Fair debt collection broadly refers to regulation of the debt collection industry at both the U.S. Federal and state levels of government. At the Federal level, it is primarily governed by the Fair Debt Collection Practices Act (FDCPA). In addition, many U.S. States also have debt collection laws that regulate the credit and collection industry and give consumer debtors protection from abusive and deceptive practices. Many state laws track the language of the FDCPA, so that they are sometimes referred to as mini-FDCPAs.
U.S. State laws on fair debt collection generally fall into two categories: laws which require persons who are collecting debts from consumers to be licensed, registered or bonded in order to collect from consumers in their states, and laws that protect consumers from specific unfair practices by debt collectors, which may include collection agencies and sometimes original creditors. Many state laws--unlike the FDCPA cover original creditors, thus providing greater protections to consumers than the Federal FDCPA.
Although not all U.S. states have such laws, the unfair practices that are prohibited generally track those that are also prohibited under the FDCPA. Some states have a complete prohibition against collecting from its residents unless the collection agency has complied with licensing or bonding, others exempt out-of-state collectors from those requirements. Examples of prohibitions of unfair practices by collectors include contacting employers after having been given notice not to do so, pretending to be a government agency, pretending to be an attorney or falsely threatening with a lawsuit.
Most state fair debt collection laws also provide for a private cause of action by consumers against collectors that violate their provisions. A U.S. state is any one of the fifty subnational entities of the United States of America that share sovereignty with the federal government (four states use the official title of commonwealth rather than state). Because of this shared sovereignty, an American is a citizen both of the federal entity and of his or her state of domicile. However, state citizenship is very flexible, and no government approval is required to move between states (with the exception of convicts on parole).
The term creditor is frequently used in the financial world, especially in reference to short term loans, long term bonds, and mortgages. In law, a person who has a money judgment entered in their favor by a court is called a judgement creditor. The term creditor derives from the notion of credit. In modern America, credit refers to a rating which indicates the likelihood a borrower will pay back his or her loan. In earlier times, credit also referred to reputation or trustworthiness.
Collection calls inform a debtor of his obligation and motivate repayment. In the US, the FDCPA prohibits calls to the debtor if the call will cost the debtor toll charges or air time charges. If a person answers, the call center may track statistics (e.g., the times and days when someone answers) in order to place calls at times when the debtor is more likely to be home.
A collection agency is a business that pursues payments on debts owed by individuals or businesses. Most collection agencies operate as agents of creditors and collect debts for a fee or percentage of the total amount owed. Some agencies, sometimes referred to as debt buyers, purchase debts from creditors for a fraction of the value of the debt and pursue the debtor for the full balance.
Creditors typically send debts to a collection agency in order to remove them from their accounts receivable records; the difference between the amount collected and the full value of the debt is then written off as a loss.. In many countries, collection agencies are governed by laws that prohibit certain abusive practices. Failure to adhere to such laws may result in lawsuits or government regulatory actions.