Debt Collection Companies: Original vs. 3rd Party Debt

FDCPA Regulates Third-Party Collectors

The federal Fair Debt Collection Practices act differentiates between debt collectors who collect what’s known as “original” debt and those that collect “third-party” debt. The FDCPA regulates third-party debt collection companies.

What’s the difference? As an example, let’s say that you don’t have medical insurance and that your spouse has to have major surgery. The surgery is successful, but you’re faced with $100,000 in hospital bills. If you can’t make the payments, you’ll likely get a call from the hospital’s collections department. The person who calls is a hospital employee. Because the collector is on the hospital’s payroll, you’re receiving a call from the original creditor for the original debt, so the Fair Debt Collection Practices Act doesn’t apply.

But let’s say that six months pass and the hospital is getting antsy. So, the hospital turns your account over to debt collection companies for collection. When a debt collector calls, he’s not on the hospital’s payroll, and thus is considered a third-party debt collector. As such, those debt collection companies must abide by the FDCPA.

Let’s say another year passes, and you still haven’t been able to pay off the surgery bill. The hospital may sell your debt to debt collection companies for a fraction of the face value. The hospital does this because they can get some money for your outstanding balance, and can then write the rest off as bad debt. In the meantime, the debt buyer now owns the balance of your hospital bill, and their collectors start calling. Even though Portfolio Recovery Associates now owns your debt, the courts have ruled that companies that purchase debt are still bound by the Fair Debt Collection Practices Act.

To summarize, the FDCPA doesn’t apply to original creditors when their employees are trying to collect the debt. However, the FDCPA does apply when those you owe money to hire an outside debt collection company to collect on their behalf, or when a company that purchased your debt from the original (or subsequent) creditor tries to collect.

If you’re being victimized by original creditor harassment, though, all is not lost. Some states have fair debt laws that also apply to original creditors, and many bankcard (Visa, MasterCard) issuers have internal procedures and guidelines that mirror the Fair Debt Collection Practices Act.

If Debt collection companies are harassing you, Lemberg Law can help. To speak with a representative directly and immediately call 844-685-9200 for a free, no obligation case evaluation. Let us help you get the justice you deserve.