Know more about Debt Collection Laws: Collections Process, Practices & Methods

When you talk about debt collection, most people think of a hard-hearted man that’s going to come to your house and force you to pay your debts because you’re already way behind on your payments.

As annoying as a debt collector could be, they have the right to reclaim their money. If you’ve taken out a loan, or have any form of debt, it may be a good idea to have at least a basic understanding of the debt collection process as well as the laws that regulate it.

What is Debt Collection?

Lenders have the right to pursue payments of debts owed by businesses or individuals. This is called debt collection. Lenders don’t force you to borrow money from them. Borrowing money is your choice. A lender may let you borrow money upon a certain condition that you will pay it back on time. Most lenders collect a debt from you on a monthly basis, although this can change depending on the terms you’ve agreed upon.

Three Stages of The Debt Collection Process

The debt collection process will only start if you fail to pay your debt on time. Here’s the debt collection process that most lenders follow:

  • First-party agency.

The first stage involves the first-party agency and is usually the first six months of your debt. You will find yourself dealing with an internal collector instead of your creditor during this time.

  • This is the perfect time for you to try and settle your debt, particularly before a middleman gets involved.
  • The internal collector still works for your lender, so you’re still dealing with your lender, indirectly.

 Third-party agency.

Even after a couple of months have passed and you’re still unable to make payments towards your debt, it will be passed on to a third-party agency who will now start collecting from you.

  • A third-party agency will be involved once your lender figures out that you’re not going to pay your debt or you still haven’t paid your debt after several months.
  • A third-party agency is willing to take your debt because they will get a commission out of your debt repayment. This is their fee from the collecting the debt from you.
  • Debt buyer.

This is the stage where your lender writes off your debt and sells it to a collection agency, also called a debt buyer. Lenders also lose money if you can’t repay them so to avoid this problem, they will try to sell your debt to a debt buyer.

  • Once your debt is in the hands of a debt buyer, they will force you to pay it in full.
  • Your lender might also consider turning over your debt to a debt buyer just to make your repayment greater.

Debt Collection Law

Although lenders are legally entitled to try to collect the debts that an individual or a business owes, they still have to follow the legal restrictions stated in the Fair Debt Collection Practices Act.

The Fair Debt Collection Practices Act states that:

  • A debt collector is prohibited from discussing the details of your debt with your family, friends, colleagues, or employer.
  • Debt collectors are only allowed to call you a limited number of times a day.
  • A debt collector is prohibited from using threats, slurs, insults, or obscenities when calling or talking to you.
  • The law also provides solutions for debtors who want to stop receiving calls from debt collectors or collection agencies.
  • Debt collectors and collection agencies are required to verify the debts and end any debt collection procedures if no debt verification was done.

Debt Collection Practices and Methods That Are Not Allowed By Law

Debt collection agencies are hired by lenders if the debtors fail to pay them back after a couple of months of being advised to do so. However, not all debt collection agencies are known to abide by the Fair Debt Collection Practices Act which can make fearful debtors avoid them.

If a debt collection agency is asking you to repay what you owe, you have to take note of their practices and methods that are in violation of the law such as:

  • Verbal abuse.
  • Lying or claiming that they are not from a debt collection agency.
  • Collecting an amount greater than your outstanding debt.
  • Constantly calling you at work even though you’ve already made it formally clear that you are not allowed to take calls when working.
  • Threatens to send you to jail or seize your property.
  • Withholds a percentage of your salary or profit and sends it straight to your lender without a court order.
  • Fabricates information about you and your debt to your family, friends, neighbors, colleagues, or employer.

If a debt collection agency has done any of these violations stated on the Fair Debt Collection Practices Act, you have the right to sue them in a state court. Once proven, you’ll be rewarded for statutory damages.

Debt collection is stressful. Borrowing money from a lender is your choice, and there’s nothing wrong with it especially if you need financial help badly. But you also have to keep in mind that once you borrow money from a lender, you will also have to repay it promptly to avoid further problems. If you need the assistance of a lawyer in this matter, especially if you might encounter personal bankruptcy because of these debt, attorneys here might be of assistance.

Lilly Jordan


Lilly Jordan has been a law writer for more than 20 years, and she hopes to impart legal wisdom to the common reader through her works. She is currently working on a new law piece. A certified “foodie,” Lilly loves to cook for her friends and family. She often tries new dishes whenever she has free time.