Collections: Remember the Basics

Chris Collver
February 17, 2010 | COMMENTS

Question: What are the rules I must follow when collecting on a loan due to the credit union?

Good question. Although there have been lots of new laws and regulations coming into effect recently, it's a good idea not to forget the basics.

Why? Consider this: It's estimated that over 8,000 fair debt collection lawsuits were filed against collectors in 2009. By comparison, there were “only” a few hundred Truth in Lending Act lawsuits filed in 2009.

The federal Fair Debt Collection Practices Act (FDCPA) is a federal law that applies to debt collectors who collect on behalf of another. However, the California Robbins-Rosenthal Fair Debt Collection Practices Act requires credit unions and others collecting debts on their own to also follow the federal FDCPA.

Communication with Debtor

You may not contact the debtor at any unusual or inconvenient times or places (generally considered to be before 8 a.m. or after 9 p.m.), unless the debtor agrees to it. You may not contact the debtor at work if you are told (orally or in writing) that they are not permitted to receive calls there. While the FDCPA requires collectors to disclose in the initial communication that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose, California law specifically preempts this requirement.

Communications with Third Parties

Because of privacy concerns when communicating with someone other than the debtor, you:

• Must identify yourself, state that you are confirming or correcting location information of the debtor, and if expressly requested, identify your employer
• May not state that the consumer owes any debt
• May not communicate with any person more than once unless requested to do so by that person
• May communicate with consumer reporting agencies, the debtor's attorney, and the debtors' spouse, parent (for a minor), guardian, executor, or administrator

Harassment and False Representations Prohibited

Collectors may not:

• Abuse or harass a debtor or any other person in the collection of a debt (e.g., threaten violence or use profane language)
• Publish a list of members/debtors who refuse to pay their debts (except to a credit bureau)
• Communicate or threaten to communicate false credit information (e.g., falsely imply that collection documents represent legal process)
• Engage in unfair practices, such as misusing postdated checks or communicating by postcard

Amounts Collected

You cannot collect any amount not authorized by the agreement that created the debt (e.g., interest, fees, or late charges not expressly provided for in the loan contract or account agreement). You must apply payments received from the debtor in accordance with the debtor's instructions. (This means which loan(s) the payments apply to, not to the payment application of principal, interest, and fees.)

Contact with Debtor Prohibited

Once you know the debtor is represented by an attorney regarding the debt, you can no longer communicate with anyone other than the attorney, unless the attorney fails to respond to your communication within a reasonable period of time.

You must also cease communications with the debtor if he or she notifies you in writing that:

• He or she refuses to pay a debt
• He or she asks you to cease further communications
• If the notice from the consumer is made by mail, notification shall be complete upon receipt

There are three permissible communications after the written notice from the debtor:

1. To advise the debtor that your collection efforts are being terminated.
2. To notify the debtor that you may invoke specified remedies which are ordinarily invoked by the credit union.
3. Where applicable, to notify the debtor that the credit union intends to invoke a specified remedy.

Chris Collver is a senior legislative and regulatory analyst with the California and Nevada Credit Union Leagues. This article was reprinted with permission from Credit Union Digest, the publication of the California and Nevada Credit Union Leagues.