united-states new-york-state finance banking debt
Are US banks required to notify users of debts before passing them to collections?
<p>Say a customer of a large American bank, let's call him Paul, overdrafts on a debit card from said bank, let's call it ABC Bank. There is no notice of an overdraft at the time the money is withdrawn, and so Paul has no idea that he has just spent more money than he has. Seeing as he has accounts with Big Bank and Amazing Bank as well, he doesn't use ABC Bank much. A few months later, he receives a letter from a collections agency demanding payment for his debt to ABC Bank, and Paul, besides not being aware of his debt up until this notice, is worried the collections will hurt his credit.</p>

<p>Is this legal, considering he wasn't notified of his debt before it was sold or passed to collections?</p>

<p>There are numerous restrictions on debt collectors, and almost none on creditors. You will have received a printed set of "disclosures", which will say for example whether they are contractually required to notify you before sending your debt to an agency. There are a few state laws that apply to creditors, but from what I can tell they only prohibit deception and harassment. California has such a law, and their <a href="https://oag.ca.gov/consumers/general/collection_agencies10" rel="nofollow noreferrer">attorney general informs people</a> that "Generally, a creditor is not required to tell you it is referring your account to a debt collection agency". The <a href="http://www.ag.ny.gov/debt-settlement/when-a-creditor-is-collecting-debt" rel="nofollow noreferrer">NY AG says</a> some things things that a creditor can't do (talk to your employer, threaten to do something illegal, pretend to have judicial authority, or harass you). Notifying you is not a requirement.</p>
