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Regulating Commercial Debt Collection

Originally published: May 2010


Who’s Minding the Store?

Clients and prospects often ask us about ABC-Amega's adherence to the Fair Debt Collection Practices Act. Until we explain further, they're surprised when we tell them that we aren't regulated by the FDCPA.

It isn't that ABC-Amega takes a cavalier attitude concerning legislation geared toward maintaining high standards within the collections industry. Quite the contrary, our core values center around the kinds of practices such legislation promotes.

So why not state we comply? Because the FDCPA applies to consumer collection agencies only – not to commercial (business-to-business) collections firms like ABC-Amega.

Since there seems to be some confusion about this among creditors and debtors alike, we've provided basic information about the FDCPA , followed by a briefing on how commercial collection firms are regulated.

What is the Fair Debt Collection Practices Act?

The U.S. Congress enacted the FDCPA in 1977 and added it to the Consumer Credit Protection Act in 1978. Its purpose is to eliminate abusive practices of third-party debt collectors. To that end, the Act establishes guidelines for the conduct of debt collectors, defines the rights of consumers, and prescribes penalties for violations.

The FDCPA defines “debt collectors” as “any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debt … asserted to be owed or due another.”

In other words, “debt collectors” are defined as third parties collecting for a creditor. (As of a 1986 amendment, the FDCPA definition of “debt collector” also includes attorneys who collect debts on a regular basis.)

"Consumers” and “debt” covered under the FDCPA are defined as specifically referring to personal, family or household transactions. Therefore, debts owed by businesses or by individuals for business purposes (commercial debts) are not subject to the FDCPA.

So, if the FDCPA does not apply to commercial debt collection by third parties, how are commercial collectors regulated?

There are no U.S. federal laws, similar to the FDCPA, that regulate third-party commercial (business-to-business) debt collection or provide guidelines for the conduct of commercial debt collectors.

So, who, so to speak, is minding the store? Who or what, if anything, is protecting the rights of commercial creditors and debtors?

State Governments – Licenses and Bonds

In some U.S. states, commercial collection firms must be licensed in order to do business in those states. For the protection of creditors, most of these states also require that the firms be bonded. In some states, licensing is required to collect for creditors of that state; in others, to collect against debtors located in the state.

Licensing requirements generally involve submission of a Licensing Application. Together with the application, the collection firm is typically required to provide financials and other information about the firm; purchase a bond (amounts vary by state) for protection of that state’s creditors; and, pay a licensing fee (anywhere from less than fifty dollars to $1,000.00). Renewal Applications, along with renewal fees, are required either once a year or once every two years.

Beyond that, further requirements differ from state to state. For instance:
  • Nevada and Tennessee require someone from the collection firm to travel to the state and take an exam to become a licensed “Collection Agency Manager“ (NV) or “Location Manager” (TN).
  • Arizona and Wisconsin conduct periodic audits of collection firms licensed in their state.
  • North Carolina requires the collection firm maintain a separate North Carolina Trust (Bank) Account in which monies collected on behalf of North Carolina creditors are deposited before being remitted to the creditor. (More about Trust Accounts later.)
Getting licensed to collect throughout all U.S. states can be a time-consuming and expensive proposition. As a result, there are collection agencies that just don’t bother. It's important, therefore, that any commercial creditor, primarily those doing interstate business, confirm whether the firm handling their commercial debt collection is properly licensed in the states in which they do business.

Commercial Collection Agency Association

The premier body governing the activities of commercial debt collectors is the Commercial Collection Agency Association (CCAA), an arm of the Commercial Law League of America (CLLA). These organizations are not government bodies, nor do they have any jurisdiction over non-members.

However, both require high standards of practice and ethics in order for a commercial collection agency to become a certified member.

About the CCAA

The Commercial Collection Agency Association was established in 1972 to “improve the quality and reputation of the commercial collection industry.” It currently has more than 200 members (of the several thousands doing commercial debt collection); approximately 100 core members represent the most prestigious commercial collection agencies in the United States.

The CCAA is an arm of the Commercial Law League of America (CLLA), the oldest creditor’s rights organization in the country established in 1895.

Membership in the CCAA

Members of the CCAA are the only collection agencies in the United States certified by the Commercial Law League of America. In order to obtain certification, the agency must meet rigorous criteria.

Certification Requirements

  • The agency must have been in business at least four years prior to application for membership.
  • 80% of the agency’s business must be commercial (business-to-business).
  • The agency must maintain a separate Trust Account into which all monies belonging to creditors are placed. This Trust Account is reviewed twice annually by the Executive Director of the CCAA.
  • The agency must agree to abide by the CCAA Code of Ethics, which sets ethical standards for dealing with creditors, debtors and attorneys.
  • Executives of the agency must meet continuing educational requirements and attend regular CCAA meetings. The member agency must complete sixty continuing educational credits annually.
  • The agency must post a surety bond of at least $300,000 for the protection of the creditors it serves.
  • One person in the agency must also be a member of the Commercial Law League of America.
  • The agency must agree to random periodic site visits from the CCAA Executive Director.
  • The agency must be in compliance with all local and state licensing requirements and regulations governing commercial collection firms.

Commercial Collector Training

In addition to certifying and monitoring member agencies, the CCAA offers professional certifications to individual commercial debt collectors. To achieve certification as a Senior Certified Collection Professional, collectors are expected to complete a comprehensive course of study and to demonstrate their knowledge and expertise by passing a rigorous examination.

So, who’s minding commercial debt collectors?

Primarily, the Commercial Law League of America and its Commercial Collection Agency Association have assumed responsibility for looking after the needs and rights of creditors and their customers/debtors. State governments that require licensing and bonding of commercial debt collectors also play an important role.

However, since membership in the CCAA is not compulsory, and some firms may provide collection services in a state but never get licensed, it is up to creditors themselves to ensure that they (and their debtors) are receiving the most ethical and highest level of commercial collection service. How? By checking that their chosen agency is both a member of the Commercial Collection Agency Association and therefore certified by the Commercial Law League of America, and is licensed in the U.S. states requiring such licensing.