Illinois Commercial Collections Law

Guide to
Illinois Law

Illinois Commercial Collections Law

Commercial Collections Law

Commercial Collections Law

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 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.

Creating the Debt

Many commercial and consumer transactions are one-time occurrences. Goods or services are exchanged for payment on the spot, and there is no further contact between the parties, at least until the next transaction. Some transactions, however, create an ongoing credit relationship between the parties. This relationship may be created by way of a specific credit agreement, an installment sale, a consumer loan, or a revolving credit agreement, or in another manner. Regardless of the form, most states require full disclosure of the terms of the agreement. A lawyer familiar with this area of practice can help a business prepare and understand these forms of agreement.

Improving Collections

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 to determine 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. A creditor 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.

Establishing Collection Procedures

Various collection techniques are available to creditors, from personal contact with the debtor to using a collection agency to filing a lawsuit. In deciding which course of action to pursue, a creditor should consider the relative costs and effectiveness of the different methods, the value of the debt, the creditor's business history with the debtor, and general good business practices. In the collection of consumer claims, a creditor should pay special attention to federal and state regulations dealing with consumer debt collection. A lawyer experienced in debt collection can help a creditor determine the best methods for debt collection for that creditor or for a particular debt.

Contact the Debtor

Personal contact may be a valuable first step or may be all that is necessary to collect the debt. Often a telephone call will bring forth a promise to pay in full or on an installment basis. Through personal contact a creditor may determine the debtor's attitude with respect to payment, the debtor's ability to pay, and whether the debtor claims that the debt is not valid or collectible. When contact is made by telephone, the creditor or creditor's representative should make sure that the debtor knows who is making the call and that the purpose of the call is to attempt to adjust or settle the debt and to obtain as much information as possible about the debtor. A creditor may hire a lawyer to make this contact with the debtor and seek payment of the debt. Any arrangement for payment other than for immediate payment in full generally is subject to approval by the creditor, and should be confirmed with the debtor in writing. A creditor also may 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 offered for 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. If the debtor refuses to give up possession, 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 only option then is to resort to legal process.

Filing Suit

Due to the time and expense involved, a trial generally should be considered a last alternative in the collection of a debt. Sometimes it is necessary, however, for a creditor to bring a lawsuit against a debtor. Prior to beginning the suit, 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 may have several options available to ensure that the debtor does not sell or dispose of any assets or otherwise try to limit the amount of money that will be available if the creditor prevails. A creditor may seek to attach the debtor's property. Attachment is a legal process that puts the property under the custody of the court until a judgment is reached. A creditor also may seek a temporary restraining order to keep the debtor from selling or otherwise disposing of goods to which the creditor may be entitled. Any pre-trial settlement, based on the resolution of any dispute and a candid disclosure of the debtor's ability to pay, is desirable. A settlement made quickly and fairly avoids the inevitable delay and expense of litigation. If a debtor fails to respond to the suit, a creditor may seek a default judgment against the debtor. The court may hold a hearing to determine whether entry of a default judgment is appropriate and what the correct amount of the judgment should be. If a creditor succeeds at trial and gets a judgment from the court establishing the debtor's liability and the amount of the debt, he or she is a "judgment creditor" entitled to seek enforcement of that judgment. Other procedures for collecting the judgment debt then are available, such as execution against property, garnishment, or attachment of wages. If a debtor has declared bankruptcy or is in bankruptcy proceedings, this will affect the creditor's rights.

Federal Regulation of Debt Collection

Federal law regulates debt collection generally 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 has primary responsibility for enforcing the Act. The Act applies to persons, including attorneys, who use any means of interstate commerce or the mails in any business having debt collection as its principal purpose, or persons who regularly collect or attempt to collect debts that are owed to another. 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, state that he or she is confirming or correcting location information, and only identify his or her employer if specifically requested. The collector may not state that the consumer owes any debt. The collector may not communicate by post card, or use any indication on correspondence that identifies that the communication relates to the collection of a debt. If the collector knows the consumer is represented by an attorney, the collector should only communicate with that 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 about the debt if the consumer notifies the collector in writing that he or she refuses to pay the debt or that he 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 also 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 necessarily constitute an admission that he or she is liable on the debt. If a consumer owes multiple debts and makes a single payment to a debt collector, the collector may apply the payment to any disputed debt.

Prohibited Practices

The Fair Debt Collection Practices Act prohibits all unfair or unconscionable practices by debt collectors in the collection of consumer claims. 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.

Methods of Collection in Illinois

Although most debt collectors operate in an ethical manner, some resort to abusive or fraudulent tactics to collect an account that is past due. Most states have very specific guidelines regulating what debt collection agencies are allowed to do when attempting to collect unpaid debts. In Illinois, the Collection Agency Act governs the licensing, administration, and collection activities of collection agencies for both consumer and commercial debt. The Act requires all collection agencies to register with the Illinois Department of Professional Regulation and to renew the registration periodically. The registration requirement generally 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 a third party is collecting or attempting to collect the debts.

Under the Illinois Collection Agency Act, a person who is collecting debts may not:

Use or threaten to use violence
Threaten criminal prosecution or other judicial action without basis
Communicate or threaten to communicate with a debtor's employer unless the debtor has been in default for over 30 days and has been given notice of the intention to communicate with the employer
Harass the debtor or the debtor's family with frequent communication
Communicate with a debtor between the hours of 9 p.m. and 8 a.m.
Publish a list of consumers who allegedly refuse to pay debts
Unjustifiably disclose to a person other than the debtor information relating to the debtor's indebtedness
Disclose information about a debt that is reasonably disputed without also disclosing the existence of the dispute
Communicate with a debtor in a form that simulates legal or judicial process or that appears to be authorized by a government agency or official
Misrepresent the amount of the debt or the amount of additional charges when such charges may not be legally added to the existing debt
Engage in dishonorable, unethical, or unprofessional conduct likely to deceive, defraud, or harm the public

The Act provides other restrictions on debt collectors, as well. However, the Act does not restrict anyone in the business of collecting child support debts from contacting a debtor or the debtor's employer frequently, or from publishing a list of child support debtors who are in arrears. Other conduct that would otherwise be prohibited is allowed in connection with collecting child support debts.

The Illinois Department of Professional Regulation is responsible for investigating complaints. The Department is authorized to take appropriate disciplinary action against a collection agency that violates the law. It can place the agency on probationary status, suspend or revoke the agency's license, or impose a fine of up to $1000 per complaint.

Resources

The Illinois Attorney General's Office can provide general information on consumer's rights with regard to debt collection. The Consumer Protection Division of the Attorney General's Office can reached at 500 Second Street South, Springfield, IL 62706, (217) 782-1090.

Businesses with questions about collection practices and debtors that want to check on the collection practices of an Illinois company or register a complaint can contact the Illinois Department of Professional Regulation at 320 Washington Street West, Springfield, IL 62786, (217) 785-0820 or 100 Randolph Street West #9-300, Chicago, IL 60601, (312) 814-4500.

The Federal Trade Commission (FTC) deals with fraud and deceptive business practices. The FTC has legal authority enabling it to file lawsuits and to 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 N.W., Washington, DC 20580, or by calling (202) 326-2222.