No honest consumer intentionally defaults on a loan, but there are often unforeseen and extenuating circumstances that occur causing a loan to end up in default. When this happens, creditors have various options open to them to help them recover all or part of the funds owed.
One avenue is using the services of debt collectors, of which there are different types including:
- creditors (businesses to whom money is directly owed) may have their own debt collection department;
- firms that collect debts owed to third parties;
- debt collectors who have purchased the defaulted account from the original creditor (or another debt collector); and
- law firms who work on debt collection actions.
Any of these may have a collection agency merchant account that accepts card payments (whether credit or debit) toward paying off the debt.
Play by the Rules
While there have been harrowing tales of people being hounded by debt collectors, both federal and state laws regulate and restrict several debt collection procedures. On July 16, 2014, the New York Department of Financial Services (DFS) released the revised debt collection regulations for debt buyers and third-party debt collectors.
The revised proposed rules would oblige a debt collector to substantiate not only consumer disputes for defaulted debts but also charged-off debts. The rules also state that creditors must have documentation detailing the ownership of the debt in order to win a default judgment. The rules, when finalized, would also require a sworn statement from the creditor that the statute of limitations on a debt has not expired. In cases where it has, the proposed regulations would also impose further obstacles on collectors seeking to collect on debts barred by the statute. Specifically, the debt collector would first have to send the consumer a written notice which explicitly states that it is a violation of the Fair Debt Collection Practices Act to sue on an expired debt, before accepting payment on it. Consumers should still bear in mind that debt does not disappear simply because it has gone beyond a specified time limit.
Some Other Revisions
- The definition of a “charge-off” is “the accounting action taken by an original creditor to remove a debt obligation from its financial statements by treating it as a loss or expense.”
- The requirement that a debt collector substantiates consumer disputes for “charged-off” debts. The collector now has 60 days in which to provide written substantiation.
- Excluding certain collectors from the definition of “debt collector,” including persons involved in a collection action related to or during litigation.
- Exempting the collector from providing required disclosures if the consumer satisfies the debt within five days of the initial communication.
- Removing the requirement that a statute of limitations notice warns the consumer that a failure to pay a time-barred debt may adversely affect one’s credit history, credit score, and ability to obtain credit.
The update also clarifies that only the consumer has the right to initiate electronic communication and that emails will not be allowed to employer-operated addresses. Consumers must explicitly affirm that they are not providing a work-based email address.
To get started with your collection agency merchant account, contact EMB today at 818-621-4893.