Consumer Debt Collection Practices

Creditors and debt collection agencies are allowed to take reasonable steps to enforce and collect payment of debts. The rationale rests upon an efficient and productive economy requiring a credit process. The debt collection practice statutes promote credit extension and debt enforcement practices that are honest, fair and responsible. They do this by placing limits on the kinds of activities that creditors and debt collection agencies can employ to obtain payment of debts.  Most people in the collections industry are aware of the lawsuits which arise for supposed violations, so it is incumbent upon good managers to reduce risk for their companies wherever possible. One of the best strategies is to have an understanding of the various laws, including both federal and state laws, regulating collections. Make sure that people on your collections team always think “compliance” before they act improperly.

Many in-house credit officers mistakenly believe that they are exempt from the collection law statutes, based on the fact that they are not “debt collectors” as defined by the federal Fair Debt Collection Practices Act (FDCPA). It is important to note that North Carolina law also includes a number of statutes affecting collection actions, as well as a set of statutes specifically directed at debt collection practices. These statutes are North Carolina General Statutes Chapters 58 (known as the NC Collection Agency Act) and Chapter 75, specifically §§ 75-50 to 75-56 (known as the NC Debt Collection Act). They protect consumers by regulating conduct undertaken to collect debt.  They impose certain requirements on debt collectors.  They prohibit various types of abusive collection conduct.  And, upon violation, they permit a consumer to recover actual damages, statutory damages, and reasonable attorneys’ fees. There are, however, key differences among these laws and their application. Chapter 75 of the North Carolina General Statutes contains laws relating to monopolies, trusts and consumer protection, including North Carolina’s statute prohibiting unfair or deceptive acts or practices. This chapter also contains the provisions of the NC Debt Collection Act governing debt collection conduct generally.  While the FDCPA generally does not apply to creditors collecting on their own behalf (15 U.S.C. §1692a(6)), the NC Debt Collection Act applies to any person engaged in debt collection from a consumer, which includes a creditor collecting its own accounts. (N.C. Gen. Stat. § 75-50(3)). Therefore, creditors and debt collectors alike must comply with the NC Debt Collection Act when attempting to collect debt from individual consumers. However, the NC Debt Collection Act’s definition of “debt collector” expressly excludes anyone subject to the provisions of the NC Collection Agency Act.

The NC Collection Agency Act is located in Chapter 58 of the General Statutes, and this statute specifically governs conduct of collection agencies. Its provisions, related to unfair or deceptive acts, are similar to the NC Debt Collection Act and its civil liability and penalties provisions.

The NC Debt Collection Act is similar to the FDCPA in defining a “consumer” as a natural person alleged to owe a debt incurred for personal, family, or household purposes, although the NC law additionally includes agricultural purposes. On the other hand, the NC Collection Agency Act defines a “consumer” more broadly, including individuals, groups, or business entities that have incurred any type of debt. Thus, collection agencies must comply with the statutory requirements, whether they are undertaking consumer collections or commercial collections.

As with the federal collections statutes, the North Carolina laws prohibit abusive debt collection conduct and provide for civil liability in the amount of actual damages, statutory damages, and reasonable attorneys’ fees. In general, to successfully win a claim under these laws, a plaintiff must prove actual injury caused by the violation. Note that emotional distress damages may be sufficient to constitute actual injury. In addition to actual damages, a successful plaintiff may recover statutory damages of at least $500 but no more than $4,000 per violation. The plaintiff may also recover a reasonable attorneys’ fee at the court’s discretion.

It is important to be diligent and review your debt collections procedures and practices on a regular basis. If your company is having difficulty collecting on an account, the single most effective form of debt collection for a creditor is filing a lawsuit.

– Paul A. Sheridan