When attempting to collect debts from customers or borrowers in California, it is easy to become frustrated and tempting to harass the debtor into paying the debt. However, this, along with a number of other common practices, must be avoided during the debt collection process. If you have not reviewed your collection process with a business attorney, you should do so. It is possible that your practices are in conflict with one of numerous laws protecting debtors and could expose you and/or your company to liability, particularly in California. Below are four common debt collection practices that should be avoided:
- Ceasing Communication – When dealing with consumer debt collection, it is never wise to continue to pester a debtor after they have requested you to stop doing so. Section 805 of the Federal Fair Debt Collection Practices Act prohibits a creditor from contacting a debtor, with the exception of limited circumstances, once the debtor has provided the creditor with a written request to cease in debt-related communications. One of the exceptions allowed is to communicate the intent to pursue legal recourse in connection with the debt collection effort. Often times, a skilled collection attorney can re-open the lines of communication with the debtor through the drafting of a simple collection lawsuit.
- Inappropriate Late Fees and Service Charges – Federal and California law prohibit the charging of any fees incidental to the principal amount (including late fees and service charges) unless they are disclosed and authorized by the agreement creating the debt or permitted by law. These amounts must also meet the standard of “reasonableness.” Therefore, even though it may be tempting to add additional charges to a long-delinquent debt, you must refrain from arbitrarily doing so if such charges were not previously agreed to. In our experience, courts in Orange County are especially sensitive to this issue in debt collection matters.
- Profane Language & Unlawful Telephone Practices – Section 806 of the Federal Fair Debt Collection Practices Act, and similar California law, prohibit the use of obscene or profane language in connection with the collection of a consumer debt. Businesses must also refrain from calling a debtor repeatedly with the intent to annoy, abuse, or harass.
- Communication with Third Parties – Many companies are unaware that the California Rosenthal Fair Debt Collection Practices Act, and the Federal Fair Debt Collection Practices Act both prohibit debt-related communications with anyone other than the debtor, or the debtor’s attorney. This could include the act of “black listing”, or even simply sharing the existence of the debt with a third party. Furthermore, if the debt information shared with a third party is not accurate, you could also be liable for defamation. Therefore, to avoid such potential liability, it is prudent to communicate through an attorney when in doubt.
The attorneys at The Wallin Firm can assist your company in reviewing your contracts and the process used in attempting to collect debt. We assist businesses and individuals throughout California, with an emphasis in Orange County, San Diego County, Riverside County, San Bernadino County and Los Angeles County.