What is a Collection Agency?

Broadly speaking, a collection agency is a company that is hired by a creditor in order to obtain repayment from a consumer for monies owed. But when it comes to your rights as a consumer, a collection agency is comprised of “debt collectors,” a term that has a specific meaning under the law.

The federal Fair Debt Collection Practices Act (FDCPA) defines a debt collector in a few ways. For example, 15 U.S.C. 1692a(6) says a debt collector is someone who uses interstate commerce or the mail and whose primary business is debt collection. It goes on to say that a debt collector is anyone who directly or indirectly collects or attempts to collect money owed to or allegedly owed to someone else. This provision of the FDCPA specifies that an original creditor who uses a different name is also considered a debt collector.

When talking about debt collection under the FDCPA, it’s helpful to look at four different types of debt collectors:

• First-party debt collectors.
• Third-party debt collectors.
• Law firm debt collectors.
• Debt buyers who collect on debts.

What’s the difference between first-party and third-party collections?

When thinking about collection agencies, it’s helpful to make the distinction between an original creditor and a third-party debt collector. If you have credit card debt from a Visa card issued by Main Street Bank, and an employee from Main Street Bank calls you to collect that debt, then they are considered a first-party debt collector and not part of a collection agency. In that instance, you are not covered under protections afforded by the FDCPA.

However, if a Main Street Bank employee calls you and says that they’re with the Anytown Collection Agency, then that person is considered a debt collector under the FDCPA. More often than not, though, if a debt goes uncollected for a certain period of time, then the original creditor will turn the debt over to a collection agency for collection. At that point, when the WeGetMoney Collection Agency contacts you, they’re a third-party debt collection agency that is required to abide by the FDCPA.

Is a law firm considered a collection agency?

A consumer who owes a debt may receive a letter in the mail from a law firm. The letter may say that the law firm is collecting a debt, and may even threaten to file suit against the consumer if they don’t pay within a certain timeframe. Debt collection law firms have argued that they are not collection agencies and therefore are not bound by the FDCPA. The courts have disagreed. In Glazer vs. Chase Home Finance LLC, the Sixth Circuit Court of Appeals reversed a lower court’s ruling that a law firm is not a debt collector under the FDCPA. That case revolved around whether mortgage foreclosure is considered debt collection under the FDCPA. The court ruled that it is, and that lawyers who regularly engage in mortgage foreclosure are considered debt collectors under that same federal law.

Is a debt buyer considered a collection agency?

Using the previous example, if Main Street Bank wasn’t able to collect the debt, and WeGetMoney Collection Agency wasn’t able to collect the debt, then at some point Main Street Bank might bundle that debt with many other uncollectible debts and sell the debt bundle for pennies on the dollar to the BuyDebt Company. BuyDebt Company would then have its collectors call to try and get payment on the debt.

Historically, debt buyers have been considered debt collectors under the FDCPA because they were not original creditors and because their sole business was the collection of debt. However, in 2017, the U.S. Supreme Court ruled in Henson vs. Santander Consumer USA that Santander was not a debt collector under the FDCPA because the company didn’t collect debts owed to another company, but instead collected debts that it purchased and owned.

If you’ve been harassed by a debt collector, Lemberg Law has a team devoted to representing people who have experienced debt collection abuse. Call and set up a free consultation at 844-685-9200 or submit the online request form.

Case citations

Glazer vs. Chase Home Finance LLC, No. 10-3416, 2013 WL 141699 (6th Cir. Jan. 14, 2013)
Henson vs. Santander Consumer USA, Inc., __ U.S. __, No. 16-349 (June 12, 2017)