Debt collection explained

Writer and editor - Bryan Robinson | Updated on 2023-01-11

What is debt collection?

Debt collection is the process of pursuing payments of debts owed by individuals or businesses. Most debt is collected by the original creditor, but there are also third-party debt collectors. The process usually begins after you have made several attempts to collect the debt yourself.

The definition of debt collection

An organization that specializes in debt collection is known as a collection agency or debt collector. Most collection agencies operate as agents of creditors and collect debts for a fee or percentage of the total amount owed.
There are many types of debt that can be collected, including but not limited to: medical debt, payday loan debt, utility bill debt, credit card debt, and business debt.

The Fair Debt Collection Practices Act (FDCPA) is a U.S. federal law that was enacted in 1977 to protect consumers from abusive practices by collection agencies. The FDCPA applies to personal, family, and household debts, including car loans, mortgages, medical bills, and credit card debt.

The act prohibits certain methods of debt collection, such as harassment and threats of violence, use of obscene or profane language, publishing lists of consumers who refuse to pay their debts (except to credit reporting agencies), making repeated telephone calls with the intent to annoy or harass the consumer, and calling consumers at unreasonable hours.

In addition, the act requires that all communication between a debtor and a collection agency must be done in writing and that the debtor must be notified of the name and address of the original creditor if different from the collection agency.

The debt collection process

The debt collection process typically begins with a creditor contacting a debtor to request payment. If the debtor does not respond or is unable to pay, the creditor may then hire a debt collection agency. The agency will contact the debtor and attempt to collect the debt. If the agency is unsuccessful, the creditor may then take legal action against the debtor.

Who are debt collectors?

A debt collector is an entity that is owed money by an individual or a business. Debt collectors are typically collection agencies or lawyers.

The types of debt collectors

There are two types of debt collectors: original creditors and third-party debt collectors.
Original creditors are the companies you owe money to, such as your credit card company or your mortgage lender. Third-party debt collectors are companies that collect debts on behalf of other companies.
If you’re being contacted by a debt collector, they will likely be a third-party company. However, it’s important to note that even original creditors may sometimes use third-party debt collectors.
Both original creditors and third-party debt collectors have a legal right to collect the debts you owe. However, they must follow certain rules set by the Federal Trade Commission (FTC), which regulates the debt collection industry.
If you think a debt collector has violated the FTC’s rules, you can file a complaint with the FTC.

The difference between debt collectors and debt buyers

As stated beore, debt collectors are agencies that work on behalf of creditors to recover money owed on delinquent accounts, while debt buyers are companies that purchase delinquent debt from creditors for a fraction of the amount owed, then attempt to collect the full amount from the consumer.

What’s the difference?

The difference between debt collectors and debt buyers is important to understand, because it can impact your rights under the Fair Debt Collection Practices Act (FDCPA). The FDCPA only applies to debt collectors, not debt buyers.

If you’re being contacted by a debt collector, you have certain rights under the law. For example, a debt collector must send you a written “validation notice” within five days of first contact, telling you how much money you owe, who the original creditor was, and what actions to take if you believe you do not owe the debt.

However, if you’re being contacted by a debt buyer, there is no obligation for the company to provide you with a validation notice. That means they are not required by law to give you any information about the debt they are trying to collect.

It’s important to know who you’re dealing with so that you can understand your rights and take appropriate action. If you’re not sure whether the company contacting you is a debt collector or a debt buyer, ask for written proof of their status.

Related reading: defaulting page, Bankruptcy page.

What are debt collection agencies?

As stated before, debt collection agencies are organizations that collect delinquent debts on behalf of creditors.

The types of debt collection agencies

There are two types of debt collection agencies: first-party agencies and third-party agencies. First-party agencies are affiliated with the company that you originally owed money to, while third-party agencies are not.

First-party debt collection agencies may be more lenient than third-party agencies because they understand your situation and may be willing to work with you to come up with a payment plan. Third-party agencies, on the other hand, are more likely to take a hardline approach because they’re not as invested in your case.

It’s important to know which type of agency you’re dealing with so that you can tailor your approach accordingly. If you’re dealing with a first-party agency, for example, it may be worth it to explain your financial situation and try to negotiate a payment plan. If you’re dealing with a third-party agency, however, you may need to be more firm in your negotiations.

The difference between debt collection agencies and debt buyers

There are two types of debt collectors: debt collection agencies and debt buyers. Debt collection agencies collect payments on behalf of a lender, while debt buyers purchase outstanding debt from a lender at a discount and then attempt to collect the full amount from the borrower.

Debt collection agencies are typically used by creditors, such as banks and credit card companies, to recover payments on delinquent accounts. Debt buyers, on the other hand, purchase delinquent accounts from creditors in order to recoup the money owed plus interest and fees. The main difference between the two is that debt collection agencies are paid by the creditor, while debt buyers pay the creditor upfront for the right to collect the debt.

Both debt collection agencies and debt buyers must comply with federal and state laws when pursuing repayment from a borrower. These laws protect borrowers from unfair or abusive practices, such as harassment or making false promises about what will happen if a payment is not made. If you are contacted by a debt collector, it’s important to know your rights so you can decide how to best deal with the situation.

Debt buyers are companies that purchase debt from creditors for a fraction of the original owed amount. Once the debt is purchased, the debt buyer then tries to collect the full amount of the debt from the debtor, usually through phone calls, letters or field visits.

Debt collectors are companies hired by creditors to collect debts on their behalf. Debt collectors are not allowed to purchase debt.

Both debt buyers and debt collectors must follow the rules set forth in the Fair Debt Collection Practices Act (FDCPA). This includes not being able to engage in harassing or abusive behavior towards debtors, not being able to make false or misleading statements, and being required to provide certain information about the debt to the debtor upon request.

The types of debt buyers

There are four main types of debt buyers:

  1. First-party debt buyers
  2. Second-party debt buyers
  3. Portfolio purchasers
  4. Junk debt buyers

As stated before, First-party debt buyers are the original creditor or the lender. They purchase the debt from the original creditor at a discount and then attempt to collect on it. Second-party debt buyers are companies that purchase debts from another company, usually a lender or another type of financial institution. Portfolio purchasers are companies that buy portfolios of debts, usually with the intention of collecting on them. Junk debt buyers are companies that purchase very old debts, often for pennies on the dollar, with the hope that they will be able to collect something from the debtor.

Bryan Robinson

Bryan Robinson
Writer and editor


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