When you are facing a lawsuit over an alleged debt knowing who is suing is just as important as why. Debt collectors and creditors may both be able to file a lawsuit against you over a debt, but what is the difference?
A Little Background
In 1978, Congress enacted the Fair Debt Collection Practices ACT (“FDCPA”) to protect people from unfair, abusive, and deceptive debt collection practices. The FDCPA does not apply to business debts but only debts incurred for a personal or household expense. The FDCPA regulates the how and when of a debt collector’s interactions with you but does not affect original creditors. Thankfully, the FDCPA clearly defines the differences between the two.
What is a Debt Collector?
Under the FDCPA, a debt collector is generally a third-party that regularly attempts to or collects debts owed to others. Debt collectors often do not own the debt they attempting to collect, and instead may receive a portion of the collection as their fee. Collection agencies and lawyers who collect debts as part of their business fall under this term.
There are other companies, known as “debt buyers” that buy past-due debts from original creditors and then may attempt to collect the debts themselves. Debt buyers purchase hundreds of past-due debts at a time at greatly reduced prices, typically pennies on the dollar. When the debt is collected in full, often through a lawsuit, they make a massive profit. For example, a debt buyer may buy a past-due debt of $1,000 for $50 and file a lawsuit against the person they claim owes the debt. If they are successful in court, they will make a profit of $950 and there may be additional costs for the losing party in interest or court fees as well.
Debt buyers, if they intent to collect on the debts they purchased themselves are also governed by the FDCPA. However, if the debt collector does not intend to collect the purchased debt, collect debts owed to another, or if debt collection is not their primary business, then they are not governed by the FDCPA. Now that we know what debt collectors and debt buyers are, what is the difference between them and an original creditor?
What is an Original Creditor?
Under the FDCPA, an original creditor is the company that provides the loan or credit. These are often national or international banking or credit card companies, including in-store credit cards, whose primary business is providing credit, loans, or otherwise unrelated to debt collection. The original creditor may try to collect their debts themselves or they may hire a debt collector. If the original creditor uses a different name when trying to collect their own debts, their actions fall under the FDCPA if the name used implies that a third-party is trying to collect the debt. Original creditors also may sell any past-due debts to third-parties, debt collectors or debt buyers, after a certain point. Now that we know the difference between a debt collector and an original creditor, how do these differences matter?
What is the Difference?
The most important difference between a debt-collector and an original creditor is that one is generally a third-party to the initial loan or credit agreement. A third-party is not connected to the original loan or credit agreement but will be affected by the outcome. For third-party debt collectors, they were not involved in the original transaction, but its outcome directly affects them, specifically their payment.
An original creditor is not a third-party to the original transaction and can avoid many of the legal protections, e.g., the FDCPA if they use their own name when attempting to collect their debts. However, these companies may have special requirements imposed by the States or fall under different Federal laws such as the Telephone Consumer Protection Act.
The difference between original creditors and debt collectors may be simple on paper, however, keeping track of each company’s classification and the defenses available to you can be quite confusing. If you are being sued over a debt, give us a call to speak to one of our attorneys. Our attorneys have handled matters like these all over Pennsylvania. Consultations are free at Starks Law. When you call, we can go over your legal matter and create an action plan tailored to your needs, situation, and goals. Additionally, you can read about how a debt collector can contact you and how we may be able to assist.