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Congress Proposes Law to Exempt Creditor Lawyers from Debt Collection RegulationsThe U.S. House of Representatives is considering legislation that would exempt creditors’ rights lawyers from the federal regulations meant for debt collectors. The Practice of Law Technical Clarification Act would amend both the Fair Debt Collection Practices Act and the Consumer Financial Protection Act of 2010 so that:

  • Law firms engaged in litigation are excluded from the definition of a debt collector; and
  • The Consumer Financial Protection Bureau does not have authority over attorneys who are not acting as debt collectors.

If the law passes, state courts would have primary authority to determine whether a creditor lawyer is guilty of misconduct in a case.

Lawyer Exemption

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Convenience Fees Not Allowed Without Consent in Debt AgreementDebtors have multiple payment methods they can use to transfer money when repaying debts. Some forms of payment incur additional convenience fees, such as when debtors use credit cards or money orders. Creditors have at times formed agreements with the third-party vendors to share these convenience fees. However, they should examine state laws and their contracts with debtors before entering such agreements. Creditors and debt collectors are often prohibited by law from collecting convenience fees and may be punished for doing so.

Federal and State Law

The Fair Debt Collection Practices Act states that a debt collector cannot institute a fee that increases the amount a debtor owes unless:

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U.S. Supreme Court Rules in Favor of Creditors Making Stale ClaimsThe creditor industry scored a victory in May when the U.S. Supreme Court ruled that creditors are not violating the Fair Debt Collection Practices Act when they file a stale claim during a debtor’s chapter 13 bankruptcy proceedings. The 5-3 decision overturned a lower court ruling that such claims were unfair and deceptive. The decision removes some of the burden on creditors for determining when the statute of limitations for claiming a debt has expired, and protects them from debtor lawsuits that claim they violated the FDCPA.

Stale Claims

Creditors may have an unlimited time to attempt to collect a debt, but there is a limited time period during which they can use court action. When a creditor attempts to use legal action to collect on a debt that has passed that deadline, it is known as a stale claim. The statute of limitations varies by state, and creditors with debtors in multiple states may find it difficult to keep track of the different deadlines. In Illinois, the deadlines for court action are:

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b2ap3_thumbnail_Creditors-Rights-Debt-Collection.jpgOne of the first steps creditors take when owed money by a debtor is to try to collect the debt themselves without going to court. The creditor may contact the debtor directly or hire a debt collection agency. While debt collection agencies can be effective, there are federal laws in place to protect debtors against what are seen as unfair practices by collection agencies.

The Fair Debt Collection Practices Act outlines how debt collection agencies may contact and interact with debtors. If a court finds an agency in violation of the act, the agency may owe damages to the debtor. The Act does not apply to the creditor, but the result of a collection agency violating the Act may be the failure to retrieve the money the creditor is owed.

Creditors should understand what debt collection agencies can and cannot do. Choosing an agency that violates the law will delay and complicate the collection process, likely requiring further legal action.

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Illinois Creditors Bar Association Chicago Bar Association Illinois State Bar Association
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