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Collection of Consumer Debts: the Fair Debt Collection Practices Act

In 1978 Congress passed the Fair Debt Collection Practices Act (FDCPA) in an effort to eliminate the abusive tactics used by unscrupulous consumer debt collectors. The Act also provides consumer debtors with a procedure for which they may dispute and obtain verification of the debt. New Jersey business owners need to be aware of its requirements.

The FDCPA applies only to consumer debt, which means that the debt was incurred primarily for personal, household, or family purposes, rather than commercial purposes. Therefore, collections against a corporation are not governed by the provisions of the FDCPA. Further, the FDCPA only restricts the conduct of “debt collectors” which includes only third-party collectors who regularly collect the debts of another, and does not include original creditors. Sheriffs are also not considered debt collectors. This means a New Jersey business owner trying to collect its own debt need not comply.

One question that is often raised is what constitutes “regularly” collecting the debts of another. There is no black and white answer and the courts have refused to set forth a hard and fast rule on the matter. For instance, in one case, the court found that a firm was a debt collector when four percent of its business was dedicated to debt collection, while in another case the court found that the firm was not a debt collector when six percent of its business was comprised of debt collection, partly because that six percent was met by a single case. It is ultimately determined on a case-by-case inquiry.

Within five days of a collector’s first communication with the debtor, the debt collector must advise the debtor of her right to dispute and demand proof of the debt within thirty days. If the debtor disputes the debt within those thirty days, the debt collector must stop all other collection efforts until the collector sends the debtor the requested verification of debt.

In every single communication that the collector has with the debtor, the collector must state that the communication is from a debt collector, that the collector is attempting to collect a debt, and that any information obtained will be used for that purpose. If the collector does not advise the debtor of this, the debtor may have a valid FDCPA violation claim.

Further, all calls to the consumer must be at a reasonable time (i.e. after 8:00 a.m. and before 9:00 p.m.) to a reasonable place (i.e. not at the debtor’s place of business except with permission), and in a reasonable manner (i.e. no threats or other inappropriate language). A collector cannot talk to friends, coworkers, or any third-party about the debt except with explicit permission from the debtor, or unless the third-party is the debtor’s attorney.

Once a debtor tells the creditor to stop calling or stop sending correspondence, the collector cannot call or send anything except written documents that the collector has a legal right or obligation to send, such as a complaint or other notice of legal action.

A failure by the collector to do any of the above could result in the debtor bringing her own lawsuit against the collector for the FDCPA violation. If the debtor proves the violation, she could be awarded up to $1,000 in statutory damages and reasonable attorney fees without proving actual losses. However, the courts can still take into consideration the collector’s attempts to comply with the FDCPA and, if the court finds that the collector’s intentions were good and that the violation was merely an innocent mistake, in which case, the debtor may receive no monetary award.

It is important for both New Jersey debt collectors and New Jersey consumer debtors to be well versed in the provisions of the Fair Debt Collection Practices Act so that both parties can fully protect their rights and comply with their obligations under the Act, and avoid any liability for preventable violations.

The attorneys at McLaughlin & Nardi, LLC are experienced with the Fair Debt Collection Practices Act and its application in New Jersey. To learn more about what we can do to help, please contact one of our lawyers by e-mail or call (973) 890-0004.