Credit and Collections Law: The Basics

When you're trying to come up with a way to get customers to respond to your collection emails and past due notices, you can try to get a little creative sometimes. Maybe you test out a couple different times to send email to see which is the most responsive or you get a little catchy with your email subject lines. Although this may seem harmless, there are a few credit and collections laws that you should be aware of when testing out some new ways to collect on past due accounts. Once these laws are violated, there could be some hefty fines of punishments as a consequence. Make sure you are familiar with these basic credit and collections laws before you send your next letter or make your next phone call.

Fair Credit Billing Act
Without the Fair Credit Billing Act, customers would not have the ability to dispute an invoice as they do today. There are a number of reasons included in the Fair Credit Billing Act where a customer can dispute, such as damaged goods, charges in the wrong amount, goods or services they never received or when a customer wants a charge clarified. The most important part of the Fair Credit Billing Act for a collector is to know the length of time a consumer has to dispute an invoice. According to the Fair Credit Billing Act, a customer has 60 days to dispute in invoice with a written statement.

Fair Debt Collection Practices Act
This act is probably the most important one for credit and collections professionals to pay attention to. Within this act are specific guidelines to how and what you can do to collect from customers without stepping over the law. More specifically this act defines what may be taken as "deceptive". Some actions prohibited by the Fair Debt Collection Practices Act include communicating with debtor past 8 or 9 p.m. in their time zone, using harrassing or abusive language or speaking with a debtor who is currently represented by an attorney. Most importantly, you cannot be deceiving of who you are in order to attempt to collect, for example stating you are the credit bureau or a lawyer. 

Fair Credit Reporting Act
Often times we have to report back to credit bureaus when a customer is not respecting our payment terms, which makes this an important act for credit and collections professionals to know. The Fair Credit Reporting Act protects individuals from untrue negative marks on their credit report. Before reporting a negative remark on a customer to a credit bureau, it is imperative that you first notify the individual that you will be doing so. When reporting, you also must state which company you are from so the individual has the opportunity to contest it.

Equal Credit Opportunity Act
In the accounts receivable department we are often approving and giving out credit to customers. The Equal Credit Opportunity Act insures that no customer is denied credit for prejudicial reasons. Specifically, the act prohibits the denying of credit to someone based off of sex, marital status, race, color, religion, national origin or age. If you end up having to deny someone credit, you must provide a written statement explaining why within 30 days in order to ensure no discrimination has taken place.

Truth in Lending Act
The Truth in Lending Act ensures that a customer is aware of their total cost of borrowing before any contracts are signed. If you are extending credit to a customer, you must show the total cost of borrowing including interest and financing charges. You are required, according to the act, to show finance charges and interest rates in terms of an annual percentage. 

In order to avoid coming across many of these potential issues, you can automate the credit and collections process. Emails will be pre-created in a template to be sent out automatically to a customer, eliminating the potential of a collector losing their cool and violating the Fair Debt Collection Practices Act. By automating the collections process, you can use a formulated credit application, eliminating the possibility of prejudicial credit managers violating the Equal Credit Opportunity Act. Using an automated accounts receivable software will allow you to report back to credit bureaus from within the system, ensuring you're complying with the Fair Credit Reporting Act, as well as automate the Notice of Legal Action email to the customer that you may be reporting negative marks against. Simply put, these legal concerns are all taken care of when the process of credit and collections becomes automated.