What is the Difference Between a Creditor and a Debt Collector?

While both creditors and debt collectors may attempt to collect a debt from a consumer, there is a big difference between the two, particularly where the law is concerned. So what is the difference, how do you know which one you are dealing with, and what laws apply to each?

What is a Creditor?

A creditor is a person, business, or other entity to which a consumer owes an original debt. The legal definition of a creditor goes something like this:

“One to whom money is owed by the debtor; one to whom an obligation exists. In its strict sense, a creditor is one who voluntarily trusts or gives credit to another for money or other property.”

This includes, but is not limited to:

• Healthcare providers who provide treatment in exchange for the promise of later payment
• Credit card companies or retail stores who offer credit cards, lease agreements, or extend other types of credit
• Banks, mortgage companies, and financial institutions that provide consumer loans
• Landlords or rental companies who rent property in exchange for a promise to pay a monthly fee
• Accountants, attorneys, and other professionals who provide services in exchange for a promise to later pay for those services
• Governmental entities to whom you owe money for fines, fees, or taxes

Basically, a creditor is someone who provided you with goods or services before receiving payment in exchange for the promise what you would later pay for the goods or services, or a governmental entity to which you owe a fine, agency fee, courts costs, or some type of tax.  A creditor is the person with whom you have the original contract or agreement to pay. A debt collector is different, in that you have no agreement with them to pay and may have never done any type of business with them, or even heard of them until you are contacted and asked to pay a debt. So what is a debt collector and what right does one have to collect a debt from you?

What is a Debt Collector?

A debt collector is a person or business who is hired by a creditor to collect a debt from a consumer that is owed to the creditor. A debt collector is legally defined as:

“Any person who regularly collects, or attempts to collect, consumer debts for another person or institution or uses some name other than its own when collecting its own consumer debts.”

The debt collector may be hired by the creditor on a contingency basis, meaning it only collects a fee if it gets you to pay the debt, it may charge hourly or flat rates for attempting to collect the debt, or it may simply purchase the debt for less than the amount owed, in the hopes of recovering the entire amount and thereby making a profit. Most debt collection agencies work on a contingency basis and receive a percentage of the amount they are able to collect from the consumer. This gives them incentive to aggressively pursue a debtor to collect on the debt.

How to Tell the Difference Between a Creditor and a Debt Collector

Callers attempting to collect a debt will generally say who they are calling for, but if you do not recognize the company name as one with whom you have done business or one to whom you may owe a debt, you should ask for verification of the debt, which includes the name of the original creditor, the amount of the debt, and any dates of service or contracts that you signed agreeing to purchase goods or services. If you are receiving collection letters, look at the letterhead to see who they are coming from and check for any indications that the letters are coming from a debt collector; this might include phrases such as original creditor, original account number, collecting for, or collecting on behalf of. Past due accounts appearing on your credit report, if they were placed there by a debt collector, should include the name of the original creditor and may also include phrases such as collection account or collecting on behalf of.

How Can a Debt Collector Attempt to Collect Money I Never Agreed to Pay to Them?

A large body of law in the United States, called contract law, governs our ability to contract with one another for goods and services. These laws allow creditors to enter into contracts with debt collectors to provide them with a service; collect on debts owed to them in exchange for a fee. This frees up the creditor to continue its normal business without spending a lot of time attempting to collect on past due accounts. The debt collector is then allowed to act as an agent or assignee of the original creditor and proceed with any legal attempts to collect on the debt. But what is legal for a creditor and what is legal for a debt collector? Depending on your state of residence, the laws may be different for each.

What are the Laws for Debt Collectors?

Debt Collectors are covered by the federal Fair Debt Collection Practices Act (FDCPA), which prohibits them from using unfair, deceptive, or abusive practices when attempting to collect a debt. Some of these prohibited practices are specifically mentioned in the Act, such as:

• Calling a consumer before 8:00 a.m. or after 9:00 p.m.
• Using obscene or abusive language
• Threatening to take actions it is not legally allowed to take or does not intend to take
• Telling consumers they will be arrested if they do not pay the debt
• Discussing a debt with third parties
• Allowing a consumers phone to ring repeatedly
• Contacting a consumer at work when it knows the employer does not allow personal calls
• Committing or threatening to commit violence against a consumer in an attempt to collect a debt
• Falsely implying they are employed by or affiliated with a government agency
• Reporting or threatening to report false credit information

Other unfair, deceptive, or abusive practices are prohibited by the Act, even if not specifically mentioned in the law. This Act is a federal law that applies to debt collectors operating in any state and protects consumers who live in any state. The federal Act, however, does not apply to creditors.

What are the Laws for Creditors?

Some states have laws that mirror the FDCPA, which prohibit the same types of collection practices, but apply to creditors as well as debt collectors. California's Rosenthal Fair Debt Collection Practices Act (RFDCPA) is one such law. The RFDCPA protects California residents from creditors in the same way that the FDCPA protects consumers in all states from debt collectors. Based on your state of residency and the creditor's specific actions, other federal or state consumer protection laws may have been violated by a creditor attempting to collect a debt from you.

If a creditor or debt collector is using any unfair, deceptive, or abusive practices in order to collect a debt from you, you should consult an FDCPA attorney to help you determine if they have violated the FDCPA or any other state or federal law and if you may have a claim against them. In California, feel free to contact our office at 1-800-219-3577, for a free, no obligation consultation.