The Federal Trade Commission is responsible for administering the federal Fair Debt Collection Practices Act and Fair Credit Billing Act. According to both federal statutes, creditors and collection agencies are legally required to notify debtors of the amounts they owe and must post their payments expeditiously. Collection agencies must send written validation letters to debtors and report payoffs to credit reporting bureaus.
Fair Credit Billing Act
The federal Fair Credit Billing Act applies to open-ended credit lenders, including credit card issuers and retail merchants that issue credit or department credit. It does not apply to installment contracts, such as car loans, furniture and appliance loans. Furthermore, it does not apply to mortgage lenders. According to the Fair Credit Billing Act, consumers have legal rights to receive credit for billing errors or accounts that are paid in full. Creditors have legal duties to post borrowers' payments as soon as possible and to charge them only for purchased merchandise. Credit card companies have further duties to issue explanation letters upon request. If a consumer requests further information about a charge or disputes a charge, the creditor must provide a written explanation of the charge.
The Fair Credit Billing Act applies to charges of more than $50 and requires prompt refunds and overpayments to accounts. Consumers can file lawsuits against creditors violating the act and may win damages, double the amount of assessed finance charges between $100 and $1,000, attorneys' fees and costs.
Fair Debt Collection Practices Act
Codified in Section 1692 of Title 15 of the United States Code, the federal Fair Debt Collection Practices Act prohibits creditor agencies from using unfair, illegal and deceptive collection practices. The act covers household and family debts, auto loans, mortgages and medical bills; it does not cover commercial or business loans or debt collection practices used by creditors and third-party collection agencies. According to the Fair Debt Collection Practices Act, debt collectors are prohibited from harassing debtors and from calling them after 9 p.m. or before 8 a.m. Furthermore, debt collectors cannot call debtors at work if given instructions not to call them there.
Validation Notice and Request to Stop Contact
According to the Fair Debt Collection Practices Act, all third-party debt collectors must send consumers a written "validation notice." The written notice must notify a consumer of the amount due and owing after the first contact. The letter must also contain information about the debt, including the creditor's name and what the consumer must do if he does not believe he owes the debt.
If the consumer believes he does not owe the debt, he has a right to send a written letter to the credit agency asking the collector to cease further communications. The cease and desist letter must be sent within 30 days after the consumer receives the validation notice. However, if the collection agency produces written proof of the debt's existence, it may resume contact. Furthermore, debt collection agencies have further legal duties when consumers send written dispute letters. Collection agencies must notify credit reporting agencies of the pending disputes and must forward their complaints to original creditors, if applicable.
Multiple Debts and Recourse
Consumers who owe multiple debts to a creditor can make payments to satisfy the debts and can further select which debt to apply the payment. Furthermore, if a consumer disputes a debt but makes a payment to other debts, debt collectors cannot apply the payment to the disputed debt.
Consumers have legal recourse against debt collectors engaging in deceptive or unfair collection practices. They may file private lawsuits in federal or state courts to sue for damages such as medical bills and restitution within one-year from the illegal collection practice. Debt collectors may also face civil fines of up to $1,000 for damages paid to consumers who are not able to prove actual harm. Furthermore, debt collectors can face civil penalties of up to $500,000 or 1 percent of their net worth if consumers file a class action lawsuit. Finally, consumers can contact the Federal Trade Commission to file a complaint against abusive collection agencies.
Considerations
Since state laws can frequently change, do not use this information as a substitute for legal advice. Seek advice through an attorney licensed to practice law in your state.
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