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Michigan has strict laws governing debt collection practices to protect consumers from unfair treatment. These laws include the Michigan Collection Practices Act (MCPA) and Occupational Code Article 9, alongside federal regulations like the FDCPA. Key rules include:
Debt collectors must comply with licensing, surety bond requirements, and audits. Consumers have the right to sue for violations, with damages potentially tripled if intentional. Staying informed of these laws ensures compliance and avoids penalties.
In Michigan, anyone operating as a "collection agency" must obtain a license. This applies to businesses or individuals who solicit claims for collection, attempt to collect debts owed to others, or engage in repossessing property. Each physical location of a collection agency requires its own separate license.
Every licensed agency is required to appoint a licensed collection agency manager or an "owner manager" to oversee operations at each location. A single manager cannot supervise more than one office at a time. To qualify for this role, individuals or corporate officers must meet the following criteria:
However, not everyone involved in debt collection needs a license. The following are exempt:
If you determine that you need a license, the application process is straightforward but requires attention to detail.
All applications must be submitted through the Michigan Professional Licensing User System (MiPLUS). This system, which replaced older databases, is designed to improve functionality and user experience. When registering, ensure your legal name matches official records to avoid delays. For the best experience, use an updated browser on a PC or laptop.
Before applying, owner-managers must meet specific prerequisites:
A surety bond is also required, starting at $5,000 for the first year. This amount may increase to as much as $50,000 in subsequent years, depending on reported business volume. As noted by Cornerstone Licensing:
The surety bond requirement is $5,000 for the first year of operation. The amount of the bond for subsequent years will be based upon the amount of average monthly business as reported on an Annual Report of Business and Operations.
Application fees are as follows:
Payments can be made using Visa, Mastercard, American Express, or Discover. Processing a new application typically takes 6 to 8 weeks, with electronic copies available within 24 hours and hard copies mailed within 7 to 10 business days after payment.
Once licensed, agencies must meet ongoing compliance requirements to remain in good standing.
Michigan collection agency licenses operate on a three-year renewal cycle. Agencies are required to file a Collection Agency Annual Report and a financial report of their trust accounts by May 16 each year. These reports help determine whether the surety bond amount must increase beyond the $5,000 minimum for subsequent years.
Agencies must also maintain a separate trust account for client funds. Funds collected must be deposited within three banking days of receipt. Michigan-based agencies must keep their trust accounts within the state, while out-of-state agencies may use accounts in their home state, provided they are exclusively for money collected under Michigan law. Additionally, all records must be retained for at least three years after the final payment is recorded on an account.
Any changes to corporate structure, partnerships, name, or address must be reported to the Department of Licensing and Regulatory Affairs (LARA) immediately. The state may also require compliance attestation reports or conduct audits to ensure regulatory standards are met. Renewals, fee payments, and manager updates can all be completed through the MiPLUS portal.
These compliance steps are essential for maintaining a license and preparing for the broader regulatory responsibilities involved in debt collection.
Michigan Debt Collection Penalties and Violations Guide
Michigan's Collection Practices Act (MCPA) lays down clear rules to protect individuals from abusive or misleading debt collection practices. These rules apply to third-party collection agencies, as well as banks, credit unions, and creditors collecting their own debts.
There are strict limits on when and how debt collectors can communicate. For instance, contacting a debtor between 9 p.m. and 8 a.m. is not allowed unless the debtor has agreed in writing to different hours. Publicizing a debt using postcards, shame cards, or marked vehicles is also prohibited. If a debtor has legal representation and the collector knows the attorney’s contact details, all communication must go through the attorney unless they fail to respond within 30 days.
Misrepresentation and deception are completely banned. Collectors cannot use forms or stationery that mimic legal or government documents, nor can they make false claims about the consequences of nonpayment, such as threats of arrest or property seizure. It’s also unlawful to falsely present oneself as an attorney or other qualified professional when not licensed.
Harassment is strictly off-limits. This includes repeated or continuous phone calls meant to annoy, using obscene or abusive language, making threats of violence, or impersonating law enforcement to collect a debt. Additionally, collectors cannot disclose a debtor’s information to their employer unless the debtor has given written permission or the contact is solely to obtain location information.
Here are some examples of practices that are prohibited under Michigan law:
| Violation Category | Prohibited Action |
|---|---|
| Communication | Publicizing a debt through deceptive methods, such as postcards or marked vehicles |
| Identity | Hiding the caller's identity or causing the debtor to incur long-distance charges |
| Legal Threats | Falsely claiming a debt is with "innocent purchasers for value" |
| Personnel | Using someone pretending to be a law enforcement officer to collect a debt |
| Documentation | Using documents or seals that resemble official government forms |
Common violations include contacting debtors outside the allowed hours (8 a.m.–9 p.m.) and reaching out to them at work without permission. Ignoring the fact that a debtor is represented by an attorney is another clear violation of the law.
Breaking Michigan’s debt collection laws comes with serious consequences. The Michigan Attorney General can issue cease-and-desist orders to stop illegal practices immediately. If a collector disregards such an order, they may face fines of up to $500 per violation.
For deliberate violations, courts can impose civil fines of up to $500 per incident, which are collected by the Attorney General. Repeated offenses carry even harsher penalties: first-time offenders may face fines up to $5,000, while subsequent violations can result in fines as high as $10,000 and up to one year in jail.
Debtors also have the right to sue collectors. In most cases, they can recover either actual damages or $50, whichever is greater. If a court finds the violation was intentional, the damages can be tripled - at least $150 or three times the actual damages - plus reasonable attorney’s fees and court costs. However, debtors must act within two years to file claims for these penalties.
In addition to monetary penalties, the Attorney General can request temporary or permanent injunctions to stop illegal practices. Collectors may also agree to an "assurance of discontinuance", a written promise to cease the violations, pay investigation costs, and provide restitution to affected consumers.
Certain debt collection activities in Michigan do not require a state license.
One key exemption applies to interstate communications. If you’re contacting Michigan debtors exclusively from outside the state, you’re not required to hold a Michigan license. However, this doesn’t mean you’re off the hook entirely - you still need to comply with conduct rules under the Michigan Collection Practices Act (MCPA) and any relevant federal laws.
Other entities exempt from licensing include:
"A person is not subject to the licensing requirement of subsection if the person's collection activities in this state are limited to interstate communications." – Michigan Compiled Laws § 339.904
Here’s a quick overview:
| Entity Type | Licensing Status | Must Follow MCPA Rules |
|---|---|---|
| Interstate-Only Collector | Exempt | Yes |
Keep in mind that these exemptions don’t apply to all scenarios, especially when creditors attempt to collect debts they didn’t originally own.
Creditors collecting their own debts fall under a different set of regulations in Michigan.
By definition, a "collection agency" refers to entities collecting debts owed to someone else. If you’re a creditor collecting your own accounts, you’re generally not considered a collection agency and are exempt from licensing requirements.
For example, banks, credit unions, and similar entities collecting their own debts are classified as regulated persons under the MCPA. This status exempts them from obligations like the $475 licensing fee, surety bond requirements (ranging from $5,000 to $50,000), and the manager examination required for third-party collectors. They also don’t need six months of collection experience or a licensed manager on staff.
That said, creditors must still adhere to strict conduct standards, including:
Violations can result in serious consequences. The Michigan Attorney General can issue cease-and-desist orders, and intentional violations may lead to civil fines of up to $500 per incident.
One important caveat: If you’re assigned a debt solely to assist with collection on behalf of the original creditor, you’re not considered the creditor under Michigan law. In this situation, you’d likely need a collection agency license unless another exemption applies, as you’d be acting as a third-party collector.
Michigan has a detailed regulatory structure for debt collectors, requiring adherence to both bond obligations and regular audits.
Debt collection agencies in Michigan must secure a surety or cash bond ranging from $5,000 to $50,000 before they can begin operations. For agencies in their first year, the minimum bond amount is typically $5,000. Agencies handling repossession activities are required to post a flat $10,000 bond. The Michigan Department of Licensing and Regulatory Affairs (LARA) explains:
"Applicants for the collection agency license must obtain a surety bond or cash bond in the amount of not less than $5,000 nor more than $50,000." – Michigan Department of Licensing and Regulatory Affairs (LARA)
This bond acts as a safeguard for both clients and consumers. If an agency fails to forward collected funds or violates state laws, affected parties can file a claim against the bond to recover losses. While the surety company initially covers valid claims, the agency must reimburse the full claim amount along with any additional costs. Maintaining continuous bond coverage is critical - operating without an active bond can lead to immediate suspension or revocation of the agency’s license.
Bond premiums are typically 0.75% to 5% of the bond amount annually, with lower premiums available to agencies with strong credit scores.
In addition to bond requirements, Michigan enforces stringent audit protocols through LARA. Agencies are audited at least every two years - or more frequently if necessary - to ensure compliance. Key areas of focus include:
Agencies are also required to file an annual report with LARA by May 16, summarizing their operations for the previous calendar year. Records must be retained for at least three years after the final payment of an account.
For out-of-state agencies, a compliance attestation report from a certified public accountant licensed in their state can replace a direct audit. However, if LARA conducts the audit, the agency will be charged for related expenses based on standardized travel costs.
Navigating Michigan's debt collection laws can be complex, but Debexpert simplifies the process by embedding compliance tools directly into its debt trading platform. These features are designed to align with Michigan's legal requirements, addressing critical aspects like licensing, data security, and documentation standards to ensure lawful transactions.
Debexpert includes several features to help users stay compliant with Michigan law:
Debexpert also supports thorough due diligence during the trading process:
| Michigan Legal Requirement | Relevant Debexpert Feature | Compliance Benefit |
|---|---|---|
| Debt Verification (MCL 339.918) | Portfolio Analytics & Secure Sharing | Ensures proper documentation for debt disputes |
| Licensing (Article 9, Act 299) | Buyer Activity Tracking | Verifies buyers' legal authorization to collect in Michigan |
| Statute of Limitations (MCL 600.5809) | Portfolio Analytics | Filters debts beyond enforceable timeframes |
| Privacy/Prohibited Acts (MCPA) | Encryption & Secure Sharing | Protects sensitive data during transfers |
Transparency is another cornerstone of compliance, and Debexpert's platform is designed to enhance it. By maintaining accurate ownership records through transparent auctions and due diligence, the platform ensures compliance with MCPA provisions that prohibit misrepresenting the legal status of a debt or falsely claiming accounts have been transferred to "innocent purchasers for value" (MCL 445.252).
Debexpert also mirrors the audit protocols established by the Michigan Department of Licensing and Regulatory Affairs (LARA). Its audit trails provide verifiable documentation of compliance, which can help mitigate risks of penalties for "willful violations." Sellers are encouraged to use the secure file sharing feature to include all necessary verification data in portfolio transfers, supporting recordkeeping and trust account protocols. This preparation ensures readiness for LARA's biennial audits.
Michigan's debt collection laws create a strict set of rules that require close attention from anyone involved in debt trading. Licensing requirements, communication limits, and verification protocols are designed to protect both consumers and legitimate collectors. Non-compliance can be costly, with civil penalties reaching up to $500 per violation and criminal fines climbing to $10,000 or imprisonment for repeat offenders.
Understanding the difference between collection agencies and regulated entities is also key. For example, while banks and credit unions might be exempt from certain licensing requirements under the Occupational Code, they are still bound by the Michigan Collection Practices Act’s rules on prohibited practices. Additionally, Michigan’s 6-year statute of limitations on written contracts and 10-year limit on court judgments highlight the need for tools like portfolio analytics to identify debts that are no longer enforceable.
Other safeguards include the $5,000 to $50,000 surety bond requirement and the rule that trust account deposits must be made within three banking days. These measures ensure consumer funds are protected. Keeping books and records for at least three years after the final payment entry is another essential requirement, particularly for the biennial audits conducted by the Michigan Department of Licensing and Regulatory Affairs.
For debt buyers and sellers, compliance is non-negotiable. The verification rules under MCL 339.918, which require stopping collection efforts within 30 days of a dispute until proper documentation is provided, emphasize the importance of detailed and accurate portfolio records. Using platforms with built-in compliance features can help ensure transactions align with Michigan's strict standards.
In this industry, transparency and adherence to legal requirements are vital. Tools that support due diligence, maintain audit trails, and handle documentation transfers effectively allow professionals to confidently navigate Michigan’s regulatory environment while safeguarding the value and enforceability of debt portfolios.
To check if a debt collector in Michigan is licensed, visit the Michigan Department of Licensing and Regulatory Affairs' database for collection agencies. You can also look up their licensing details through the Michigan Bureau of Professional Licensing, which offers comprehensive information on licensed agencies. These tools help confirm whether a collector meets the state's licensing standards.
If you're challenging a debt, make sure to notify the collector in writing. Michigan law requires them to halt any collection activities until they either verify the debt or provide a copy of a judgment. To protect yourself, send your dispute through certified mail and keep copies of all correspondence for your records.
If the collector continues to pursue the debt without verification, they could be violating Michigan laws as well as federal protections. In such cases, you have the option to report their actions to state regulators or the Federal Trade Commission (FTC) to ensure your rights are protected.
Debt buyers are prohibited from pursuing legal action in Michigan for consumer debts that have surpassed the state’s six-year statute of limitations. While they can still reach out to the debtor and ask for payment voluntarily, they lose the right to file lawsuits or secure judgments once this time frame has passed.
More than a decade of Ivan's career has been dedicated to Finance, Banking and Digital Solutions. From these three areas, the idea of a fintech solution called Debepxert was born. He started his career in Big Four consulting and continued in the industry, working as a CFO for publicly traded and digital companies. Ivan came into the debt industry in 2019, when company Debexpert started its first operations. Over the past few years the company, following his lead, has become a technological leader in the US, opened its offices in 10 countries and achieved a record level of sales - 700 debt portfolios per year.
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