How the Fair Debt Collection Practices Act Works

Debt collection about 100 years before passage of the Fair Debt Collection Practices Act.
Debt collection about 100 years before passage of the Fair Debt Collection Practices Act.
Hulton Archive/Getty Images

If you've never fallen behind on monthly payments for loans or credit purchases, the term "debt collector" may evoke such imagery as the mustached villains of old melodramas who demanded the surrender of dwelling or decency from innocent heroines. Or you may think of Dickensian landlords who thrived in the times when poverty was considered a crime. But for the millions of Americans who have endured the stress and hardship of delinquent bills, the debt collector is an intimidating reality.

American consumer debt continues to grow at a staggering rate. In 2007, national consumer debt totaled more than $2.5 trillion dollars, an average of almost $8,200 for every U.S. citizen [source: Money-Zine]. According to Robert C. Hobbs, deputy director of Boston's National Consumer Law Center, the overwhelming rise in debt can be attributed to such factors as stagnant personal incomes, rising interest rates, identity theft, Internet fraud and the restrictions imposed by bankruptcy-protection laws passed in 2005 [source: Chan].


One result of increased debt has been a proliferation of debt-collection agencies, which in turn has resulted in an increased number of complaints against such agencies. The Federal Trade Commission reported 70,951 complaints against debt collectors in 2007, nearly six times the number of complaints registered in 1999 [source: Chan].

A positive sign that can be inferred from such statistics is that debtors (or their attorneys) are becoming increasingly familiar with their rights. An increased number of complaints suggests that consumers are aware of the legal guidelines of the Fair Debt Collection Practices Act (FDCPA), which limits the tactics that debt collectors may employ. (You can see a copy of the act at the Federal Trade Commission Web site.)

The FDCPA was prepared by the Federal Trade Commission and enacted in 1977. It covers virtually all personal debts -- including credit purchases, mortgages and medical expenses. Unscrupulous debt collectors may be on the rise, but the FDCPA is the debtor's most powerful safeguard against them.

So what does the FDCPA allow -- and not allow? Find out on the next page.


Specifics of the Fair Debt Collection Practices Act

Once your creditor has exhausted all means of collecting payment, your account may be sold to a debt-collection agency.
Once your creditor has exhausted all means of collecting payment, your account may be sold to a debt-collection agency.
Lambert/Getty Images

When you default on credit payments, your creditor -- be it a department store, car dealer, or credit-card company -- is often the first to contact you. Unlike debt-collection agencies, individual creditors aren't bound by the restrictions of the Fair Debt Collection Practices Act. They must, however, abide by the guidelines of state regulations. To review the collection laws that apply to your state, visit the Consumer Action Website and click on the appropriate state link.

Once your account has been sold to a collection agency, that agency is legally obligated to operate within the guidelines of the FDCPA. Most agencies do. Some, however, follow their own loose interpretation of the guidelines. Knowledge of the FDCPA is essential in order to determine if you've been unfairly harassed or threatened by a collection agency.


So here are the rules:

  • Collection agencies usually contact debtors via phone or mail, although contact by telegram or fax is also allowed under the FDCPA. The only means of contact not allowed by the act is a postcard. The act doesn't address contact by e-mail, cell phone or text messaging, although these means are currently prohibited under federal law. In October 2007, however, the debt collection industry appealed to the U.S. government and the Federal Trade Commission to allow for e-mail and cell phone contact. The FTC has yet to make a decision on this issue [source: Poirier].
  • A debt collector must contact you at a convenient time, specified within the FDCPA as not before 8:00 a.m. or after 9:00 p.m. Collectors aren't allowed to call you at work if they know your employer disapproves of such calls.
  • If you've hired an attorney, collectors must deal exclusively with the attorney unless your attorney gives permission for them to contact you. Attorneys are the only third party with whom a collector can discuss your debt. They can contact your friends, employer and family members, but only to obtain such basic information as your address and phone number.
  • Debt collectors must be honest with you. They can't pretend to be lawyers or government employees, nor send you documents disguised to look like legal papers (although they may send you legitimate legal papers if they've initiated legal action against you).
  • Threats, harassment, insults and obscene or abusive language are prohibited. Collectors can't accuse you of having committed a crime or threaten to have you arrested. Nor can they threaten to take legal action or garnish your wages if they have no intention of doing so. In addition, they must refrain from harassment by calling you repeatedly (unless you refuse to answer your phone, an ill-advised course of action).
  • A debt collector may not collect more than what you owed your original creditor. You aren't obligated to pay any interest on your debt (unless you agreed to do so in your original purchase agreement), nor to reimburse the debt collector for phone calls and postage.

What's more important than knowing the rules for debt collectors? Knowing your own rights. We'll cover that next.


How the Fair Debt Collection Practices Act Protects You

Here's a good thing to know: A collection agency must stop calling you if you send them a letter requesting that they stop. After that, they're permitted one additional call or letter to inform you that they will cease contact, or that they are about to initiate legal action. But an end to the calls doesn't mean an end to your debt.

Usually, at first contact, the collector provides the specifics of your debt, including the amount you owe and the creditor to whom you owe it. If not, he or she must send you a written notice within five days. If you dispute any portion of the debt, or disagree with any of the information provided, you have up to 30 days to request a debt validation. If you don't do so within 30 days, the collector will consider your debt valid.


It's often wise to request a validation even if you find no reason to disagree. A validation gives legal proof that the amount of your debt is correct and that the collection agency has been authorized to collect it. Collectors must reply to requests for validation within 30 days.

Your debt may be valid, and the debt collector may be authorized to collect it, but this doesn't mean that the collector's information is 100 percent accurate. A collector's records may state that you owe more debt than you actually do. The collector may lack records of payment. Occasionally, a collector might confuse you with somebody else.

If you dispute your debt, send a letter outlining your dispute to the collection agency within 30 days. (You can see some examples at the Web site). Once the agency receives your letter, all collection efforts must stop until an investigation is conducted.

It might be necessary to sue the collection agency if disputes with your collector can't be resolved, or if you believe the collector has violated the law. You may first want to register a complaint with the FTC, your state Attorney General or Consumer Protection Office, or the American Collectors Association. These agencies have limited resources and usually don't engage in lawsuits except in the most extreme cases of FDCPA violation. Nevertheless, it's a good idea to have officially registered a complaint before proceeding with a lawsuit.

The FDCPA provides guidelines for legal action against collection agencies. If successful, you may receive the amount of damages plus up to $1,000; the collector may also be liable for attorney fees and court costs. The National Association of Consumer Advocates can help you locate an attorney who specializes in such cases.

The best way to avoid dealing with collection agencies is to pay your bills on time. But that's not always possible. We may be beyond the era of poorhouses and debtors' prisons, but financial hardship is not unique to any era. The Fair Debt Collection Practices Act provides you at least some protection.

For more articles about personal finance and money issues, try the next page.


Lots More Information

Related HowStuffWorks Articles

More Great Links

  • Chan, Sewell. "An Outcry Rises as Debt Collectors Play Rough." The New York Times. July 5, 2006.
  • "Consumer Debt Statistics."
  • "Dealing with Debt Collectors FAQ." Nolo.
  • "Debt Collection Guide." New York City Department of Consumer Affairs.
  • "Debt Collection Practices: When Hardball Tactics Go Too Far." Privacy Rights Clearinghouse.
  • "Debt Validation: Pay Only What You Must." April 27, 2007.
  • "Debt Validation: The ultimate weapon against the collection agencies." Credit Info Center.
  • Haley, Jen. "Rogue debt collectors -- how to fight them." CNN. Feb. 29, 2008.
  • "Fair Debt Collection." Federal Trade Commission. March 1999.
  • The Fair Debt Collection Practices Act. Federal Trade Commission.
  • Marshall, J. Christopher. "Office of the U.S. Trustee Launches Civil Enforcement Initiative."
  • Poirier, John. "U.S. Debt Collectors Seek Cellphone, E-mail Access." Reuters. Oct. 10, 2007:
  • "Taking a Business Customer to Small Claims Court." Nolo.