Part I: Jail is not an option…

Another in our “Notes and the Law” series… Leave us a comment below!

Hi, Attorney Susie here again. Debbie Debtor is an old client of mine. The first time she came into my office, she was in tears, she had recently lost her job and had a family of three to support. In addition to that, she had debt collectors calling her at all times of the day, threatening that she would be sued or even worse that the local sheriff who would put her in jail if she did not pay her debt. Debbie was scared and had every right to be scared, but what she didn’t know is that the law protected her.

One federal law that protects Debbie is called the Fair Debt Collection Practices Act (aka the FDCPA). The FDCPA’s sole purpose is to protect debtors like Debbie from harassment by debt collectors. If the FDCPA is violated, debtors are entitled to money damages including attorney fees (COSTLY!).

As a note buyer, you NEED to be aware of the FDCPA and what it means to you. First, you need to ask yourself, “Am I a debt collector?” Unfortunately, judges and attorneys are still quibbling over who falls within the definition of debt collector. Don’t get TOO worried, there is SOME guidance.

For the most part, a debt collector is any “person” (which includes LLCs, corporations, and possibly your debt collecting dog that you affectionately call “the Enforcer”) that regularly collects or attempts to collect debts owed to another.

You’ve just probably breathed a huge sigh of relief because you are not collecting debts on behalf of another. NOT SO QUICK! Debt collectors are also any persons who are collecting debts that they did not originate (this means YOU).

What does this mean? What can you and what can’t you do?

Let’s start with outgoing phone calls (incoming calls and written communications also have certain parameters, but those will be covered in Parts II and III). Here are some DO NOTs when it comes to making phone calls:

1) DO NOT state that the debtor has engaged in criminal activities by not paying their debt;

2) DO NOT threaten a debtor with a lawsuit (or even hint that you may garnish their wages – even “soft” threats are a no-no);

3) DO NOT threaten that a debtor will be put in jail if they fail to pay (hopefully it goes without saying that threatening harm or violence are no-nos as well);

4) DO NOT call debtors before 8:00 am and after 9 pm (they have their right to privacy!);

5) DO NOT contact a debtor at work if you have been told (orally or in writing) that a debtor cannot receive calls at work (if you want to play it safe, just don’t call a debtor at work!);

You should also be AWARE that you may ONLY speak to the debtor. That’s true in all cases but one. If you know the debtor is represented by an attorney, you can ONLY speak to the debtor’s attorney!

If you’re having trouble tracking a debtor down, you can contact others to get CONTACT information for the debtor (caution: don’t contact any person more than once for such info). However if you contact a third party who is not the debtor’s spouse or attorney, you CANNOT discuss the debt with that person. I recommend playing it safe: only talk to the debtor about the debt.

It is also important to note that the debt collection laws are based on the location of the debtor. That means if Debbie Debtor lives in California, you must follow the laws of the FDCPA and California; regardless of your location.

Brushing up on the FDCPA is a MUST for EVERY note buyer contemplating doing their own servicing. Violating it can have monetary and potentially criminal implications (click here to check out what’s happening in New York).

A great place to get some information on the FDCPA is on the Fair Trade Commission website.

Scenes from next week: Part II: The Right Not to Remain Silent—having the borrower call you.

NOTE: The information presented in this blog is for informational purposes only, and should not be construed as legal advice. There is no intent to create an attorney-client privilege or relationship by reading this blog update.