The Fair Debt Collection Practices Act (FDCPA) governs the relationship between debt collectors and borrowers. It contains a list of guidelines that are designed to ensure that those who owe money to a collection agency are treated fairly. For instance, debtors cannot be contacted at work, after 9 p.m. or if they have filed for bankruptcy. Although the FDCPA generally doesn’t apply to banks and credit unions, it can be in their best interest to comply with the legislation.
The FDCPA Only Applies to Personal or Consumer Loans
It is important to understand that the FDCPA does not apply to business or commercial loans. However, it’s terms may govern how a debt collector can communicate with a borrower if that person uses a personal loan to obtain seed capital for his or her company.
As a general rule, federal debt collection laws only pertain to personal credit cards, home loans and medical bills. State laws may provide debtors with greater levels of protection, and in some cases, they may prohibit debt collection practices that are allowed by federal law.
Why Banks and Credit Unions Should Adhere to FDCPA Rules
The primary reason why financial institutions want to adhere to FDCPA rules whenever possible is that their loans are subject to these guidelines if they are sold to another entity. In such a scenario, a lack of compliance on a lender’s part could make it vulnerable to a lawsuit.
In addition, adopting policies based on existing laws means that employees only have to learn one set of rules. This can reduce the risk of errors taking place during the collection process. It can also prevent workers from inadvertently violating a debtor’s rights while following a policy created by their employers.
The financial institutions benefit because they can spend less money on training and compliance costs. After an employee has learned FDCPA best practices, that person has a skill set that will be relevant for many years to come.
Financial Institutions Need To Be Careful When Contacting Debtors
According to the FDCPA guidelines, parties that are seeking to collect a debt are limited in who they can contact. In most cases, they can only try to get in touch with the primary borrower or that person’s legal counsel. However, in the event that a borrower cannot be located, a financial institution may reach out to other parties in an effort to contact that person.
For instance, a bank might call a borrower’s spouse to obtain a phone number where he or she can be reached during normal business hours. If a debtor has hired an attorney, correspondence must generally be sent to the debtor’s legal counsel. An exception to the rule can be made if that person gives permission for a bank, credit union or debt collection firm to contact the debtor directly.
What to Know About Providing Information to Credit Agencies
It isn’t uncommon for lenders to report information about a borrower to credit agencies on a monthly basis. Information must be reported in accordance with Fair Credit Reporting Act (FCRA) rules. Generally speaking, these rules ensure that financial institutions, debt collection agencies and other parties take reasonable steps to ensure that the information that they relay to credit bureaus is accurate. In addition to governing how information can be reported, it also provides guidelines as to who can access a person’s credit report. In some cases, it may limit what an entity is allowed to see after gaining access to a person’s credit report.
Automaton Can Reduce Costs and Improve Accuracy
As with any other business, lenders strive to be as profitable as possible. In recent years, low interest rates have led to lower margins on credit card, mortgage and other loan products. It is expected that interest rates will remain low until at least 2023, and this means that lenders will need to cut costs in an effort to boost their profit margins.
A variety of automated tools allow banks, credit unions and other lenders to collect past due balances in a timely and legal manner. For instance, automated dialing software can be programmed to avoid making calls before 8 a.m. or after 9 p.m. wherever a borrower happens to live.
It may also be possible to send collection letters that conform to FDCPA rules without any involvement from the financial institution itself. Debtor relationship management programs can also ensure that letters aren’t sent to individuals who have provided written requests to cease future communications.
If a debtor is represented by an attorney, software programs can be used to ensure that correspondence is sent to the attorney instead of directly to the debtor. Generally speaking, phone calls, text messages and emails must also be sent to a debtor’s attorney if that person has hired legal counsel.
Although financial institutions aren’t necessarily required to abide by FDCPA rules, it’s easier to do so whenever possible. Doing so can help to reduce costs, improve customer satisfaction and ensure that employees know what they are supposed to be doing at all times. Ultimately, this can help a financial institution develop goodwill within the community and develop a brand known for doing the right thing at all times.