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 collectors.
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 Penn Credit Corporation for collection. When a Penn Credit Corporation debt collector calls, he’s not on the hospital’s payroll, and thus is considered a third-party debt collector. As such, Penn Credit Corporation 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 Portfolio Recovery Associates 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, Portfolio Recovery Associates 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 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. State fair debt laws may also apply to original creditors, and many bank card (Visa, MasterCard) issuers have internal procedures and guidelines that mirror the Fair Debt Collection Practices Act.
