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State and Federal Collections Laws

There are also laws individual to each state as well as federal laws governing the collections industry. When it comes to the question of which law to follow, state or federal, the general rule is whichever is the stricter of the two.

Therefore, for some states, a collector must know their law, as it may be necessary to abide by that individual state's law as opposed to the federal law governing the same practice. Furthermore, there may be laws that will vary from state to state not covered by their federal counterpart. This is especially true of statutes of limitations. Statutes of limitations are the known time limits for filing lawsuits in order to obtain a judgment to collect a debt.

States will also have unique requirements pertaining to debt collection within their sate. For example, Minnesota requires that individual debt collectors obtain a license to collect debts in their state. Other states might require the collection agency, not the individual collector, to obtain a license, or become bonded, to pursue bad debt in their jurisdiction. Massachusetts has laws governing the acceptance of payment by debt collectors unique to that state. Some states will not allow wage garnishment. Knowledge of state law will change a collectors approach when negotiating for payment of bad debt.