When a creditor extends credit to a consumer, the creditor has certain rights, such as the right to be paid for the unpaid balance on an account following the terms of the contract. However, there are important principles creditors should understand before overreaching and potentially subjecting them to liability, such as:
You Have the Right to Collect
The contract you have with the debtor probably outlines your right to be paid for the services or goods you provided, including late fees and any collection costs you incur as a result of non-payment. You have the right to collect these amounts. However, once you evoke these rights, you will need to carefully follow the rules that govern your collection efforts. If you are considered a “debt collector,” you will likely have to adhere to the terms of the Fair Debt Collection Practices Act, including only contacting a consumer during certain times and not describing information about the debt to third parties. Even if you are the original creditor, some states may classify you as a debt collector for these purposes, so you may need to follow the laws in the state where the consumer lives. If you violate relevant consumer protection laws, you could be the one on the financial hook.
Your Rights Are Not Absolute
Even though you have the right to collect on the unpaid balance, you do not have an absolute right to collect on the debt. You have to respect the relevant laws, such as laws about liens and lien notices, not employing “self-help” measures as a landlord, and not running afoul of the automatic stay that applies after a consumer has filed for bankruptcy relief.
Mediation Is Often Preferable Over Litigation
Litigation tends to be expensive and time-consuming. If you can resolve the issue in mediation, you will likely save yourself or your company substantial time and money you may have used during the litigation process.