debt collection and identifies prohibited practices. Some related information may be found in the Bankruptcy & Workout Law Chapter in this Guide and the Consumer Protection Law Chapter.

Many commercial and consumer transactions are a one-time occurrence. Goods or services are exchanged for immediate payment, and the parties have no further contact until the next transaction. Some transactions, however, create an ongoing credit relationship between the parties. This relationship is created by a credit agreement, an installment sale, a consumer loan or a revolving credit agreement, or in another manner. Most states require full disclosure of the terms of the agreement. A lawyer familiar with commercial collections law can help a business prepare and understand these agreements.

Most people and businesses pay their debts in a timely manner. Sometimes, however, it is necessary for the creditor (the party who extended credit) to seek payment that is past due from a debtor (the party who received the credit). Often, the first step in collecting a debt is to identify and locate the debtor. It is particularly important for a creditor to determine immediately the residence, place of employment or business address, and exact legal description of the debtor, such as whether the debtor is an individual, a partnership, a corporation, or some other entity. The legal status of the debtor may affect who is liable for the debt. There are numerous sources for obtaining this information, including a telephone book, a city directory, a creditor's own debtor index of past claims and experiences, credit reports or applications, an assessor's office, a registry of deeds, a city clerk's office, a secretary of state's office, a registry of motor vehicles, and court dockets.

The next step is determining the nature of the debt. It may be important to distinguish between consumer debts and commercial debts. A consumer debt is a debt incurred by an individual, primarily for a personal, family, or household purpose. A commercial debt arises from an obligation to pay for goods or services used in the conduct of a business or profession. These different types of debt may help a creditor in determining which federal and state laws apply to the collection of the debt.

A debt also may be secured or unsecured. A debt is secured when the debtor has offered collateral for the debt. Most commercial debts, however, are unsecured. Creditors should keep all documentation available on an unsecured claim in case it is necessary to establish the existence of a valid claim. Such documentation includes any sales or credit agreements, past payment records, and correspondence with the debtor.

A variety of collection techniques are available to creditors. In deciding which course of action to pursue, a creditor should consider the relative cost and effectiveness of different methods, the amount of the debt and the creditor's business history with the debtor. When collecting consumer debts, a creditor should pay special attention to federal and state regulation of consumer debt collection. A lawyer experienced in debt collection can help a creditor determine the best methods for debt collection.

Contact the Debtor

Personal contact is a valuable first step in attempting to collect a debt. Through personal contact, a creditor can determine the debtor's intent and ability to pay. When contacting the debtor by telephone, the creditor or creditor's representative must disclose that the purpose of the call is to settle the debt. A creditor can hire a lawyer to make this contact with the debtor and to seek payment of the debt. Any arrangement for partial payment is subject to approval by the creditor, and should be confirmed with the debtor in writing. A creditor can also use a collection agency to collect the debt.

If a debt is secured and it appears that the debtor is unwilling or unable to pay, a creditor may seek to obtain possession of the collateral securing the debt. The creditor or the creditor's representative may attempt to repossess collateral by appearing at the debtor's premises and requesting the goods. However, the creditor or creditor's representative may not breach the peace or otherwise violate the law in an attempt to recover the goods. The creditor's other option is to resort to legal process.

Filing Suit

Because of the time and expense involved, a trial should be considered the last alternative in the collection of a debt. When it becomes necessary for a creditor to bring a lawsuit against a debtor, the creditor should ensure that he or she has sufficient documentation to establish the validity of the claim. Once a lawsuit has been filed, a creditor has several options available to ensure that the debtor does not sell or dispose of any assets.

A creditor may attach the debtor's property. Attachment is a legal process that puts the property under the custody of the court until a judgment is obtained. A creditor may seek a temporary restraining order to keep the debtor from selling or otherwise disposing of goods to which the creditor has a claim. A pretrial settlement based on the resolution of the dispute and a candid disclosure of the debtor's ability to pay is desirable. A settlement made quickly and fairly avoids the delay and expense of litigation.

If a debtor fails to respond to the lawsuit, a creditor may seek a default judgment against the debtor. The court will hold a hearing to determine whether entry of a default judgment is appropriate and what is the correct amount of the judgment. If a creditor succeeds at trial, he or she becomes a "judgment creditor" entitled to seek enforcement of the judgment. Special procedures for collecting the judgment debt are then available, such as execution on property, garnishment, or attachment of wages. If a debtor has declared bankruptcy, this will affect the creditor's rights. (See the Bankruptcy & Workout Law Chapter for more information.)

The federal government regulates debt collection through the federal bankruptcy and criminal laws. However, the collection of consumer debts is specifically addressed by the Fair Debt Collection Practices Act. This Act was adopted to eliminate abusive debt collection practices by debt collectors, to ensure that debt collectors who do not use abusive practices are not competitively disadvantaged, and to promote consistent state action. The Federal Trade Commission is primarily responsible for enforcing the Act. The Act applies to persons, including attorneys, who use any means of interstate commerce or the mails to collect a debt. The law also applies to any creditor who, while collecting his or her own debt, uses a name that suggests that a third party is trying to collect the debt.

Communication

The Act limits attempts to acquire information about the location of a consumer from any person other than the consumer. The debt collector must identify himself or herself, must state that he or she is confirming or correcting location information, and must only identify his or her employer if specifically asked. The collector may not state that the consumer owes any debt. The collector may not communicate by post card, or use any correspondence that identifies the communication as an attempt to collect a debt.
If the collector knows the consumer is represented by an attorney, the collector should only communicate with the attorney. The collector may not contact the consumer before 8:00 a.m. or after 9:00 p.m. or at a time known to be inconvenient. The collector may not contact the consumer at any unusual place, or at the consumer's place of employment if the collector knows or should know that the employer prohibits such communications. A debt collector must cease communications with the consumer if the consumer notifies the collector in writing that he or she refuses to pay the debt, or that the or she wishes the collector to cease further communication.

Validation of Debts

A debt collector must send the consumer a written notice to verify the validity of the debt and to provide the consumer with an opportunity to dispute the debt. The notice must show the amount of the debt and the name of the creditor to whom the debt is owed. The notice must state that the debt will be presumed valid by the collector if the consumer does not dispute its validity in writing within 30 days. If the consumer notifies the debt collector that he or she disputes the debt, the collector must stop collection efforts until the collector obtains verification of the debt. The consumer's failure to dispute the debt does not constitute an admission that the consumer is liable for the debt. If a consumer owes multiple debts and makes a single payment to a debt collector, the collector may not apply the payment to any disputed debt.

Prohibited Practices

The Fair Debt Collection Practices Act prohibits unfair or unconscionable practices by debt collectors in the collection of consumer debts. The Act also lists particular practices that are violations, including:

• Collecting any amount in addition to the debt (unless the amount is specifically authorized by law or by the agreement creating the debt)
• Soliciting or accepting a check postdated by more than five days
• Depositing or threatening to deposit a postdated check prior to the date on it
• Causing telephone or telegram charges to be made to any person by concealing the purpose of the communication
• Taking or threatening to take nonjudicial action without legal right or intention
• Communicating about a debt by post card
• Using any language or symbol other than the debt collector's address on an envelope when communicating with a consumer.

Although most debt collectors operate in an ethical manner, some resort to abusive or fraudulent tactics to collect accounts past due. Most states have very specific guidelines regulating what debt collection agencies can and cannot do when attempting to collect unpaid debts. In Florida, there are separate laws regulating the collection of consumer debts and commercial debts.

Consumer Debts

The Consumer Collection Practices Act applies to consumer debts. Under the Act, consumer debts are obligations of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services that are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment. The Act requires all consumer collection agencies to register with the Department of Banking and Finance and to renew that registration annually. The registration requirement does not apply to any original creditor unless the creditor, in the process of collecting his or her own debts, uses a name that suggests that a third party is collecting or attempting to collect the debts. Under the Act, a person who is collecting consumer debts may not:

• Simulate a law enforcement officer or representative of the government
• Use or threaten to use violence
• Tell a debtor who disputes a debt that the collector or the collector's employer will disclose information affecting the debtor's reputation for credit worthiness without also telling the debtor that the existence of the dispute will also be disclosed
• Communicate or threaten to communicate with a debtor's employer prior to obtaining a final judgment against the debtor
• Unjustifiably disclose to a person other than the debtor or the debtor's family information affecting the debtor's reputation
• Harass the debtor or the debtor's family with frequent communication
• Use profane, obscene, vulgar, or willfully abusive language
• Mail any communication with words visible on the outside of the envelope designed to embarrass the debtor
• Communicate with a debtor between the hours of 9 p.m. and 8 a.m.

A creditor may assign the right to bill and collect a consumer debt, but the person or entity to whom the debt is assigned must notify the debtor of the assignment in writing within 30 days.

Commercial Debts

The Florida Commercial Collection Practices Act was enacted because commercial collection practices were inadequately covered by the consumer collection laws and criminal laws. It applies to commercial claims arising out of transactions in which credit was offered or extended primarily for commercial purposes. To prevent unlawful and fraudulent commercial collection activities, the Commercial Collection Practices Act requires registration with the Department of Banking and Finance of any person or business engaged in collecting commercial claims. The Act does not require a "credit grantor"–the person or business to whom the commercial claim is owed–to register.

Florida Department of Banking and Finance, The Capitol, PL-9, Tallahassee, FL 32399-0350, (904) 488-0370.

The Florida Attorney General's Office operates a Home Page on the World Wide Web that can be accessed through http://www.legal.firn.edu/.

Consumers wanting to inquire about the business practices of a Florida company or to register a complaint against a company can call the Florida Department of Agriculture and Consumer Services toll-free at (800) 435-7352 or (904) 488-2221. The Department has no legal authority itself, but can refer cases to the Attorney General's Office. The Department has a number of pamphlets available concerning consumer protection matters. To receive a pamphlet, write to the Department of Agriculture and Consumer Services, 235 Mayo Building, 407 Calhoun Street South, Tallahassee, FL 32399-0800.

The Federal Trade Commission (FTC) deals with fraud and deceptive business practices. The FTC has legal authority to file lawsuits and freeze company assets. The FTC has a number of consumer protection publications available by writing to the FTC, Public Reference Branch, Sixth Street and Pennsylvania Avenue NW, Washington, D.C. 20580, or by calling (202) 326-2222.