It is not uncommon to have small business debtors try to avoid collection agency attempts to collect unpaid invoices by ducking behind rights mandated by the Fair Debt Collection Practices Act (FDCPA). This can be dicey business and small business debt collectors must understand which regulations apply to their collection effort in which laws do not come into play.
I think it would be safe to say that most collection agency activity is with individual consumers or “retail” collections; these debts usually relate to debts such as credit card, medical and phone bills. After repeated attempts by the creditor to attempt to collect on these debts, the small business owner will cease their collection effort and assign or sell the debt to a collection agency which acts in a third-party capacity.
At Pan Am Collections we do not purchase debt from creditors. We act in a third-party capacity to actually collect the bill owed to the creditor. There are however, many entities in the collection agency business that deals exclusively with purchasing unpaid debt.
Further, it is not unusual upon initial contact with the debtor for him/her to request a “validation of debt” in an attempt to slow the collection process. Once a collection agency receives a request for “validation of debt,” the FDCPA mandates that the collection agency must provide a genuine debt validation within 30 days.
The debt valuation document must provide a number of important aspects of the dead; an enumeration of how the debt was collected and copies of any signed agreements obligating the debtor to pay the debt; documentation that the federal or state statute of limitations that apply to the unpaid bill have not expired; and proof that the collection agency is licensed to collect and the debtor’s state.
It is also noteworthy to understand that if the collection agency fails to respond to a debt validation request within 30 days, the agency is required to remove the debt from the consumer’s credit reports. Further, the collection agency must have proofs of the request for credit file deletion that are sent to the three major credit bureaus.
On the other hand, the FDCPA does not apply to small business and commercial collections. A dependable commercial collection agency will not initiate collection activity on a claim unless they have appropriate evidence of the underlying debt in hand. If the business debtor requests validation of the debt it is appropriate to immediately provide that information. Validation of a commercial debt to the debtor and pressures the debtor to pay for a legal debt.
As you can see there are distinct differences between collecting for commercial entities and individuals. It is imperative for any collection agent to fully understand these differences and apply them to appropriate situations.