What Are the Laws That Regulate a Collection Agency?

The Fair Debt Collection Practices Act governs the legal ways a debt collection agency may pursue consumers for delinquent debts. A collection agency is further regulated by state laws regarding business creation and registration of the business with the state commerce department. These laws work to ensure a debt collection agency pursues consumers responsibly and within ethical boundaries.

Enforcing Government Agency

The Federal Trade Commission enforces the Fair Debt Collection Practices Act. This Act is a collection of laws which regulates how a collection agency may conduct debt collection practices, what debts are covered under the Act and the avenues available for a consumer to report illegal debt collection behavior. The Act is also enforced at the state level by the state attorney general's office. According to the Fair Debt Collection website, a debt collection company may be fined up to $1,000 for each violation of the Fair Debt Collection Practices Act and may be sued for up to $500,000 by a consumer who is the victim of illegal collection behavior.

Debt Collection License

Any business wishing to function as a debt collection agency is required to obtain a debt collection license. The application process for this license is handled at the state level by the department of consumer affairs, department of finance or department of banking. A business applying for a debt collection agency license is required to register with the state where the business is located and remain an active business within that state--not just a mailbox. A sole proprietorship applying for a debt collection license may also be required to obtain a separate business license with the state in which the business is located.

Contacting Debtors

The law requires a collection agency to have permission to contact a consumer regarding a debt. Most credit card agreements, loan documents and mortgages include language which grants permission to debt collector's to contact a consumer in the event of a default on the account. According to the Federal Trade Commission, a collection agency may only contact a debtor at hours which are convenient for the debtor and never between the hours of 9 p.m. and 9 a.m. A debt collection agency contacting a debtor without permission or during prohibited hours is breaking the law.

Debtor Harassment

Federal and state law prohibits a debt collection agency from harassing a debtor in the name of pursuing a delinquent account. Harassing debt collection practices can include using threatening language against the debtor; impersonating law enforcement; implying the debtor will go to jail if he doesn't pay; threatening legal action against the debtor if the company does not have power to do so; and using foul or offensive language against the debtor.