Interstate Laws for Debt Collection

The scenario of a debt collector from a Michigan creditor knocking on the door of a Virginia debtor is so surreal that it could occur only in an imaginary situation. In reality, interstate debt collection activities are by remote communications through electronic, print, and voice media. Debt collectors send e-mails, write letters, and make phone calls to holdout consumer debtors. Anyone in Virginia on behalf of a Michigan creditor would be only an attorney and then only when the debt is large enough to make the cost of legal services in a court case worthwhile.

Federal Debt Collection Statutes

The foremost interstate debt collection laws are necessarily federal, the Fair Debt Collection Practices Act, codified as United States Code Title 15 Sections 1692 – 1692p (15 US Code 1692a – 1692p), and the Fair Credit Reporting Act, 15 US Code 1681 et sequitur. The former, a consumer protection statute, states the following purposes:

  • To eliminate abusive debt collection practices by debt collectors,
  • To insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and
  • To promote consistent State action to protect consumers against debt collection abuses.

The latter statute, the Fair Credit Reporting Act, regulates the collection, dissemination, and use of consumer credit information. Enforced by the Federal Trade Commission and by private litigants, this statute’s stated purpose is "to require that consumer reporting agencies adopt reasonable procedures for meeting the needs of commerce for consumer credit, personnel, insurance, and other information in a manner which is fair and equitable to the consumer, with regard to the confidentiality, accuracy, relevancy, and proper utilization of such information."

These interstate statutes are obviously of little or no practical use to creditors out to collect valid debts and may impair their legitimate efforts. One often effective form of leverage collectors use with debtors who ignore their letters and phone calls is to remind them of the creditor’s ability to report such debtor delinquency to all three major credit reporting agencies. Collectors trained in techniques to impress on debtors the long-term effects and harmful consequences of damaged credit can persuade them to cooperate and to make full payment of all amounts owed, but debtors sometimes can delay and frustrate such effective negotiation by "ceasing communication" per 15 US Code 1692c(c).

Interstate Litigation to Collect Debts

In many if not most cases, the warning of the effects and consequences of adverse credit information reports to all three national credit bureaus, Equifax, Experian, and TransUnion, expressed by a skilled, experienced agency collector accomplishes its purpose and recovers the debt. But if all informal methods fail, there is but one recourse, legal enforcement of creditor rights through the courts.

If the Virginia debtor owes the Michigan creditor a debt for a transaction that occurred in Michigan, the creditor’s recourse is first with the Michigan courts. If the creditor sues and obtains a judgment against the Virginia debtor, the debtor’s time to appeal lapses, and the judgment becomes final, the creditor then must file an action in the appropriate Virginia circuit court for enforcement of the Michigan decree, judgment, or order, which is of no legal force or effect in Virginia, where the Michigan court has no jurisdiction.

Article IV Section 1 of the United States Constitution provides that "Full faith and credit shall be given in each state to the . . . judicial proceedings of every other state," and 47 states and the District of Columbia have adopted the Uniform Enforcement of Foreign Judgments Act, 13 ULA 261 (1986), which requires the states and the territories to give full effect to any foreign judgment if registered with an affidavit attesting to its authenticity. To enforce a judgment in or from a state that has not adopted the Uniform Act, a "domestication" action is necessary. Since the full faith and credit clause of the constitution compels the states to honor the judgments of other states, domestication of a judgment is generally a mere formality.

If the debt the Michigan creditor claims as the amount in controversy is at least $75,000, an unusually but not impossibly large sum for a consumer debt, the plaintiff could have a federal court action against the defendant on the jurisdictional basis of diversity of state citizenship. In that case, of course, a second state civil action to enforce a judgment would not be necessary. The creditor could collect the amount owed and ordered by execution of the federal court judgment.

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