The Bureau of Consumer Protection within the Federal Trade Commission is responsible for protecting consumers against illegal or deceptive business practices. The bureau administers the federal Fair Debt Collection Practices Act and requires credit collection agencies to comply with the federal disclosure and anti-harassment regulations. Credit collection agencies that fail to comply with the act face criminal and civil sanctions.
Fair Debt Collection Practices Act
The Fair Debt Collection Practices Act covers household debts, personal credit card debts, auto loans, mortgages and medical bills. It does not cover commercial or business debts. Often, creditors sell, transfer or assign their debts to third-party collection agencies to collect their debts for less than the remaining balance of their debts.
Mandatory Disclosures
According to the Fair Debt Collection Practices Act, collection agencies must send written notices to consumers within five days of first contact. A collection agency's "validation notice" must contain the original creditor's name, the amount of the debt and must inform a consumer of how to appeal or challenge the debt. Moreover, credit agencies must comply with the act's disclosure regulations when contacting consumers by telephone. Credit collectors must disclose their names and the names of the agencies they work for each time they contact customers by telephone, and they may not contact debtors outside of the hours between 8 a.m. and 9 p.m.
Holder in Due Course Rule
The Federal Trade Commission passed the "Holder in Due Course Rule" to address situations that arise when merchants sell their debts to third parties. The rule is actually a preservation of legal defense doctrine that allows consumers the legal right to pursue third parties for promises made by original merchants. For instance, when a car buyer purchases a vehicle from an automobile dealer, the dealer may sell the consumer a car warranty, and unbeknown to the buyer, the car dealer has sold his loan to a third-party credit agency.
Unfortunately, before the FTC passed this rule, third-party collection agencies or creditors could assert an affirmative defense of lack of privity between themselves and consumers; in turn, they did not have to honor the terms of original warranties, since they did not assent to them, and they were not involved in contract negotiations. The Holder in Due Course Rule requires third-party collection agencies and creditors to comply with any existing promises provided by the original lenders.
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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