What collection threats are legal?

This is a very important question – at the heart of how to manage debt collection. What can you legally tell your debtors about the consequences if they don’t pay?

First, and VERY IMPORTANT: This is NOT LEGAL ADVICE. We are NOT ATTORNEYS. Although we work closely with Attorneys, we cannot ourselves provide guidance on legal matters. Please consult an Attorney for definitive answers.

Second, and also very important: If you use MaxCollect, then the issues raised on this page have already been taken into account. All actions, taken on your behalf by MoneyQuest and your Retained Attorney, have been designed to leverage EVERY effective legal means available. MaxCollect gives you the punch of Attorney and Credit Bureau action without violating the rules. This page explains why traditional methods fall short.

Seek legal adviceWith the above caveat clearly understood, we can talk in general about U.S. debt collection, and the types of actions that we have been told create legal risk for a business like yours as you try to recover your money.

  • The Fair Debt Collection Practices Act (FDCPA). In the U.S., the Federal Trade Commission (FTC) enforces the Fair Debt Collection Practices Act. This body of law establishes critical rules that govern what you can do to recover debts. Although its main focus is on traditional collection agencies, the law spells out many aspects of how creditors can go about collecting debts. A Wikipedia article about the FDCPA provides more information. (Again, for legal questions, consult an Attorney.)
    Attorney
  • Threatening Attorney action. Probably the most effective collection message you can give is that a debtor’s account will be turned over to an Attorney for action and possible litigation. However, with traditional collection methods and in many other situations, making such a statement can be ILLEGAL! Threatening legal action can be improper unless certain specific conditions are met. The MaxCollect process was designed to meet those conditions. To warn of legal action, it must be “credible” – in other words, if you say you are going to refer the matter to an Attorney, then you really MUST be about to do so. Otherwise, unless you use a highly structured recovery process – where non-payment WILL automatically lead to Attorney action – then any mention of an Attorney or legal action may be considered an illegal, non-credible threat. You can’t make idle threats!
    Credit impact
  • Threatening Credit Bureau impact. Another effective collection message is that a debtor will be reported to a credit bureau, possibly damaging the debtor’s credit rating. As with warning of Attorney action, simply threatening credit damage may be considered ILLEGAL unless it is backed up by a consistent process that really does utilize Credit Bureau reporting. Unless you use such a process, in which non-payment will automatically lead to credit impact, any mention of Credit Bureau reporting may be considered an illegal, non-credible threat. You can’t make idle threats!
    Collection agency
  • Threatening Collection Agency action. A third very effective collection threat is that a debtor account will be turned over to a Collection Agency. Regardless of whether you use an Attorney, a traditional Collection Agency, or some other collection resource, the FDCPA rules place heavy restrictions on what collection steps you can take, and what warnings you can give. If your normal A/R process does NOT include such steps AS A MATTER OF COURSE, then any mention of a Collection Agency may be considered an illegal, non-credible threat. You can’t make idle threats!

These issues were considered carefully in designing the MaxCollect system and its recovery process. A key element of this process is the use of finely-crafted letters, which our Attorneys have constructed to take advantage of every effective collection message that can be legally made.

Powerful lettersWhen you examine the design of the MaxCollect letters, you’ll see how their language gets maximum leverage. The MaxCollect letters can only use this language because they are credible warnings – they simply inform the debtor what will inevitably happen if payment is not made. The MaxCollect process ensures that all debtors are treated correctly, using the same FAIR set of contact and follow-up rules.