Understanding Debt Collection Laws in Texas

Strict laws govern debt collection in the state of Texas. If agencies are not careful, their efforts can end in court. By 2024, debt collection filings in Texas reached almost 123% of their 2019 levels, according to court data reviewed by January Advisors and cited by Pew.

Whether you are collecting from individuals or businesses, knowing what is legally allowed is critical.

This blog will help you understand how debt collection laws in Texas treat both consumer and commercial debt collection.

Brief breakdown:

Debt Type Dictates Strategy: Consumer and commercial debts in Texas follow different rules, requiring tailored recovery practices and documentation standards.
Compliance Is Non-Negotiable: Agencies must adhere to TDCA, FDCPA, and Section 392.307 to ensure fair treatment and legally sound collection efforts.
Processes Protect Against Risk: Consistent record-keeping, standardized workflows, and dispute tracking reduce exposure to legal and operational missteps.
Tech Centralizes Oversight: Digital tools help agencies unify data, monitor compliance, and streamline recovery across diverse debt portfolios.
Adaptability Drives Results: Agencies that adjust practices by debt type and regulatory framework recover more efficiently — and with fewer compliance issues.

Difference Between Consumer vs. Commercial Debt

Understanding whether a receivable is consumer or commercial is critical because Texas laws treat them differently. The bullets below summarize the key distinctions agencies and AR teams need to know:

Legal Framework

Consumer and commercial debts fall under different rules.

Consumer debt: Protected by the federal Fair Debt Collection Practices Act (FDCPA) and Texas Debt Collection Act (TDCA). Even original creditors must follow strict guidelines.
Commercial debt: These are primarily governed by contract law and the Uniform Commercial Code (UCC). There are fewer regulatory restrictions.

Communication Rules

The method for contacting debtors varies by debt type.

Consumer debt: Requires clear disclosures, respectful language, and limits on contact frequency.
Commercial debt: You have more flexibility, but fair and honest communication is still required.

Collection Approach

The strategy for pursuing debt depends on its classification.

Consumer debt: Collection agencies must follow strict compliance to avoid lawsuits or penalties.
Commercial debt: Collection can include negotiated settlements or enforcing contractual remedies through courts.

To apply these differences effectively, you need a clear understanding of the exact statutes and regulations shaping collections in Texas. The details are discussed in the next section.

Suggested Read: Free Open Source Debt Collection Software

Regulations Governing Debt Collection in Texas

Debt collection in Texas is governed by a combination of state and federal laws. Agencies that comply with regulations such as the FDCPA and state-specific statutes can avoid costly lawsuits. Compliance also helps protect client relationships and ensures that legal missteps or audit-triggering practices don’t delay recoveries.

Texas Debt Collection Act (TDCA) – Consumer Protections

Section: Texas Finance Code Chapter 392

The TDCA protects consumers from abusive collection practices. It applies to third-party collectors and original creditors collecting their own debts.

Key provisions:

Prohibited Practices: No harassment, threats, or obscene language during collection.
Misrepresentation Rules: Debt collectors are prohibited from misstating the debt amount, falsely claiming legal action, or impersonating officials.
Communication Restrictions: Limited to reasonable hours, typically 8 a.m.–9 p.m., unless otherwise agreed.
Written Notice Requirement: Collectors must send notice detailing the debt amount, the creditor, and the consumer's rights within 5 days of initial contact.
Third-Party Disclosure: Debt information cannot be shared with unauthorized parties.
Legal Recourse for Violations: Consumers can sue for actual damages, statutory damages, and attorney fees.

Fair Debt Collection Practices Act (FDCPA) – Federal Baseline

Section: Consumer Protection Standards

The FDCPA is a federal law that protects consumers from abusive third-party debt collectors. It establishes a minimum standard of conduct, which Texas law often builds upon.

Key provisions:

Communication Limits: No calls at inconvenient times or at work without the employer's consent.
Harassment & Threats: Prohibits repeated calls intended to annoy or intimidate.
False Statements: Misrepresentation of debt amount or legal status is forbidden.
Validation Rights: Consumers can request a written validation of debt within 30 days of receiving the notice.
Cease Communication Requests: Consumers can demand that collectors stop contacting them; collectors must comply.

Texas Finance Code & Uniform Commercial Code (UCC) – Commercial Debt

For B2B Receivables and Secured Obligations

Commercial debts, unlike consumer debts, are mainly governed by the Texas Finance Code and the Uniform Commercial Code (UCC). These laws regulate business-to-business transactions, secured lending, and enforcement of contractual obligations.

Key points:

Contractual Flexibility: Businesses are presumed to be on more equal footing, allowing more negotiation in payment terms and settlements.
Secured Transactions: UCC rules define collateral rights, filing requirements, and enforcement priorities.
Default Remedies: Creditors can repossess collateral, foreclose on liens, or pursue legal judgment under the UCC framework.
Record Keeping: Maintaining proper documentation of contracts, invoices, and filings is critical to protect creditor rights.
Negotiation & Enforcement: Creditors can exploit contract clauses to establish payment plans, impose late fees, and implement structured settlements.
Commercial Dispute Procedures: Legal recourse may include arbitration or court litigation, depending on contract terms.

Contract Law in Texas – Legal Backbone for Commercial Collections

Enforceability & Breach Remedies

All commercial debt enforcement is grounded in Texas contract law. It forms the foundation for collecting business debts, from unpaid invoices to service defaults.

Key points:

Formation Requirements: Valid contracts require mutual consent, lawful purpose, and consideration under Texas Business & Commerce Code §26.01.
Breach Remedies: Courts may award damages, order specific performance, or permit rescission depending on the nature of the breach and the relief sought.
Dispute Resolution: Arbitration or mediation clauses are enforceable if properly included in the contract, per Texas Civil Practice & Remedies Code §171.
Documentation Best Practices: Written agreements, signed invoices, and email confirmations help establish enforceability and reduce ambiguity.
Lien Rights: Certain commercial debts, especially in construction or service industries, may qualify for mechanic’s or materialman’s liens under Texas Property Code §53.

Statute of Limitations in Texas Debt Collection

Time Limits for Legal Action

Understanding the statute of limitations is crucial for determining the timeframe within which legal action can be initiated to collect a debt. In Texas, these time limits vary depending on the nature of the debt and the type of agreement.

Key points as per Chapter 16 of the Civil Practice and Remedies Code.

Contracts: Generally, the statute of limitations is 4 years from the date the cause of action accrues.
Open Accounts: For open accounts, such as credit card debts, the statute of limitations is 4 years from the date the cause of action accrues.
Effect of Partial Payments: A partial payment or written acknowledgment of the debt can reset the statute of limitations, starting a new period.

Always verify the age of the debt before initiating legal action to ensure enforceability. The importance of “zombie debts” is explained further in the next section.

How Does Texas House Bill 996 (2019) Apply?

H.B. 996, effective September 1, 2019, amended the Texas Finance Code to restrict how debt buyers can pursue time-barred consumer debts, often referred to as “zombie debt”.

Zombie debts are old consumer debts that are past the statute of limitations (typically 4 years in Texas) but still appear on credit reports or are pursued for voluntary repayment. Before H.B. 996, collectors could sue or threaten legal action, even if the debt was legally unenforceable.

Key Provisions of H.B. 996:

No Lawsuits: Debt buyers cannot sue or initiate arbitration to collect consumer debts after the statute of limitations has expired.
No Revival: Any payment, written acknowledgment, or verbal confirmation by the consumer does not restart the statute of limitations. The debt remains legally dead.
Mandatory Disclosures: Collectors must inform consumers in writing that the debt is time-barred and that they are not legally obligated to pay.
Applies to Debt Buyers Only: The law targets entities that purchase charged-off consumer debt, not original creditors or incidental debt holders.

Knowing these regulations is crucial, but understanding what collection practices are allowed and prohibited under Texas law guarantees that agencies, creditors, and AR teams can operate both effectively and in compliance. The next section details penalties for any violations.

Enforcement and Penalties in Texas Debt Collection Practices

Debt collection in Texas is strictly regulated. Agencies and debt buyers face civil and criminal consequences for non-compliance, though the rules differ for each. Understanding these penalties helps ensure lawful operations and protect against legal risk.

Debt Collection Agencies

The following points summarize the enforcement measures and penalties for collection agencies under the TDCA:

Criminal Penalties: Violations of the TDCA (§392.402) are misdemeanors, with fines ranging from $100 to $500 per violation. Charges must be filed within one year of the violation.
Civil Remedies: Individuals may seek injunctive relief, actual damages, and attorney’s fees for TDCA violations (§392.403). Courts may award fees to defendants if the action is in bad faith.
Bond Requirement: Agencies must file a $10,000 surety bond with the Secretary of State before collecting debts (§392.101). This ensures consumer protection.
Attorney General Oversight: The Texas Attorney General can bring enforcement actions against agencies violating the TDCA.

Note: As mentioned in Section 392.402, these penalties do not apply to violations of Section 392.307, which governs debt buyers.

Debt Buyers

Debt buyers operate under Section 392.307 and are subject to special rules:

Debtor Notice Requirement: Must provide written notice to the debtor within 30 days of purchasing the debt, including original creditor information and debt amount.
Documentation Obligations: Must retain records showing debt purchase, account history, and assignment details.
Compliance with Fair Collection Rules: While standard TDCA penalties do not apply, debt buyers must still follow most TDCA provisions, such as avoiding harassment or misrepresentation.
Regulatory Enforcement: Violations of §392.307 may lead to oversight actions or court intervention, but not standard misdemeanor or civil claims under §392.402–§392.403.

Tratta helps debt collection agencies maintain compliance by centralizing documentation, tracking debtor notices, and automating reporting. The platform ensures fair collection practices are followed consistently, reducing the risk of regulatory penalties.

Common Compliance Pitfalls in Debt Recovery

Sometimes, even experienced agencies and debt buyers can unintentionally violate Texas debt collection laws. Recognizing common compliance pitfalls helps prevent fines, legal disputes, and reputational damage.

Key compliance pitfalls:

Ignoring Communication Rules: Contacting debtors at prohibited times or using harassing language can lead to penalties.
Incomplete Debt Documentation: Failing to maintain proper records for accounts or debt purchases can create legal exposure.
Neglecting Debtor Notices: Debt buyers must provide timely and accurate written notice under Section 392.307.
Misrepresenting Debt Information: Incorrect amounts, false claims of legal action, or impersonating officials violate the TDCA and FDCPA.
Overlooking Internal Policies: Agencies without standardized processes for compliance risk, inconsistent practices, and regulatory scrutiny.
Failing to Track Statutes of Limitations: Attempting collections on expired debts can result in liability and wasted resources.

Agencies and debt buyers can mitigate these pitfalls by implementing structured workflows and compliance tracking. Tratta helps maintain documentation, monitor debtor communications, and ensure statutory requirements are consistently met. Schedule your free demo to learn more.

Preparing for Audits, Disputes, and Risk Management

Proactive preparation and risk management are essential for agencies, debt buyers, and AR teams. By anticipating audits, addressing disputes efficiently, and implementing structured processes, you can reduce legal exposure, maintain compliance, and protect revenue.

Key practices for preparation and risk management:

Maintain Accurate Records: Keep complete documentation of accounts, communications, and transactions to ensure transparency and audit readiness.
Track Compliance: Monitor adherence to TDCA, FDCPA, and Section 392.307 requirements to prevent violations.
Standardize Procedures: Implement uniform processes for debtor contact, documentation, and dispute resolution.
Staff Training and Accountability: Ensure employees understand legal obligations, ethical practices, and escalation protocols.
Monitor Statutes of Limitations: Track timelines for both consumer and commercial debts to avoid pursuing expired accounts.
Establish Internal Controls for Disputes: Have clear protocols to resolve conflicts quickly, reducing regulatory and operational risk.
Conduct Regular Audits: Periodically review processes and accounts to identify gaps and prevent compliance lapses.
Protect Data Accuracy and Security: Secure sensitive debtor information to mitigate reputational and legal risks.

Technology underpins every aspect of compliance, from automated tracking and documentation to real-time communication logs and audit readiness. With Tratta, agencies can simplify workflows, enforce regulatory safeguards, and proactively manage risk across the entire debt recovery lifecycle.

Use Tratta to Remain Compliant with Debt Collection Laws

Maintaining compliance can be complex, especially for agencies managing multiple accounts or debt buyers tracking purchased portfolios. Tratta provides a centralized platform that helps organizations stay on top of regulatory obligations and refine operational oversight.

These are a few ways Tratta can help you remain compliant with debt collection laws in Texas:

Consumer Self-Service Portal: Tratta allows debtors to securely access their accounts, view balances, and make payments without manual intervention. This supports transparency.
Embedded Payments: The platform integrates secure, PCI-compliant payment options that ensure financial transactions are processed in accordance with industry standards.
Multilingual Payment IVR: Tratta provides an interactive voice response system in multiple languages, enabling inclusive communication and reducing the risk of misinterpretation or non-compliance with fair treatment obligations under TDCA.
Omnichannel Communications: The system centralizes outreach across phone, SMS, email, and mail, ensuring that all debtor contact is properly logged and timestamped. This helps agencies comply with FDCPA and TDCA rules governing communication frequency and content.
Campaign Management: Tratta enables agencies to segment accounts, schedule outreach, and automate settlement offers based on account cohorts. These structured workflows reduce manual errors and ensure consistent, legally defensible treatment of debtors.
Reporting and Analytics: The platform provides real-time dashboards and audit-ready reports that help agencies monitor performance, identify compliance gaps, and respond quickly to regulator inquiries or legal disputes.
Customization and Flexibility: Tratta includes an admin console that allows teams to tailor messaging, escalation protocols, and dispute workflows to meet internal policies and Texas-specific legal requirements.
Integrations: The platform connects seamlessly with existing CRMs, payment gateways, and legal systems, ensuring data consistency and reducing the risk of compliance breakdowns due to siloed operations.
Security and Compliance Infrastructure: Tratta is cloud-based and certified for PCI, SOC 2, and other industry standards. This safeguards sensitive debtor information and supports legal obligations under both state and federal law.

Agencies and debt buyers can reduce errors, maintain transparent practices, and respond quickly to regulatory inquiries by using Tratta.

Real Results with Tratta in Action

A real-world example of this impact is FMA Alliance. FMA Alliance, a Houston-based receivables management company, faced challenges in maintaining compliance and data security during a period of rapid expansion. Their legacy systems lacked SOC-2 Type 2 certification and multi-factor authentication, posing significant risks. After adopting Tratta, FMA achieved:

Enhanced Data Security: Upgraded to SOC-2 Type 2 compliant infrastructure.
Operational Efficiency: Optimized processes to support 5X growth without increasing headcount.
Peace of Mind: Leadership reported improved confidence in their compliance posture.

Conclusion

Maintaining compliance in Texas debt collection requires more than a general understanding of laws. It demands efficient processes, accurate documentation, and real-time oversight. Technology plays a critical role, helping agencies and debt buyers track communications, manage audits, and reduce the risk of violations.

Tratta simplifies compliance by centralizing account data, automating statutory tracking, and providing omnichannel oversight. You can stay audit-ready, resolve disputes quickly, and maintain transparent practices without adding operational complexity.

Start optimizing your debt recovery operations today and stay ahead in Texas debt collection compliance. Get in touch with us today.

Frequently Asked Questions

1. How can a debt buyer verify the validity of purchased accounts in Texas?

Debt buyers should request complete account histories, original contracts, and proof of assignment from the seller. This helps ensure compliance with Section 392.307 and reduces the risk of disputes or regulatory penalties.

2. Are there differences in licensing requirements for agencies collecting commercial vs. consumer debt in Texas?

Yes. While general collection agencies must file bonds and comply with TDCA, some commercial debt collections may have different state registration or bonding requirements, depending on the industry and account type.

3. How can agencies track communication compliance across multiple channels?

Agencies should maintain centralized logs of calls, emails, letters, and digital notifications. Technology platforms that integrate omnichannel communication help prevent violations of contact timing and harassment rules.

4. What steps can be taken to mitigate risk from aged or disputed debts?

Agencies should implement standard dispute resolution workflows, verify account documentation, and monitor statutes of limitations to avoid legal exposure and reduce the likelihood of regulatory scrutiny.

5. How often should AR teams review internal policies for Texas debt collection compliance?

Regular reviews, conducted at least quarterly, ensure that staff adhere to current TDCA, FDCPA, and Section 392.307 requirements, stay up-to-date with regulatory updates, and maintain consistent procedures for both consumer and commercial accounts.