Credit & Collections Law: What You Need To Know

It’s all well and good to keep track of the latest best practices in credit and collections and try to get creative in your methods to collect on open invoices, however, there are laws that need to be followed. There are numerous laws in place that protect consumers and buyers when it comes to collections practices, but usually leave businesses within a narrow scope to do their jobs and collect. If these laws are violated, they could come with some hefty fines and punishments. Your credit and collections teams should at least know the basics of these laws.

Fair Credit Billing Act
The Fair Credit Billing Act is what paved the way for a customer to dispute an invoice. Including in the act are a number of reasons they must dispute, including charges in the wrong amount, damaged goods, goods or services never received or a consumer wants a charge clarified. The important part of the act for credit and collections professionals to know is a consumer must dispute the invoice in a written statement within 60 days.

Fair Credit Reporting Act
The Fair Credit Reporting Act protects individuals from a negative mark on their credit report that may be untrue. Credit and collections are mostly effected by this law because we are often reporting back to the credit bureaus. Before reporting an adverse action back to the bureau, we must notify the individual. When you are reporting back to a credit bureau, you must also notify what company you are from so the individual has a right to contest it.

Equal Credit Opportunity Act
The Equal Credit Opportunity Act bans a business from refusing to extend credit to someone based off of sex, marital status, race, color, religion, national origin or age. If you are denying credit to someone, you must provide a written statement of why within 30 days to ensure no discrimination has taken place.

Truth in Lending Act
The Truth in Lending Act requires businesses to inform your potential clients of the true cost of borrowing money. For example, if you allow a customer to pay back over a longer period of time, you must show the total cost 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 rate.

Fair Debt Collection Practices Act
This act defines what actions you may not take in order to collect on a debt, specifically focusing on actions such as deception. These actions include prohibiting the collector from communicating with a debtor during inconvenient hours, such as 8 or 9 p.m. in their time zone, you cannot communicate with a debtor who is represented by an attorney, you cannot use harassing or abusive language and you cannot lie about who you are, such as a credit bureau or lawyer, to try and get them to pay.

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