As a business owner, it may be tempting to act as your own debt collector for commercial (business) loans or outstanding debts. For example, suppose you advance funds to a certain vendor and the vendor delays paying you back for several months. You will likely send gentle reminders and then make more aggressive pleas as time goes on and you seek repayment. Eventually you will want to take matters into your own hands.
There are many reasons why you should proceed cautiously when acting as your own debt collector. To start, the intersection between federal and state law, and the protections afforded to consumers and commercial debtors, complicate debt collection. The Fair Debt Collection Practices Act, a federal law, generally regulates debt collection agencies that collect from consumers generating more than $10 million in collection revenues. Commercial debts are not subject to the FDCPA, but it can be difficult to determine without a lawyer’s advice whether the FDCPA applies. Depending on how a business owner proceeds with debt collection, federal law might be triggered and you would be regulated like a debt-collection company.
First, if a company acts like a debt-collection company, it could be subject to the FDCPA. If the company uses a name other than its full business name to collect debts, federal regulators could take notice. If you are collecting debts-even business debts-be sure to use the full name of your company, not an abbreviated or shortened name.
Second, the federal agency that enforces debt collection-the Consumer Financial Protection Bureau-has authority to decide that companies are considered debt collection companies. While a business owner can try to argue it does not fall within the FDCPA-because it collects only business debt-this distinction could be difficult to draw without the help of an attorney.
Finally, some states have defined debt collection agencies as a creditor “collecting on their own behalf”. This means that any business collecting its own debt is subject to that state’s debt collection agency laws. Large states such as California, New York, and Florida have enacted these laws.
Experts recommend a business collecting its own commercial debts exercise tremendous caution. Common sense courtesy practices, such as calling during business hours, not adding unreasonable additional collection fees, speaking with line staff and threatening to call supervisors, or to confiscate property, are most effective in collecting debt from another business.
To discuss your commercial collections needs, contact attorney Ronald P. Slates today.