While the debtor is rightfully at fault for not being able to pay off their debts, there are various debt relief laws in the country that are aimed to protect them. To be clear, these are not in place to relieve them of their responsibility to pay off what they owe. On the contrary, it is the creditor’s right to call the debtor to ask for payment and sue them in court if the need arises.
However, there are malpractices that are oftentimes abusive – which is why the federal government felt the need to implement a couple of protective laws against collection agencies and creditors themselves. This keeps them in line when they start calling the debtors to force them to pay up.
There are a lot of laws and provisions found on the Federal Trade Commission or FTC website and it is highly suggested that you read through them to have a clear idea of your rights.
When you find yourself deep in debt and seeking debt relief, there are two important laws that you need to know of: FDCPA and TSR.
What is FDCPA?
The FDCPA is short for the Fair Debt Collection Practices Act. The main premise of this law is to protect the consumers and debtors from being harassed by creditors and the collection agency hired to come after what they owe. This law does not condone the collection process but instead, imposes strict rules so the collection process will not turn abusive. Here are important facts that debtors need to know about the coverage of the FDCPA.
- Even though you owe the creditor, you still have the right to be treated fairly and respectfully during the collection process.
- On the first contact by the collection agency, they should do the following: inform you of who they are, why they are calling, the creditor they represent and the total amount that you still owe. Lastly, they should give you their contact details so you will know how to get in touch with them.
- After this initial call (or sometimes before), you have to receive a written correspondence of everything that is on number 2. This is usually within 5 days after the phone call.
- You have the right to tell the collection agency when and how they can get in touch with you next. Ideally, this should be done during the initial contact. You can request them to call you only at home and to not call anyone else – spouse, family members, relatives, employer, etc. Under the law, they are prohibited from calling you early in the morning or late at night.
- You also have the right to tell them to stop calling you – regardless if you are in debt or not. If you are in debt, you can still request for the calls and correspondence to stop and the collection agency will have to follow your request. The only contact that they are allowed to make is to send you a notice of consent and any action that they may take in response to your desire not to have them call (e.g. file a lawsuit).
- To further protect yourself and provide proof in case you have a file a complaint to the FTC for abusive practices, put every correspondence in writing. You can ask for the reference number of the call being made to you (if any) so you can have a recording of that call pulled out in necessary. If you are recording everything in writing, feel free to send a letter with the details of any requests you have made to the collection agency. Pay for return receipt request so you can file the correspondence and you have records of when they received your mail.
- If you negotiated payment terms over the phone, request the collection agency to send you what you have agreed on in writing. Or you can do so yourself but ask for a response to confirm what you have written. This includes the amount you need to pay, total debt still owed and who/where you should be sending your payment to.
- Do not pay for anything that you are sure you do not owe. Sometimes, errors are made wherein you are called for collection of a debt that you have already settled. Do not pay just to make them go away. Send them a written letter informing them of the situation or the wrong debtor information and pay for return receipt request.
- Request for a breakdown of fees and interest rates on the amount that you are requested to pay for.
- Do not completely ignore a collector. You need to respond to them at least once – if only to inform them that you do not want to receive further calls or if they have the wrong debtor.
- No profane language, threats and abusive behaviour should be tolerated. You can file a complaint with the FTC if there is evidence of such practices.
If you need to file a complaint against the collection agency or the creditor, you can get in touch with the Consumer Finance Protection Bureau or the CFPB.
What is TSR?
The other law that you need to be aware of when looking for debt relief is the TSR or the Telemarketing Sales Rule. This protects the interest of consumers against for-profit debt relief companies taking advantage of them. This rule protects debtors in three areas of concern:
Upfront Payment. It has been deemed illegal to collect payment before the debt relief service has been fulfilled. This is aimed at for-profit debt relief companies. They are only allowed to collect payments after debt relief is evident. This evidence can either be one of the following:
- Successful re-negotiation, settlement, reduction or otherwise of the debt amount and payment terms for at least one debt of the debtor.
- Submission of a written debt management plan, settlement agreement or any other agreement that is made between the creditor and the debtor. It should also be noted that both parties should be in agreement.
- Proof of initial payment made to the creditor based on the agreement that the debt relief company helped negotiate.
There is an option to set up an escrow account where the consumer can deposit the service fee of the company. However, it should only be collected once the debtor is satisfied of the services – or at least when a pre-agreed milestone has been met. This applies to full payments or re-negotiations for a lower monthly payment.
Any fees that will be collected as payment for debt relief services should be in accordance with the following:
- Service fee should be collected as debts are paid.
- Fees withdrawn for a debt settled should be proportionate to the total service fee when all debts is settled.
- Total service fee should be an acceptable percentage of what the debtor will be saving as a result of the settlement that the debt relief will help negotiate.
Full Disclosure. Debt relief agencies are required to be upfront with their clients in making them understand debt relief programs. Clients should be well informed of how long they should wait to realize results of their negotiations with creditors. Customers should also have an idea about the cost of availing their debt relief services and any dedicated account associated with it. Effect on the client’s credit standing should also be explained since debt services will have to be placed on their credit report.
For the dedicated account that will be set up, there are five conditions that should be met first:
- The account should be in a financial institution that is adequately insured.
- The debtor maintains full ownership of the account (including interest).
- The debtor is allowed to withdraw funds from this account anytime and not be penalized for it.
- The debt relief company should not own or is not associated with the company housing the account.
- There should be no referral fee agreement between the debt relief company and the financial institution holding the account.
Service Representation. Any misrepresentation or false advertising of services is strictly prohibited by the TSR. The services of for-profit debt relief companies should be clearly stated and no false promises should be made to debtors and consumers. The success rate should be clear, truthful and met when included in the promises made to the debtor.
Knowledge is the Key to Financial Freedom
While these two laws are important, you need to do more research on the laws that will protect your rights. Here are link to help you do a more extensive research.
To know more about debt relief services, get in touch with one of our financial experts in NationalDebtRelief.com. You can do that through live chat, toll free numbers or the short form found on this page. We will be more than happy to sit down with you to help you achieve financial freedom the legitimate way.