Debt collection laws for private lenders: what you can and cannot do
When a borrower stops paying, a private lender's first instinct is to call, text, and keep asking. Most of that is legal. The federal debt collection law that people have heard of mostly regulates collection agencies, not someone collecting their own loan. Some states go further, though, and a few habits can turn a fair request into a legal problem.
The federal law: aimed at collectors
The Fair Debt Collection Practices Act, 15 U.S.C. 1692 and following, covers consumer debts, meaning debts from transactions primarily for personal, family, or household purposes. It regulates "debt collectors," which 15 U.S.C. 1692a(6) defines as people whose principal business is collecting debts, or who regularly collect debts owed or due another.
Someone collecting their own loan is not collecting a debt "owed another," so they are generally outside the FDCPA. There is one big exception written into the definition: a creditor who, while collecting their own debts, uses a name other than their own that suggests a third party is collecting. Creating "Smith Recovery Services" to send letters about your own loan puts you under the Act.
The Consumer Financial Protection Bureau and the Federal Trade Commission enforce the FDCPA against collectors. If you hand your note to a collection agency, the agency has to follow it.
State laws that reach further
| State | Who is covered |
|---|---|
| California (Rosenthal Fair Debt Collection Practices Act, Civil Code 1788 and following) | "Debt collector" means any person who, in the ordinary course of business, regularly engages in debt collection on behalf of that person or others (Civ. Code 1788.2(c)). Original creditors who collect regularly as part of their business are covered. |
| Texas (Finance Code chapter 392) | "Debt collector" means a person who directly or indirectly engages in debt collection on consumer debts (Fin. Code 392.001(6)). The chapter separately defines third-party debt collectors by reference to the federal definition, which shows its general definition is broader. |
California's "ordinary course of business" language means a one-time lender to a relative is usually not covered, but a person who makes personal loans as a regular business can be. Texas's definition is broad on its face. Other states have their own collection statutes. When in doubt, behave as if the stricter rules apply. It costs nothing.
Habits that keep you safe
Put requests in writing. A dated letter or email that states the balance, the missed payments, and a deadline is the core of lawful collection, and it becomes evidence later. Our guide to when a borrower stops paying lays out a step-by-step sequence.
Use your own name. Never invent an agency or a law firm.
Do not threaten what you cannot do. Not paying a private loan is a civil matter in nearly every case. Threatening arrest or criminal charges is both false and a classic violation under collection laws. Our guide on jail and unpaid notes explains why.
Keep third parties out of it. Telling the borrower's boss, coworkers, or relatives about the debt to pressure them invites claims, and it rarely gets you paid.
Do not grab collateral by force. If the note is secured, repossession has its own rules, including no breach of the peace. Our guide to using a car as collateral covers them.
When talking stops working
A formal demand followed by a lawsuit is the lawful route. Most personal loans fit within small claims limits, and a signed note makes the case simple. After a judgment, state collection tools such as garnishment and bank levies take over, with protections for the borrower built in. Watch the statute of limitations while you wait.