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Avoiding the Legal Pitfalls

If you're going to extend credit and to do some of your own debt collecting, you'll need to be aware of the basic guidelines for what you can and cannot do. Here's an overview of the legal rules you'll have to obey.

Disclosure of interest rates and terms. The Fair Billing Credit Act requires you to disclose your credit terms to certain of your customers. The law does not apply to commercial transactions. Therefore, it will not apply to you unless you have sold on credit to an individual any personal, family, household, or agricultural goods. Essentially, you have to tell them clearly and conspicuously what the annual percentage rate or the finance charge is and of their right to rescind certain transactions.

Debt collection practices. The Fair Debt Collection Practices Act prohibits what are called abusive, deceptive, and unfair debt collection practices. They do not apply to you if you are collecting on your own behalf but they do apply to a lawyer or collection agency who may be acting on your behalf. Since you are legally responsible for what your lawyer or collection agency does, you should be aware of these laws. Even if you are collecting a debt yourself, it's a good practice to follow these guidelines. Here are the highlights:

  • The laws apply only to efforts to collect from individuals. They do not apply to efforts to collect from businesses.
  • You cannot contact an individual debtor before 8 a.m. or after 9 p.m., unless you have his permission. You cannot contact a debtor at any other inconvenient or unusual time or place.
  • If you know the debtor is represented by an attorney, you cannot contact the debtor directly, without his permission. Instead, you must contact the attorney.
  • You cannot contact the debtor at his place of employment, if you know or have reason to know that the employer prohibits such communication.
  • Unless you have permission from the debtor, the only people you can contact about the debt are the debtor, his attorney, or a consumer reporting agency (if permitted by law). You cannot contact family members or his employer.
  • If the debtor notifies you in writing that he will not pay the debt or that he wants you to stop contacting him, you cannot contact him again except in a few limited situations, most notably to inform him you're invoking specified remedies. (This exception allows you to serve him with a complaint if you decide to file suit against him.)
  • You cannot contact a debtor if you have notice that the debtor has filed for bankruptcy.

Harassment or abuse. The Fair Debt Collection Practices Act also says that debt collectors cannot harass or abuse your customer when collecting a debt. Here are some of the things you cannot do:

  • You cannot threaten your customer with violence or other criminal conduct.
  • You cannot use obscene or profane language to abuse your customer (even if the customer uses it first)!
  • You cannot publish a list of customers who don't pay their debts, except to a credit reporting agency.
  • You cannot advertise the sale of a customer's debt for the purpose of coercing him to pay.
  • You cannot repeatedly call him on the telephone.
  • You cannot call him without telling him who you are.

False or misleading representations. The Fair Debt Collection Practices Act also says that debt collectors cannot give misleading statements to the debtor. Here are some of the things you cannot do:

  • You cannot claim to be a lawyer if you aren't one.
  • You cannot say that the failure to pay the debt will land the debtor in prison.
  • You cannot threaten the debtor with any action that cannot be legally taken.
  • You cannot threaten to reveal false credit information about the creditor in order to get him to pay the debt.

Unfair practices. The Fair Debt Collection Practices Act says that debt collectors cannot use what are called unfair tactics to collect debts. Here are some of the things you can't do:

  • You cannot try to collect an amount (such as interest) unless you are authorized by the agreement to collect it.
  • You cannot threaten to deposit a postdated check before the date on the check.
  • You cannot communicate by post card with a debtor about his debt.

Pursuing payment by individual corporate officers. The Uniform Commercial Code is a series of model laws governing commercial transactions that have been adopted in full or in part by every state except Louisiana. For the most part, you can leave the inner workings of the UCC to your lawyer. There is, however, one provision that you may want to keep in mind. If you do business with a corporation and it writes you a check, pay particular attention to how the check is signed. If the corporate officer who signs the check signs it without reference to a title or a capacity, he or she is personally liable for the amount. In most cases, this won't matter. But if the company should go out of business or declare bankruptcy before you're paid, which can happen, you can still pursue payment from the individual.

Price discrimination. The federal Robinson-Patman Act forbids price discrimination. Although this law shouldn't come up much, you might want to know that it exists. You're not supposed to charge different prices to different customers unless the difference is due to differences in the manufacture, sale, or delivery of the goods or services. So, the question arises: can you charge your uncle a lower price without violating the law? Of course you can, so long as you're not giving the discount for the purpose of lessening competition or creating a monopoly.