Business Debt Collection

Credit Cards on laptop

This information is general in nature and is not intended to apply to any specific situation. Please call our firm to discuss the application of the law to your facts.

  1. You MUST have SIGNED a WRITTEN CONTRACT in which your customer agrees to pay interest on accounts in order to charge any interest rate over 6%.
  2. If you have a SIGNED WRITTEN CONTRACT in which your customer agrees to pay interest on accounts, you can agree to an interest rate up to 18% per year (the current ceiling rate). DO NOT state this interest rate as “1.5% per month”. The accounting method approved by Texas law means that 1.5% per month calculates out to slightly more than 18% per year. Since 18% per year is the maximum permitted, 1.5% per month is usurious.
    “But I get charged 1.5% per month by my suppliers… and more than that by my bank…”
    Banks, licensed lenders, national credit card companies, and a few other types of credit-providing businesses are subject to different usury laws. This means the interest rates they are permitted to legally charge may be higher than the rates your business can charge. However, many businesses routinely and illegally charge too much interest and excessive late fees. If you are being charged 1.5% per month by a supplier or other creditor that is not a bank, please call us. Possibly, you are being overcharged. We will be happy to discuss this with you from both the creditor and debtor perspective.
  3. As a general rule, unless you are a credit card company, or similar type lender subject to a specific statutory rate, the maximum “late fee” you can charge is $7.50 per monthly payment due.

"Curing" or "Correcting" Collection Demands

As you can see, this is a tricky area and many people inadvertently charge too much. The law does permit a creditor to “cure”, or “correct” his collection procedures when he discovers his error in order to reduce or prevent the severe penalties.

If you have committed usury without realizing it, you are not alone. The laws in this area are often misunderstood. Please call us for assistance if you think you have made a usurious demand and we will be happy to consult with you and put you in touch under your LegalShield contract with an attorney who works in this area to assist you in determining if you have committed a violation and if so, how to cure the violation.

Frequently Asked Questions

Information and documentation needed:

  1. A Signed Collection Authorization Form (CAL) from you giving us permission to send the letter on your behalf, stating that all credits and offsets have been given and that to the best of your knowledge, the debtor has not filed bankruptcy. You are responsible for calculating the amount of principal and interest, if any, that you want us to demand. If your business is required to meet state or federal consumer credit regulations, you will be required to certify that you have complied with the applicable laws.
  2. We must have documentation to verify the debt. This could include (but is not limited to) legible copies of any contracts, returned checks, invoices, work orders and/or any demand letters that have been previously sent. Both federal and state collection laws require that we have this documentation in hand to send to the debtor in case they dispute the debt. We will not send a collection letter on your behalf until we have this documentation from you.
  3. For consumer debts, all law firms are subject to the Debt Collection Rule of the Federal Consumer Financial Protection Bureau. In addition the basic verification items referenced above, we are required to provide Validation Information to a debtor upon the initial communication, such as a demand letter.  This requires that, in addition to the letter, we provide a document called a Validation Notice.  This provides a   1) debt collector communication disclosure;  2) certain information about the debt;  3) an itemization of certain information about the debt;  4) information about consumer protections; and  5) consumer response information to facilitate the consumer’s ability to exercise their rights with respect to debt collection.  Central to the Rule is that we must provide a breakdown of the debt using what the Rule calls an “Itemization Date” to provide a reference as to the debt’s history.  We must have a debt history which shows the amount of the debt on the Itemization Date and then shows any credits or additional charges since that date. The itemization date may be any one of 5 dates that may apply to a particular debt:
           – The last statement date–the last periodic statement or invoice associated with the account;
           – The charge off date–is the date that the creditor writes off a debt. This usually applies to institutional accounts like credit cards and car loans rather than typical small business customer debts;
           – The last payment date;
           – The transaction date;
           – The judgement date–this would only apply if you have taken a debtor to court and obtained a judgment.

All of our attorneys who practice debt collection are well-versed in these requirements and are happy to explain and work with you on how to meet these requirements so that we can proceed to attempt to collect amounts that you are owed.

We will be happy to email or fax you a copy of the Collection Authorization Form for your use, or you may complete the CAL on the web page. If you prefer, you may make photocopies of a blank Collection Authorization Form to use with future collection letter requests.

Yes. We can send the collection letter by certified mail. We will charge you $15.00 for each certified mail letter you request. If you want certified mail, please send a check for the certified mail cost with your collection authorization formand the documentation of the debt. If you send everything together, it will expedite the process.

  • You calculate the amount due
  • You complete & sign the CAL
  • You attach the documentation
  • You send $15.00 for certified mail

We prefer not to include a demand for interest in a collection letter. If we demand interest and the interest rate is too high for the type of transaction, it could be viewed as a usurious demand and be subject to severe penalties under the usury laws. The maximum interest rate we will demand is 6% per year.

“Usury” laws are the laws that govern the rates at which you can charge interest.  Interest is compensation for the use, forbearance or detention of money, regardless of whether you call it “interest”, “service fees”, etc. The maximum rate you can legally charge without any agreement between the parties is 6% per year. You cannot charge the 6% per year until the 30th day after the debt becomes due. IF there is a written agreement signed by both parties to pay interest but the rate was not determined, the maximum amount is 10% per year. This is sometimes referred to as “legal interest”. In certain types of written transactions, a higher interest rate can be charged. The laws regulating charging a higher interest rate are complex and the penalties for violations are severe. Making a demand that is usurious is all that the law requires in order to impose the penalties. Actually collecting too much interest is not necessary for the penalties to apply.

Call us. Based on the information you provide, we will be happy to consult with you and if necessary, put you in touch under your LegalShield Plan with an attorney who works in this area to assist you in determining the rate you can charge, preparing proper documentation, and establishing collection procedures that comply with state and federal law.

Correction of a violation is possible under Texas Finance Code §349.201. The correction must occur not later than the 60th day after the date on which you actually discover the violation. The steps required to correct the violation are:  1) perform the required act (for example: eliminate the late charge or reduce it to an amount that does not exceed 6% per year),  2) refund any amount in excess of the amount authorized by law, and  3) give written notice to the customer of the violation by delivering the notice in person or by first class US. mail within 60 days from the date you discovered the violation. This can be a complicated procedure if you have made a usurious demand and we will be happy to consult with you and put you in touch under your LegalShield Plan with an attorney who works in this area to assist you in determining if you have committed a violation and if so, how to cure the violation.

Many people erroneously believe that merely filing an affidavit in the county records where the real estate is located creates a valid builder’s and mechanic’s lien. This is not the law in Texas. The law that controls builder’s and mechanic’s liens varies depending on who the parties are and the type of contract being performed. The deadlines for and types of notice required depend on whether you are the general contractor, a subcontractor, or a provider of specialty materials; whether the real estate involved is commercial, residential and/or homestead property; whether the debtor is an individual or government entity and on whether and what type of retainage is being held. Failure to meet a deadline or to give the proper written notice to all of the required parties can invalidated a lien, even though you have filed an affidavit with the county clerk. In the case of work done on homestead property, failure to sign and file certain documents before the work commences can invalidate a later lien. As you can see, this is a complicated area that requires diligent attention to deadlines and compliance. If you want assistance in this area, do not hesitate to contact us. We will be happy to consult with you and, if necessary, put you in touch under your Plan with an attorney who works in this area to assist you in establishing valid liens.

Important Warning!

Did you know that you could end up owing money to the dead beat who hasn’t paid you if you are charging too much interest or putting inappropriate “late payment fees” on your invoice? You could even be charged with a criminal misdemeanor if you charge too much interest in certain situations (even if you do not actually receive the interest!) Please call us if you have any questions or concerns about the interest rate, late fee charges, service fee charges or any other charges that you are including in your contracts or on your invoices. We will be happy to advise you on these matters.

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