If you’re trying to collect a debt for a third party, failing to follow the rules of the Federal Debt Collection Practices Act could prove costly.
The Act, which provides for consumer damages if violated, was passed by Congress to prevent harassment of consumers who may fall into debt and be unable to pay it off, says Jennifer Ervin, an associate, bar results pending, at Baker, Donelson, Bearman, Caldwell & Berkowitz, PC.
“The intent was to make the transaction of acquiring debt less of a nightmare to consumers when it’s time to pay the debt if they are in default,” says Ervin.
Smart Business spoke with Ervin about how to avoid running afoul of the law when collecting debt for a third party.
What is the Federal Debt Collection Practices Act?
The FDCPA is a federal law that prohibits unfair debt collection practices, such as lying, harassing or otherwise abusive collection methods. However, the Act prohibits conduct only by debt collectors collecting debt on behalf of a third party; it does not apply to creditors collecting their own debt.
The purpose of the Act is to stop abusive debt collection practices to ensure that debt collectors who already refrained from those practices were not disadvantaged and to promote consistent action to protect consumers from those practices. Ultimately, as long as the debt collection company is not harassing the consumer or lying, for example, the debt can be pursued.
Who can pursue action under the Act?
Any person who is considered a consumer can sue under the Act. A consumer is defined as a natural person obligated, or allegedly obligated, to pay a debt. That means that basically any American can bring an action against a debt collector who is violating this statute. Because it is a federal offense, relief may be sought under the federal court system.
To pursue a claim, you have to prove three things. First, you must prove that you are a consumer who has been the object of collection activity arising from debt. Second, you have to prove that the defendant is a debt collector as defined by the Act. You have to prove that the agency is a third-party debt collector; a key distinction would be a lender that is foreclosing on a security deed that the borrower has defaulted on. If the lender is in the act of pursuing action and foreclosing, that does not make that lender a debt collector under the act.
The third thing you need to prove is that the defendant has engaged in an act or omission that is prohibited under the Act. If you can prove all three of those things, you have a high likelihood of succeeding in your claim.