Is your legal practice growing to accommodate current client demands? This is a good move for a lawyer to make in light of the current economic and credit crisis. If you’re considering expanding your practice this way, it’s essential to familiarize yourself with any relevant compliance difficulties and laws. Is a license or surety bond necessary? In which states do you plan to open up shop? Are there any debt buyer or collection agency-specific rules that could impact how you manage accounts?
Instead of working on a contingency basis, legal firms can have more leeway in collecting and litigating debts if they own them outright. When a law firm owns its debt, it has additional options when it comes to managing and prosecuting, and it can also resell the debt or outsource the collection process. When clients create accounts with your firm on a contingency basis, you can’t plan or count on a specific quantity of work each week or month, but when you buy debt instead, you have a steady stream of work you can count on. Buying debt provides that security. Many lawyers invest in debt to actively pursue legal action to recover the money owed as quickly and cheaply as feasible.
When acquiring debt for litigation or collection, attorneys have several responsibilities. When collecting any debt, contingency, or purchase, attorneys in any state must do it by the Fair Debt Collection Practices Act. You may need to be licensed and bonded to collect on any debts you purchase or that are placed with you on a contingency basis, and there are other compliance requirements in each state, such as precise language to be included on any dunning notices.
After discussing possible debt purchases with Louise Epstein of Charge off Clearinghouse, I learned that it is highly recommended that you research applicable statutes of limitations. Once you buy a debt, you assume the role of the creditor and are therefore subject to the statute of limitations that applies to the loan’s original lender. When a debtor goes into default, that mark begins to accrue. A debtor can have a case dismissed because the statute of limitations has run out, but this does not necessarily prohibit a lawsuit from being filed. To the extent that you’re buying debt to file a case, you should be aware of the limitations period.
Visit http://www.cardreport.com/laws/statute-of-limitations.html to get a list of state statutes of limitations on debts.
As part of my research for this post, I contacted the state bar associations of all 50 states to find out whether or if there are any state-specific rules regarding the acquisition and collection of debts from attorneys. While many jurisdictions do not regulate this aspect of attorneys’ work, the growing popularity of attorney collections in recent months may drive states to draft compliance strategies and guidelines. Many borrowers have fallen victim to the crisis, losing their jobs and falling behind on their obligations, making it easier than ever for attorneys and collection agency owners to buy up the debt at bargain basement prices. Only 23 of the 50 states responded to my requests for this information when I contacted them and visited their websites. To help attorneys who buy debt collect legally and ethically, I have collated all the information they have supplied me, along with the source of that information. Attorneys are buying debt and then working that laws in several states do not explicitly address the deficit I contacted. Using this data, I have compiled a Special Report outlining the state rules that an attorney must consider while purchasing debt and collecting on it.
On February 5, 2008, the front page of the Wall Street Journal stated that banks were becoming more selective in who they would lend money. The report notes that certain financial institutions are feeling the pinch of a rise in nonperforming loans. More banks may consider selling their bad debt as a result of this. More and more deficit is expected to be sold in the coming months. Still, many states lack adequate compliance requirements and laws governing the rights and responsibilities of attorneys who buy debt and then collect on it or outsource the collection process.
If you plan on sending dunning notices with your collection letters to the accounts you bought the debt from, examine them before sending them out. Third-party collector letters, whether from an attorney or a debt collection agency, must comply with the rules of several states. Among the many things to check for are the sender’s physical address, the business’s hours of operation, the license number, and the location of the company’s main office.
Remember that you are required by law to always adhere to FDCPA standards. In my book, “Starting a Collection Agency, How to Make Money Collecting Money, Third Edition,” which is currently available on my website and will soon be available on amazon.com and in your local bookstores, I discuss the various legal considerations involved in starting a collection agency, including whether or not you need to be licensed or bonded. In Chapter 27, you’ll find all the information you need to collect debts in that state, such as who to contact, the name of the division responsible for debt collection licenses, bonds, and laws, and contact information, including phone numbers, fax numbers, email addresses, and websites. If you don’t have this book and don’t want to wait, you’ll be happy to know that the material above is also in my Special Report.
For 18 years, award-winning novelist Michelle Dunn has been navigating the tricky debt collection waters. Through the books in her “Collecting Money Series,” she imparts her arduous-yet-valuable knowledge of debt collection. Her Credit & Collections Association has grown to over 1075 members in just ten years, and she is both its founder and president. During those eight years, Michelle founded and ran M.A.D. Collection Agency. Go there if you want additional details.
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