For many business owners, having your own business is a dream come true. Whether you offer a service or a product, you likely spent years dreaming about what it would be like and planning to get it started. What you may not have envisioned were the potential downsides to this dream, like when a customer refuses to pay what they owe. Tennessee business owners have recourse against customers and third-party debt collectors who take legal action. However, you must also be aware of federal and state debt collection laws to ensure that your attempts to collect the debt you are owed do not violate these laws and put your business at risk of a lawsuit or other negative actions against it. If you would like to discuss your debt collection options in more detail with an experienced Tennessee debt collection attorney at King Law Offices, schedule your conversation at our Johnson City office by calling (888) 748-5464.
Tennessee Businesses Are Not Considered Debt Collectors Under Tennessee Debt Collection Laws
Most business models do not revolve around collecting debts as their sole purpose. However, many businesses do find themselves in the position of pursuing a customer for payment of a debt at some point. When this happens, the business owner may wonder if this pursuit of payment makes them a debt collector under debt collection laws. As long as the business is attempting to collect its own, original debt, they are not considered a debt collector.
However, even though the business is not considered a debt collector, it must still be mindful of debt collection laws. Specifically, they must be aware of the Tennessee Consumer Protection Act (TCPA) and the federal Fair Debt Collection Practices Act (FDCPA). Businesses attempting to collect a debt in violation of these laws may face the same penalties as a debt collector who violates them. Fortunately, there are multiple methods through which a business can attempt to collect debts owed to it.
Direct Communication to Collect Debts
The most common way to attempt to collect a debt is through direct communication with the customer. This is often the first method businesses use. This usually involves sending invoices or bills, as well as payment reminders for late or missed payments. These communications should always be clear and professional, outlining the details of the debt, such as the amount owed, services or products received, the date payment was originally due, and how to make payments.
Businesses can also contact the customer directly by phone or email to discuss payment options and resolve the issue. This can be helpful if the customer is having financial difficulties, as it can allow for more open discussion and flexibility regarding how the customer can resolve their debt. When customers receive a bill or payment reminder that indicates payment in full is expected or that only lists limited payment options, they may feel frustrated if their finances do not allow for those. A phone call or email from the business owner, asking how they can help resolve this debt, may allow the customer to be frank and offer their own suggestions for how they can resolve it, increasing the chances that the business will get the money owed.
Use Third-Party Services
Another common way that business owners seek payment of overdue debts is by using third-party services. The most common third-party service that most people are aware of is a debt collection service. These are individuals or agencies who take on the responsibility of pursuing payment of the debt, though in some cases, they may get payment by offering settlements to the debtor that allow the debtor to pay only a portion of the debt owed in exchange for considering the debt paid in full and removing it from (or not putting it on) their credit history. Debt collection agencies may be hired by a business to handle debt collection, or they may purchase debts from businesses.
A second third-party service that many business owners use is legal counsel. Business owners can hire a debt collection attorney for advanced collection strategies, such as creative repayment plans like incremental payments or payments tied to specific income streams. An attorney can also assist the business with navigating the process of taking legal action to resolve the debt.
Legal Action and Enforcement of Debts
When other options have failed, or the debtor has been clear that they do not intend to pay, the business may choose to take legal action. This begins with filing a lawsuit that results in a judgment against the debtor, if successful. This judgment can allow the business to take other actions to get the money owed to them, such as wage garnishments, bank levies, and property liens. A debt collection attorney with King Law Offices can assist with the enforcement of these judgments.
While many businesses will still be able to move forward with legal action even if they have hired a debt collection agency to collect the debt, there are instances where they may not. If the business has already given the debt to a collection agency, they may want to consult with an attorney to confirm whether they can still pursue legal action. For example, if they have sold the debt to the debt collection agency, they may no longer be able to take legal action.
Hiring a Debt Collector Vs. Selling Debt to a Debt Collector
When a business decides to engage a debt collection agency to collect a debt, they can do so in two ways: hiring the debt collector or selling the debt to the collector. These are different options, and it is important that businesses understand the differences between them so that they understand their legal rights and options in each scenario and can make an informed decision about what is best for their particular needs.
Hiring a Debt Collector
If a business hires a debt collector, that means the collector is attempting to collect the debt on behalf of the business. The debt collector typically charges a fee, often a percentage of the total amount recovered, for this service. With this option, if or when the debt collector successfully collects payment, they give that payment to the business, minus the fee the collector charges.
This option allows the business to retain ownership of the debt and potentially collect a larger portion of the debt’s value over time. Additionally, the business benefits from the collector’s skills, experience, and knowledge in collecting hard-to-collect debts. The business may also be able to offer better repayment options through a debt collector they have hired. However, businesses should also be aware that they may suffer reputational damage if the collector they hire uses aggressive tactics, and they may be held legally liable for the collector’s actions.
Selling the Debt to a Debt Collector
If a business sells the debt to a debt collector, this means that the collection agency pays the business a lump sum for the debt. This is usually just a fraction of the total debt, and is all the money that the business will receive for the debt. The agency then owns the debt and attempts to collect the full amount of the debt. Whether the agency is successful in collecting the full amount or a partial amount, the business owner will no longer have any claim to that debt, so they will not receive any of the money the agency collects. However, if the agency is unsuccessful in collecting any of the money owed, the business owner has received a small payment, and the collection agency has lost money.
Selling the debt provides the business with immediate cash flow and offloads the risks and responsibilities of debt collection to the agency. This also allows the business to return its focus to the core activities of the business. However, it also means the business gives up the possibility of collecting the full value of the debt in the future. Additionally, if the agency uses aggressive tactics, debtors may not realize the agency is not the business and may develop a negative opinion of the business. They may spread this negative opinion through word of mouth and online reviews, which may damage the business’s reputation.
What Tennessee Businesses Should Know About Tennessee Debt Collection Laws
Federal and Tennessee debt collection laws are mostly applicable to debt collectors, but when a business is either attempting to collect a debt itself or using a debt collector to collect the debt, those laws may apply to the business as well. Tennessee businesses should be aware of these laws and how they may affect the business if the business or a debt collector collecting the business’s debt violates those laws.
Tennessee Consumer Protection Act
This state law protects consumers from unfair practices by debt collectors. Tenn. Code Ann. § 47-18-5803 requires debt collectors to register and be licensed by the state to provide such services. This does not apply to businesses attempting to collect their own original debts, but to businesses that specifically collect debts purchased from or on behalf of other businesses. However, businesses that hire unlicensed debt collectors may face liability for the illegal actions of the unlicensed collector, as well as civil penalties and possibly the inability to collect the debt, even if it is valid.
Fair Debt Collection Practices Act
This is a federal law that prohibits threatening violence, using obscene or abusive language, making repeated calls to harass or annoy a person, or making false threats of legal action. Businesses should use care when hiring a third-party debt collector to ensure that the collector understands the FDCPA and other debt collection laws and has clear policies in place to ensure these laws are not violated.
Tennessee Debt Collection Statute of Limitations
Most actions have a statute of limitations. This is the amount of time someone has to pursue legal action for that action. Many people are familiar with this in the context of criminal activities, such as murder, or other civil actions, such as filing a personal injury lawsuit. However, it applies to debt collections as well. Tennessee’s statute of limitations for debt collection is six years from the date of the customer’s last payment or activity on the account. If the customer makes a new or partial payment or acknowledges the debt, that restarts the statute of limitations and allows the business more time to pursue legal action for the debt.
For installment notes, such as fixed loans, the statute of limitations begins on the date the installment is due, not the date the payment is missed. This means each installment payment has its own statute of limitations that starts when that installment is due. Businesses that are attempting to collect this type of debt may want to consult with an attorney to learn more about how to proceed.
Stop Contact Letters
A key component of many debt collection laws is the requirement to stop contacting a debtor upon their request. What many Tennessee businesses may not know is that this requirement applies to them as well. If a Tennessee business is attempting to collect a debt and receives a stop contact letter from that customer, they must stop contacting them immediately. Two exceptions may allow the business to contact that customer. The first is to confirm that they will stop contacting the customer. The second is to inform the customer that the business will be taking a specific legal action, such as filing a lawsuit. If the business continues to contact the customer for any other reason after receiving a stop contact letter, the customer may file a complaint against the business with the Consumer Financial Protection Bureau (CFPB) or the Tennessee Collection Service Board.
Business Liability for Debt Collector’s Actions
Tennessee businesses that hire a third-party debt collector, or sell a debt to one, may be held liable for the collector’s actions if they violate debt collection laws and engage in unfair, deceptive, or illegal practices. Therefore, businesses have a duty to ensure that any third parties they work with to collect debts do not engage in any prohibited practices.
How to Protect Your Business When Collecting Debts
When collecting debts owed to a business, business owners can protect themselves and the business by taking the following steps:
- Keep All Communication Clear and Professional: Businesses should keep all communication clear and professional, and related solely to the debt they are trying to collect. Professionalism includes only contacting debtors during business hours, respecting any stop contact requests, and not speaking with others about the person’s debt.
- Research Third-Party Debt Collectors: Before hiring any third-party debt collectors, businesses should take the time to research them. Ask other business owners for recommendations and suggestions, read reviews online, and check with the Tennessee Collection Service Board to confirm they are licensed with the state.
- Familiarize Yourself With the Laws: Business owners should take some time to read and become familiar with state and federal debt collection laws so that they understand what is acceptable and what is not. They should ensure that their own behavior and that of any third parties collecting debt on their behalf does not violate these laws.
Businesses may benefit from consulting a debt collection attorney to learn more about debt collection practices. An attorney may be able to offer advice, advanced techniques, and other legal information that assists the business with collecting debts they are owed without violating any laws.
How a Debt Collection Attorney May Assist You
Getting paid is an essential part of any business. Without proper payments for goods or services rendered, a business will fail quickly. When a customer refuses or is unable to pay their debt, it is important for Tennessee businesses to work with them to find a way to resolve the debt. Whether the business handles this debt collection themselves or hands it off to a third-party debt collector, they must be aware of what is and is not legal under state and federal debt collection laws. An experienced attorney with King Law Offices may be able to assist with ensuring that businesses understand these laws, collecting debts that are owed, or dealing with the consequences if a business is held liable for a debt collector’s violation of the laws. Call (888) 748-5464 to book a meeting and discuss your business’s debt collection rights and obligations in more detail.
