Magazine article Business Credit

Think Global, Collect Local-Part II: Collection Success in Latin America

Magazine article Business Credit

Think Global, Collect Local-Part II: Collection Success in Latin America

Article excerpt

A feature in the previous edition of Business Credit magazine focused on collection laws in China and South Korea. Whereas the U.S. forces collectors, in most instances, to abide by the rules of the Fair Debt Collection Practices Act (FDCPA), and South Korea maintains a body of law that's very similar to that seminal legislation, China, strictly speaking, has outlawed collection activity altogether, precluding any law breaking by simply not having a law.

China relies more on the debtors themselves to report any form of abuse or illicit collection activities so that the state can then take adverse action, such as suspending the collector or consultant's business license. Though no stated law exists to protect debtors from aggressive collection behavior, the self-policing method has largely had the same effect as the FDCPA, or Korea's Fair Debt Collection Law. People and companies trying to collect money from citizens and entities located in China need to respect the local culture and the rights of their debtors. Otherwise, they could face risks greater than nonpayment.

In Latin America, a similar dichotomy exists between the region's two largest economies, Mexico and Brazil. The former has a regulatory scheme that isn't necessarily codified, while the latter has a legal framework of what collectors can and can't do. Exporters who conduct business in these countries, both of which offer smaller U.S. companies an opportunity to find their international footing, will inevitably face conflicts within their borders, and it behooves them to know what's legal and what isn't when it comes to getting paid.

Brazil's CDC

Although at press time its central bank was hinting at mild interest rate cuts in order to shield itself from Europe and control inflation, Brazil has been, and remains, one of the southern hemisphere's hottest economies. Exports from the U.S. to Brazil for 2011 are on track to break last year's high-water mark, and the U.S. is still the single biggest seller to Brazil, although Europe as a whole sells more. Nonetheless, companies are exporting to Brazil like never before, but as the country continues to work through its growing pains, some buyers in the country could wind up facing difficulties, meaning sellers should have an idea of how to collect should things head south.

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Much like the FDCPA, the Brazilian law protecting debtors from abuse is primarily consumer oriented, even in its title, the Consumer Protection Code (CDC). According to Octavio Aronis of Aronis Advogados in Sao Paulo, the Code is "a comprehensive law that encompasses all consumer-related issues including civil matters, administrative matters and criminal matters."

A noteworthy difference between the FDCPA and the CDC comes in the definitions. "Legal definitions for words like 'consumer; 'service,' 'supplier' and 'product' are essential when establishing consumer relations, and are immediately defined in the CDC" said Aronis, noting that a "consumer" is defined in Article 2 of the CDC as "any natural person or legal entity that acquires or uses a product as an end receiver, including groups of people that participate in consumer relations, regardless of whether the size of the group is known." This differs greatly from the FDCPA's definition of a consumer, which some businesses in some states could technically use to circumvent the law, as "any natural person obligated or allegedly obligated to pay any debt" Note the absence of the term "entity" meaning the object of the collection attempt, at least under U.S. federal law, has to exist as flesh and blood.

As discussed in the September/October issue, many states extend these protections to companies as well, and it's simply good business not to run afoul of the things considered forbidden in the FDCPA. Violations of the CDC, however, could even land a collector in prison. "Threats, use of physical or moral coercion, false or misleading statements or any other means that unjustifiably expose consumers to ridicule or hinder consumers' work, rest or leisure" according to Aronis, will result in a "penalty of three months to one year detention and a fine. …

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