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Ahh, it’s the Friday before Christmas and I am sure you all are shopping rather than thinking about legal issues OR if you are a small business owner, you are manning your shop to get those extra sales in.
Well, if you have time, this is still an interesting topic for you all. When the dust settles and the after Christmas sales settle, a month or two for now when payments are due for your new tv or that enthusiastic customer is trying to ask for more time try to remember this post!

Who are You Gonna Call? DEBT COLLECTING AGENCY!

Today is all about when you extend credit and that person kind of disappears. How do you get your money? Generally, for most businesses they have a debt collection agency handle this type of situation. Here are some signs to look for when you think it might be time to contact a collection agency:

  • No response from the customer via e-mail/phone;
  • Debtor did not meet payment terms and has made no excuse or reason;
  • Debtor is making unfound complaints to avoid payment or is in denial;
  • Debtor keeps changing their information (workplace/home address) and is consistently late with payment;
  • And similar to the prior one, debtor disappears, but does not notify you.

Fair Debt Collection Practices Act

Now, those are situations for you to call a third-party collection agency, but say you want to handle your own debt collection? Well, you have to watch out for the Fair Debt Collection Practices Act (FDCPA), and any other relevant state laws that regulate debt collection practices. Now, FDCPA is meant for collection agencies; the majority of rules and regulations apply to them. However, there are several rules as a small business owner-creditor that you need to be aware of if you are going to collect on your customer’s debt:

  • Contact: mail, in-person, or telephone AND unless in writing you may not contact them at inconvenient places or times (i.e. after midnight);
  • Workplace: if employer forbids employees from being collected, you don’t contact them there, a debtor can specify what times/places are inconvenient;
  • Representation: if the debtor has a lawyer for this matter, you speak only to the lawyer;
  • Leave Me Alone: if the debtor writes to the collector that they wish to be left alone, the collector can confirm they will no longer contact them and that some legal action may or will be taken;
  • Leave Me Alone pt. 2: if debtor states within 30 days they are disputing the debt they must leave them alone, unless collector provides proof;
  • Who/What/When/Where/How: must send written notice within 5 days of first contact – stating the following: (1) name of creditor; (2) what is owed; (3) debtor has 30 days to challenge if the debt is genuine; (4) how the debtor must proceed to clear the debt if they do not believe they owe it; and (5) the name and address of the original creditor if the creditor has changed;
  • Locating: a debt collector may contact ANYONE to locate the debtor BUT cannot speak to the more than once, nor mention the debt;
  • Mean-Spirited: No, harassing, oppressing, or abusing anyone OR specifically, no doing or mentioning violence, defamatory or profane language use, no irritating or annoying behavior, no making them pay for contacting them, no lying or cheating. Basically, don’t be an a**.

As you can see a long laundry list of things that you cannot do in pursuit of money owed to you, which is generally why most businesses prefer to use collection agencies.  Despite the headaches associated with granting credit, remember that most people will pay and that you have expanded your customer base. The goal is to manage acceptable levels of loss versus that of growth of sales.

Anyway, I hope you have a Happy Holidays and see you in the New Year for Draw the Law. Draw the Law will be going under some changes next year, and actually I will be accepting questions for Draw the Law from you startup and small business owners that have questions. So start thinking (after the presents are open) and consider giving me the gift of your questions!

If you enjoyed this post or any of my others please “Subscribe” to this blawg!

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

So it’s holiday time, and we have survived Black Friday and Cyber Monday, but we still want to generate more sales. Even though cash is king, you still want as any customers buying your stuff, so you accept checks and credit cards.

Direct Credit Extension to Consumers

However, what about those big-ticket items? Do you limit your market size by saying cash only ? Or do you try and expand by offering direct credit to customers? While, this does increase sales, and the financing charges can actually be a source of health income this is not a process you do overnight and it is not without consequence.

Consider Some of the Following Issues:

  1. regulations (cap on interest rate, Truth in Lending Act, Equal Credit Opportunity Act);
  2. time and costs for developing a credit policy and the review process of your questionnaires and forms you plan to use on customers;
  3. length of time to collect, which means need for great reserve funds to cover the goods and services sold on credit;
  4. you will have to consider debt collection when customers can’t pay;
  5. and finally, related to the prior point, some of the bad debt will never be collected and be written off.

That being said the major benefit is we do a lot of transactions nowadays on line of credit, so it makes sense for a growing business to offer alternate payment methods to tap new markets. So for the average customer it looks like this:

  1. they go to your store;
  2. they see something in your store they cannot pay for in total right now;
  3. your salesperson understands this and says we have a direct credit plan;
  4. customer is interested;
  5. salesperson gives them the credit application;
  6. internally or externally you run a credit check based on the information given; and
  7. you decided, based on results, whether to extend credit or not.

However, even before that all happens, you the business owner engage in a calculated risk to figure out if this is worthwhile to even offer credit and at what interest rate?

Interest Rate Caps and Federal Laws

So most states regulate the interest rate a business can charge for credit for consumers. However, in many states, the B2B interest rate is unregulated for the granting of credit. Basically, it is up to your negotiating skills when it comes to extending credit to your business customer. The interest rate is generally capped in most states in consumer credit situations in an effort to protect consumers from high interest fees. So it is best to consult with an attorney about local rules. Once you consider the state laws, you will then have to comply with federal law, the two being: (1) Truth in Lending Act (TILA), which is aimed at helping consumers find the best rate and credit provisions; and (2) the Equal Credit Opportunity Act (ECOA), which has the goal of preventing discrimination in credit extensions.

Next week I’ll talk about setting up the credit policy and application, and then cover the federal law TILA.

The following week, I will discuss ECOA and as a Christmas bonus, I will also do a brief rundown on you business owners that max your own personal credit cards to run your business and where you stand in the land of credit.

If you enjoyed this post or any of my others please “Subscribe” to this blawg.

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Today’s new law is brief and simple, something probably that those in the real estate industry can appreciate given the context of Act 212. Sorry for all the paperwork realtors, but you know us attorneys, we would like to have everything documented, recorded, and filed property!

What Does Act 212 do?

The purpose and intent of the law is to permit and establish requirements for a licensed real estate broker or sales person to prepare broker price opinions for use in real estate transactions where an appraisal is not required. (Btw, I realize “opinionated” does not mean this, but it is a play on words!)

How Does it do That?

Simple, the legislature inserted an exception into HRS § 466K-4, which sets the standards for real estate appraisers.

The exception reads as follows:

(c)  This section shall not apply to a real estate broker or real estate salesperson licensed pursuant to chapter 467 who provides an opinion as to the estimated price of real estate, regardless of whether the real estate licensee receives compensation, a fee, or other consideration for providing the opinion; provided that:

(1)  The opinion as to the estimated price of real estate shall state that it is not an appraisal;

(2)  The real estate licensee shall not represent that the licensee is a certified or licensed real estate appraiser; and

(3)  If the real estate licensee receives compensation related to the sale of property, the licensee shall not receive any additional compensation, fee, or other consideration for providing an opinion as to the estimated price of that property.

How to Make Use of this Exception

So the main takeaway from this Act if you are a real estate broker or sales person is to make sure that opinion is:

  1. stated as NOT an appraisal;
  2. do not represent yourself as an appraiser;
  3. and finally, if you receive compensation connected to the sale of property you do not get anything else form providing an opinion to that property.

Yes, this law is already in effect.

For Further Context

If you read the Hawaii Association of Realtor’s testimony  from April 5, 2011 before the Senate Committee on Commerce and Consumer Protection (CPN) it explains their support for this change. Here is an excerpt:

Over the last several years, due to the economic crisis, loan delinquencies have increased,which in turn have required more estimated analysis to determine the market price of the collateral for these delinquent loans. Thus, each property that falls into distress may need atleast one price opinion, and more often two or more price opinions, to determine the mostappropriate disposition of the property — whether it be loan modification, short sale, orforeclosure.

For example, a lender might use a price opinion to determine whether a short sale transaction should be approved, or whether a delinquent loan should be modified. In thesetypes of situations, the price opinion can assist with the decision to list, offer, sell,exchange, option, lease, or acquire real property in a real estate transaction, or alternatively, help struggling homeowners stay in their home.

Anyway, realtors enjoy giving your opinions, now you can become opinionated like an attorney!  Thanks for reading this post and be sure to look for my next post.  It will be a poll to choose the subject matter for my next talk to be held at The Box Jelly!

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.