A collection procedure is a detailed statement of steps to be taken regarding when and how the past-due amounts of a debt are to be collected.
Each company has its own collection procedure, with information such as due dates, grace periods, penalties, date of repossession, date of turnover of delinquent account to collection agency, etc.
The collection procedure for any loan arrangement should be spelled out as part of the loan terms. It is important for borrowers to be aware of he details of the collection procedure so as to avoid penalties, and in the case of collateral or secured loans, repossession of the collateral.
While collection procedures may vary for each company they should all be complaint with existing laws. Third party collection agencies must also adhere to the Fair Debt Collection Practices Act, not just in the collection procedure details but also the manner in which the collection takes place.
Note too that debts to the government are subject to the Federal Debt Collection Procedure Act, which was passed in 1990. The Act specifies not only collection procedures to be followed by government financial institutions, but also specifies that a person or organization indebted to the United States, against whom a judgment lien has been filed, is ineligible to receive a government grant.
What this means is that it is of utmost importance to comply with the debt collection act, especially since non-compliance carries with penalties that can range from steep fines to imprisonment.
