FEDERAL and STATE CREDIT REGULATIONS
by Raymond Pater

PROHIBITED ACTS

Many laws regulating collections do not apply if you are collecting your own debt or if the action is undertaken by a regular employee collecting accounts for one employer if the collection efforts are carried on in the name of the employer. Some of the laws also do not apply to an attorney handling claims and collections on behalf of a client and in the attorney's own name. "Consumer" or "debtor" may mean a natural person obligated or allegedly obligated to pay a debt or under different laws may generally mean a purchase for personal or household use.

Prohibited Conduct Includes:

a. Communicating with a debtor in a misleading or deceptive manner, such as using the stationery of an attorney or credit bureau unless the regulated person is an attorney or is a credit bureau and it is disclosed that it is the collection department of the credit bureau.

b. Making an inaccurate, misleading, untrue, or deceptive statement or claim in a communication to collect a debt or concealing or not revealing the purpose of a communication when it is made in connection with collecting a debt.

c. Misrepresenting the legal status of a legal action being taken or threatened or the legal rights of the creditor or debtor.

d. Alleging that accounts have been turned over to innocent purchasers for value.

e. Communicating with a debtor without accurately disclosing the caller's identity or cause expenses to the debtor for a long distance telephone call, telegram, or other charge.

f. Communicating with a debtor, except through billing procedure when the debtor is actively represented by an attorney, the attorney's name and address are known, and the attorney has been contacted in writing by the credit grantor or the credit grantor's representative or agent, unless the attorney representing the debtor fails to answer written communication or fails to discuss the claim on its merits within 30 days after receipt of the written communication.

g. Communicating information relating to a debtor's indebtedness to an employer or an employer's agent unless the communication is specifically authorized in writing by the debtor subsequent to the forwarding of the claim for collection, the communication is in response to an inquiry initiated by the debtor's employer or the employer's agent, or the communication is for the purpose of acquiring location information about the debtor.

h. Using or employing, in connection with collection of a claim, a person acting as a peace or law enforcement officer or any other officer authorized to serve legal papers.

i. Using harassing, oppressive, or abusive method to collect a debt, including causing a telephone to ring or engaging a person in telephone conversation repeatedly, continuously, or at unusual times or places which are known to be inconvenient to the debtor. All communications shall be made from 8 a.m. to 9 p.m. unless the debtor expressly agrees in writing to communications at another time. All telephone communications made from 9 p.m. to 8 a.m. shall be presumed to be made at an inconvenient time in the absence of facts to the contrary.

j. Using profane or obscene language.

k. Communicating with a consumer regarding a debt by post card.

l. Communication with third parties without the prior consent of the consumer given directly to the debt collector, or the express permission of a court of competent jurisdiction, or as reasonably necessary to effectuate a post judgment judicial remedy, a debt collector may not communicate, in connection with the collection of any debt, with any person other than the consumer, his attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector.

m. If a consumer notifies a debt collector in writing that the consumer refuses to pay a debt or that the consumer wishes the debt collector to cease further communication with the consumer, the debt collector shall not communicate further with the consumer with respect to such debt, except to advise the consumer that the debt collector's further efforts are being terminated; to notify the consumer that the debt collector or creditor may invoke specified remedies which are ordinarily invoked by such debt collector or creditor; or where applicable, to notify the consumer that the debt collector or creditor intends to invoke a specified remedy. If such notice from the consumer is made by mail, notification shall be complete upon receipt.

A debt collector should accept a check or other payment instrument postdated by more than five days unless such person is notified in writing of the debt collector's intent to deposit such check or instrument not more than ten nor less than three business days prior to such deposit.

It is prohibited to solicit any postdated check or other postdated payment instrument for the purpose of threatening or instituting criminal prosecution or depositing or threatening to deposit any postdated check or other postdated payment instrument prior to the date on such check or instrument.

A regulated person must within five days after the initial communication with a consumer in connection with the collection of any debt provide written notice of,

(1) The amount of the debt;

(2) The name of the creditor to whom the debt is owed;

(3) A statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector;

(4) A statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and

(5) A statement that, upon the consumer's written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.

If the consumer notifies the debt collector in writing within the thirty-day period described in subsection (a) that the debt, or any portion thereof, is disputed, or that the consumer requests the name and address of the original creditor, the debt collector shall cease collection of the debt, or any disputed portion thereof, until the debt collector obtains verification of the debt or a copy of a judgment, or the name and address of the original creditor, and a copy of such verification or judgment, or name and address of the original creditor, is mailed to the consumer by the debt collector.

Legal actions by debt collectors:

(a) Venue. Any debt collector who brings any legal action on a debt against any consumer shall-

(1) in the case of an action to enforce an interest in real property securing the consumer's obligation, bring such action only in a judicial district or similar legal entity in which such real property is located; or
(2) in the case of an action not described in paragraph (1), bring such action only in the judicial district or similar legal entity-
(A) in which such consumer signed the contract sued upon; or
(B) in which such consumer resides at the commencement of the action.

CREDITOR'S REMEDIES

Obtaining a judgment is often the easy part. Collecting it may be another matter. State Court judgment creditors have various remedies. Those remedies may include:

a. Periodic garnishments
b. Non-periodic garnishments
c. Creditor's examinations
d. Writs of execution
e. Other less frequent remedies

Periodic garnishments
Michigan law allows a garnishment to be in force for 91 days after it is issued. Thus, instead of securing weekly garnishments against wages or salary, one garnishment will be good for approximately three months.

Non-periodic garnishments
One time (non-periodic) garnishments are used against banks or others holding property of a judgment debtor.

Creditor's examinations
A creditor has the right to secure a judgment debtor discovery subpoena directing the judgment debtor to appear in court with certain documents and testify under oath concerning the debtor's assets. This is often used when the creditor doesn't know the debtor's place of employment, his banking sources, or other assets.

Writs of execution
If the debtor has assets worth executing upon, a judgment creditor may obtain a Writ of Execution that directs the Sheriff or court officer to seize the defendant's assets. The Court normally requires a bond before issuing the Writ.

Other less frequent remedies
Other less frequent remedies include the filing of an involuntary bankruptcy, asking the Court to appoint a receiver over the debtor or the debtor's business.

CHOOSING A COLLECTION ATTORNEY

Many judgments are obtained by default. If a defendant fails to answers the Summons and Complaint a default and default judgment may 21 days after the defendant is served. Thus a legal battle as to whether the debt is owed never takes place.

If statements of account were sent to the debtor on a regular basis and the debtor failed to object to the accuracy of those statements, an account stated is created with a presumption that in the absence of mistake or fraud the statements were accurate. Thus, the debtor has a heavy burden in prevailing in any alleged defense.

Having an established relationship with a collection attorney can assist you in deciding what files to proceed on and which to write off. See our article on Debt Collection - Choosing a Collection Attorney for further information.