Texas Debt Collection Laws & Compliance Guide

At Midwest Service Bureau, we navigate Texas's unique regulatory landscape to ensure compliant, effective debt recovery. This guide covers the critical compliance requirements for debt collection in the Lone Star State.

Licensing Requirements in Texas

Texas regulates third-party debt collectors through a bond requirement rather than a license system:

• Surety bond: Third-party debt collectors must file a $10,000 surety bond with the Texas Secretary of State
• No OCCC registration: The Texas Office of Consumer Credit Commissioner (OCCC) states that it has no regulatory authority over third-party debt collectors and refers complaints about them to the Texas Attorney General
• No separate state license: Texas does not require a standalone collection agency license, but the bond requirement is mandatory (Tex. Fin. Code §392.101)
• Out-of-state agencies: Must meet the same bond requirement if collecting debts from Texas residents

The Texas Attorney General takes complaints about third-party debt collectors and can sue to restrain or enjoin violations (Tex. Fin. Code §392.403(d)). Collecting without the required bond is itself a violation: a consumer who sues successfully can recover actual damages, attorney's fees and not less than $100 for each violation (§392.403(a), (b), (e)).

Texas also requires collectors to include specific disclosures in written communications, including the name and address of the original creditor if different from the current holder of the debt.

Statute of Limitations on Debt

Texas applies a uniform 4-year statute of limitations to most debt categories, making it simpler than many states:

• Written contracts: 4 years (CPRC § 16.004)
• Oral contracts: 4 years (CPRC § 16.004)
• Promissory notes: 6 years for a negotiable note payable at a definite time (Business & Commerce Code § 3.118(a)); 6 years after demand for a negotiable note payable on demand (§ 3.118(b)); otherwise generally 4 years (CPRC § 16.004)
• Open accounts (credit cards): 4 years (CPRC § 16.004)
• Domestic judgments: 10 years, renewable

The statute begins running from the date of default or the last activity on the account. In Texas, a partial payment alone does not restart the statute of limitations; a written acknowledgment of the debt signed by the debtor can defeat a limitations defense (CPRC § 16.065). For consumer debt owned by a debt buyer, a payment or reaffirmation after limitations has run does not revive the claim (Fin. Code § 392.307(d)). Collectors should exercise caution and clearly document the timing of any payments.

Regulation F bars debt collectors from suing or threatening to sue on a time-barred debt (12 CFR 1006.26(b)), and the TDCA bars debt buyers from suing on time-barred consumer debt (Tex. Fin. Code § 392.307(c)). Texas courts have been particularly strict about this, awarding significant damages to consumers in cases where collectors knowingly sued on expired debts.

Prohibited Practices Under Texas Law

The Texas Debt Collection Act (Finance Code Chapter 392) prohibits the following practices:

• Threats and coercion: Using threats of violence, criminal prosecution, or seizure of property without legal authority. Texas specifically prohibits threatening to file criminal charges as a collection tactic
• Harassment: Repeated phone calls intended to harass, using profane or obscene language, or calling before 8:00 a.m. or after 9:00 p.m.
• Unfair practices: Collecting unauthorized fees or charges, misrepresenting the character or amount of the debt, or soliciting post-dated checks for the purpose of threatening criminal prosecution
• Misrepresentation: Falsely representing the status of legal proceedings, using a business name that implies government affiliation, or misrepresenting the collector's identity or authority
• Fraudulent or deceptive practices: Making false claims about the consequences of nonpayment, using simulated legal process documents, or communicating with a consumer in a misleading manner

The TDCA provides for both injunctive relief and monetary damages. Consumers can recover actual damages sustained, plus additional penalties. Because a TDCA violation is also a deceptive trade practice (Tex. Fin. Code §392.404), the Texas Attorney General can seek civil penalties of up to $10,000 per violation, plus an additional amount of up to $250,000 when the practice was calculated to take money or property from a consumer aged 65 or older (Tex. Bus. & Com. Code §17.47(c)).

Key Texas Statutes for Debt Collection

• Texas Debt Collection Act (TDCA): Finance Code Chapter 392 — primary state collection practices law
• Texas Deceptive Trade Practices Act (DTPA): Business & Commerce Code Chapter 17 — provides additional consumer remedies, including treble damages for knowing violations
• Texas Property Code: Chapter 41 (Homestead) and Chapter 42 (Personal Property Exemptions) — define assets protected from collection
• Turnover statutes: CPRC § 31.002 — governs post-judgment collection through turnover orders
• Statute of limitations: CPRC § 16.004 — 4-year limitation period for debt actions

Wage Garnishment in Texas — The Exception

Texas stands apart from virtually every other state in its treatment of wage garnishment. Texas law prohibits wage garnishment for most consumer debts. The Texas Constitution (Article XVI, § 28) protects current wages from garnishment.

The only exceptions to this prohibition are:

• Court-ordered child support or spousal maintenance
• Federal student loan debts
• Tax debts owed to the IRS or Texas Comptroller

However, once wages are deposited into a bank account, Texas appellate courts have held that they are no longer exempt as current wages and can be reached by a writ of garnishment. Creditors can pursue bank account levies through turnover orders under CPRC § 31.002, but a turnover order may not reach the proceeds of exempt property, which the Texas Supreme Court has held includes the proceeds of current wages (CPRC § 31.002(f); Caulley v. Caulley, 806 S.W.2d 795 (Tex. 1991)).

Property Exemptions in Texas

Texas offers some of the strongest property exemptions in the nation:

• Homestead: Unlimited value, up to 10 acres (urban) or 100 acres for single / 200 acres for family (rural)
• Personal property: Up to $100,000 for families ($50,000 for individuals), including vehicles, home furnishings, food, clothing, tools of trade, and athletic/sporting equipment
• Retirement accounts: IRAs, 401(k)s, and other qualified retirement plans are fully exempt, except for excess contributions and their earnings (Property Code § 42.0021(d))
• Insurance proceeds: Life insurance and annuity proceeds are generally exempt
• Wages: Current wages are exempt from garnishment (as noted above)

Compliance Best Practices for Texas Collections

• Keep the $10,000 surety bond current, with a copy on file with the Secretary of State (Tex. Fin. Code §392.101)
• Never threaten wage garnishment for consumer debts — the Texas Constitution does not allow it (Art. XVI, § 28)
• Track the 4-year statute of limitations carefully and never sue on time-barred debts
• Be aware of Texas's strong homestead protections when evaluating collection strategies
• Consider bank levies through turnover orders as an alternative to garnishment
• Provide all TDCA-required disclosures in initial communications

For professional, compliant debt collection services in Texas, learn more about our Texas debt collection services or call us at (800) 362-0272.