The FDCPA and Your Collection Letters
As a small business owner or accounts receivable professional you may have concerns about what you can legally say in your collection letters – this brief article will address what you can say and what you should say.
What Is the FDCPA?
The Fair Debt Collection Practices Act (FDCPA) is the main federal law that governs debt collection practices. The FDCPA prohibits debt collection companies from using abusive, unfair or deceptive practices to collect debts.
What Does the FDCPA Regulate?
It typically covers the collection of mortgages, credit cards, medical debts and other personal, family, or household debts.
Who Does the FDCPA Regulate?
The FDCPA or Fair Debt Collection Practices Act was written for 3rd party debt collectors, not for you as a small business owner or credit manager. (I lifted the next 1 paragraph directly from the Consumer Financial Protection Bureau)
Under the FDCPA, debt collectors include collection agencies, debt buyers, and lawyers who regularly collect debts as part of their business. There are also companies that buy past-due debts from creditors or other businesses and then try to collect them. These debt collectors are also usually called debt collection agencies, debt collection companies, or debt buyers.
The FDCPA does not cover business debts or original creditors. The original creditor is the person or company the debt was originally owed to, typically that’s you.
What Can I Say?
As a 1st party debt collector or the person that owns the debt, you can say pretty much whatever you want. Mind you, that doesn’t mean you should say whatever you want, but we’ll get into that in a minute. Some states are considering laws to regulate what in-house collectors can say, leave it to California, but for now, as an in-house debt collector, your calls and letters are NOT regulated by the FDCPA.
What Should I Say?
I’ve written an article titled “How to Write a Collection Letter”. It outlines everything that should be included in a well-written collection letter. But, I suspect what you really want to know is what you have to say to get them to pay.
Unfortunately, there is no simple set of words that will make someone pay that doesn’t want to, or thinks he can’t. But a good collection letter sent at the right time can and often does get the ball rolling and every complete Accounts Receivable Management System should include a series of not more than three in-house collection letters.
That said, sending a standardized letter right off the bat may do more harm than good. Before sending a letter ask;
Is your late paying customer generally a prompt pay? If he is there may be a problem with either your service, your product or your billing. Before sending out a dunning letter you’ll want to give your customer a call to make certain all is well.
Avoid using collection letters to replace appropriate communication with your customer. Sending written demands is the last step in your in-house collection process, not the first step!
When Should I Send My First Letter?
Generally speaking, first try emailing and calling for payment status. Before sending a letter you should make several attempts to reach your customer. At least 3 calls and 3 emails. Be reasonable, don’t call 3 times in one day and then send a letter. Give your customer a full day to get back to you, in other words make a call, send an email, do nothing the next day then try again.
If your customer repeatedly refuses your calls, is in a meeting or out to lunch every time you try, doesn’t reply to email or breaks promises to pay it’s probably time for a written demand.
Summing up, don’t worry about the legality of your letter, focus instead on it’s appropriateness to the situation.