If you read my blog or have heard me speak, you know that I consider a strong customer contract – even an informal one – an essential part of any credit agreement. A contract will not prevent all customers from defaulting on their payments, but it will cut down on your delinquent customers, especially when you remind them of their signed promise to pay. A contract can grant you the right to charge interest, late fees and in some cases, allows you to recover part or all your costs of collection. If your customer is a business, your contract can ask the owners for a personal guarantee that means they pay if the company goes out of business. In the event a serious default prompts you to take them to court, a contract will be your best evidence. Conversely, if you sue someone and you do not have a contract, that fact will be used against you.
A recent case, Losch v. Advanced Call Center Technologies (ACCT) shows a very good example of how a contract helped defeat a claim under the Telephone Consumer Protection Act (TCPA) The debt in dispute was an unpaid credit card bill. ACCT was a collection agency who pursued collection of the debt, and they used an auto-dialer to call Ms. Losch on the cell phone she provided in her application. The TCPA prohibits auto dialers to cell phones without prior consent. The plaintiff, Ms Losch, sued claiming that she had not consented to be called. However, when she applied for the credit card, she signed a “Consent to Communication” clause. This claim was defeated, thanks to a contract.
I know what you are thinking – that is a debt collector case and has nothing to do with me. Think again. Although debt collection laws primarily apply to third-party debt collection agencies, there is a movement to apply parts of the Fair Debt Practices Act (FDCPA), such as misrepresentation and third party disclosure, to all companies that collect their own debt.
A contract does not have to be complex. Draft a simple template. It is better than nothing. Of course, we do recommend that you pay your lawyer to draft a contract that will give you more protection, but something is better than nothing.
Too busy to commit your credit terms to writing? Make the time. It is simply not worth the risk.