Debt Collection Explained
Debt collection is the process by which a company or person who owns a debt now collects money (or other things of value) from the debtor so that the debt is repaid. In general, debt collection can be performed by the original creditor, or by a person or company that buys that debt from the original creditor. If you have questions about this matter, contact a debt lawyer Raleigh.
This page gives a general overview of the debt collection process, and the steps that you – the debtor – can take to protect yourself. If you have specific questions about your legal situation, contact a debt defense lawyer Raleigh
What is an “original creditor”?
An original creditor is the person or company or a subsidiary or agent of the company that originally lent you the money. For instance, if you originally borrowed money from General Credit, Inc., then General Credit, Inc., and any subsidiaries or agents of General Credit, Inc. are considered the “original creditor.”
What is a “debt collection agency” or “debt collector”?
A debt collector or debt collection agency is a person or company that collects a debt owed to another. In fact, in many cases, the debt now may be owned by the debt collector or debt collection agency. In simple language, a debt collector is someone who usually has purchased the debt directly from the original creditor or from another debt collector who originally purchased it from the original creditor.
A debt collector, as defined by the Fair Debt Collection Practices Act, is not the original creditor.
What’s the difference between a debt collector/debt collection agency and the original creditor? They’re both trying to get money from me!
The difference between a debt collector/debt collection agency and the original creditor is that two categories are treated differently under the law.
The Fair Debt Collection Practices Act (FDCPA) does not apply to the original creditor or the original creditor’s agents or subsidiaries. The FDCPA only applies to debt collectors and debt collection agencies.
Why does the Fair Debt Collection Practices Act (FDCPA) only apply to debt collectors and not original creditors?
When the FDCPA was originally put into law in the 1970s, Congress was trying to prevent abusive practices by debt collectors. Because the original creditor – places like Bank of America or Chase or BBT – have an interest in maintaining a good relationship with you, even if you may have defaulted on a loan, they typically do not engage in the worst kinds of harassing behavior. So Congress excluded them from the act.
However, debt collectors and debt collection agencies are people who have purchased the debt from a company like Bank of America, Chase, BBT and so forth. Although places like those banks sometimes try to persuade debt collectors not to harass their former customers, debt collectors don’t always behave.
After years of complaints, Congress sought to use the power of the law to regulate the behavior of debt collectors. This law – the Fair Debt Collection Practices Act – can be your tool to stop the abuse and harassment.
What if the Original Creditor is Behaving Improperly or Abusively?
If the original creditor is behaving improperly, illegally, or abusively, you do have other remedies. For instance, North Carolina has a very strong, pro-consumer Unfair and Deceptive Practices Act which does apply both to the original creditor and to subsequent debt collectors. That act can give you remedies against abusive or illegal practices by original creditors.
Why does a Debt Collector now say I need to pay his company, and not the original lender or original creditor?
Usually after 180 days of delinquency (for revolving accounts such as credit cards) or 120 days of delinquency (for installment accounts, such as an automobile loan), a bank must “charge off” the account, which means that the bank must show the account as a loss on its books. When the bank charges off the account, it almost always sells the account to a debt collector.
Debt collectors buy these accounts for pennies on the dollar. As of January 2009, a report by an industry group found that original creditors were selling “fresh” delinquent accounts for between 5 cents and 7 cents on the dollar to debt collectors. So if the debt was $10,000, a debt collector might buy that account for between $500 to $700, hoping to collect from the debtor the entire $10,000 and make a handsome profit.
Old accounts are being bought by debt collectors for less than a penny on the dollar.
If the debt has been sold by the original creditor to a debt collection agency or debt collector, the debt collector now “owns” the debt and has a right to collect on the debt.
Before paying a debt owned by a debt collection agency, you want to make sure that the debt collection agency can actually prove it owns the debt. In addition, you want to make sure that the debt is actually a valid debt. Sometimes debt collectors claim to own a debt, when they do not.
How does the Fair Debt Collection Practices Act (FDCPA) protect me and my family?
The FDCPA is designed to protect you, the consumer or debtor, from the bad behavior of debt collectors. Even if you own the debt and the debt is valid, the debt collector may not engage in certain practices in order to try to make you pay. In fact, you may still owe the debt, but may be able to win against the debt collector if the debt collector has violated the FDCPA.
In other words, the FDCPA doesn’t have much to do with the actual debt. What it governs are the ways that debt collectors must behave when they call, write, or contact you, the consumer.
What are the specific actions that the FDCPA regulates?
A debt collector may not:
1. Contact the consumer/debtor at an unusual time or place or a time or place known to be inconvenient to the consumer/debtor.
2. Contact the consumer/debtor after the consumer/debtor has notified the debt collector that the consumer/debtor is represented by an attorney.
3. Contact the consumer/debtor at the consumer/debtor’s workplace if the debt collector knows or has reason to know that the employer prohibits such kinds of calls at work.
4. Except in certain circumstances, contact other parties – like family, friends, employers, etc. – in pursuit of the debt.
5. Threaten violence or harass the debtor/consumer
6. Publish the name of the debtor/consumer, except to a consumer reporting agency like Equifax or Transunion.
7. Advertise the sale of the debt in order to coerce payment of the debt.
8. Cause a telephone of the consumer/debtor to ring continuously or repeatedly.
9. Make phone calls to the debtor/consumer without identifying themselves as debt collectors.
10. Make a false representation that the debt collector is an attorney.
11. Threaten to take any legal action that can’t be taken or that is not intended to be taken
This list is only a sample of the kind of things a debt collector/debt collection agency may not do to you, the consumer. There are plenty of other rules in the FDCPA regulating the conduct of debt collectors.
What happens if a debt collector does violate the FDCPA?
The FDCPA is a “strict liability” act, meaning that if your attorney proves the debt collector violated the act and the debt collector fails to assert one of a limited number of defenses, the debt collector is liable for damages of up to $1,000 per violation plus attorneys fees.
The risk of significant damages plus attorneys fees sometimes encourage debt collection agencies or debt collectors who know they have violated the act to settle, instead of taking the matter to trial.
What should I do if I suspect a Debt Collector is violated the FDCPA?
First, you should talk to a debt defense lawyer about the matter. A debt defense lawyer can find out whether the debt is owned by the original creditor or whether the debt collector now owns it. In addition, a debt defense lawyer can advise you of your rights.
Second, you should gather as many documents relating to the debt as you have. Save all correspondence you have received from (or sent to) the original creditor and from or to any debt collectors who have been involved with the debt. Save those documents; they will be very important as your case proceeds.
Third, make a call log. Every time anyone calls about the debt, note the Date, Time, Name of the Caller, Name of the Company the Caller Represents, and what the caller said. Don’t get into an argument with the Caller. Simply keep a log. That log is very important evidence that may later be used to prove harassment or misconduct by the debt collector.
About the Author
Damon Chetson is a consumer debt lawyer Raleigh who helps people filing for Bankruptcy under the United States Bankruptcy Code, and who helps people fight against creditors and debt collector Raleigh who engage in abusive and illegal activities.
Chapter 13 Bankruptcy Information: Overview of Chapter 13 – FindLaw
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