Referring An Account To A Collection Agency Triggers Full FDCPA Rules

The Situation

One collector-sounding letterhead can put your own billers under federal collector rules. The Federal Fair Debt Collection Practices Act (FDCPA) covers third parties such as collection agencies and collection attorneys, not the original creditor collecting its own debt, according to the Morrison Law Group, a Utah law firm. So the day you refer a past-due propane account to an agency, the FDCPA starts to apply. On your reminder ladder, the referral step is where the rules change.

The Facts

The exemption has one catch. The Morrison Law Group notes that a creditor collecting its own debt loses it if it collects under a different name that suggests a third party is involved. Check your letterhead. The trigger is a name that reads like an outside collector rather than your dealership or its known trade name.

Once the FDCPA applies, two contact rules carry the most weight, according to the same firm. A collector that knows a customer has hired an attorney must stop calling the customer and deal only with that attorney. After a customer asks in writing for contact to stop, the collector may reach out only to confirm contact is ending or to give notice of a specific next step, such as a lawsuit.

Accounts that never leave your name answer to state law instead. Colorado's version, the CFDCPA, does not apply to creditors collecting their own debts, according to the Colorado Attorney General's office. Other states write their rules differently, so a dealer serving customers in more than one state should check each state's statute.

Business Impact

Skycom, a collections industry blog, put it plainly: "Outsourcing the debt does not outsource the blame." When an agency oversteps, customers rarely tell it apart from the business that handed over the account, the blog says. A rough call from your agency lands on your dealership's name, so pick your agency with the same care you give your own billers.

Action Steps

1. 1.This week, pull every past-due letter, phone script and caller-ID label, and fix any that could pass for a third-party collector's name.
2. 2.Write down each step from first reminder letter to second notice to referral, including the days-past-due point that triggers referral, so every biller follows the same order.
3. 3.Look up the debt-collection statute in each state where you serve customers before you finalize the ladder.
4. 4.When a customer's attorney contacts you or a customer sends a written stop-contact request, pause in-house calls and get legal advice before the next contact.

Competitive Advantage

A one-page written ladder gives your billers the same answer on every account. It only protects you if every notice on it goes out under your own name.