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Third Party Debt & the Fair Debt Collection Practice Act

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 another company for collection. When that company’s debt collector calls, he’s not on the hospital’s payroll, and thus is considered a third-party debt collector. As such, that debt collector must abide by the Fair Debt Collection Practices Act.

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 a debt buyer 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 third party debt buyer now owns the balance of your hospital bill, and their collectors start calling. Even though the collection agency now owns your debt, the courts have ruled that companies that purchase debt are still third party debt collectors bound by the Fair Debt Collection Practices Act.

To summarize, the Fair Debt Collection Practices Act doesn’t apply to original creditors when their employees are trying to collect the debt. However, the Fair Debt Collection Practices Act does apply when those you owe money to hire an outside company to collect on their behalf (a third party debt collector), 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 bank card (Visa, MasterCard) issuers have internal procedures and guidelines that mirror the Fair Debt Collection Practices Act.

If you’ve been the victim of third party debt collectors who have violated the Fair Debt Collection Practices Act, contact us at 203-529-5100. We are determined to assert your rights and get the justice you deserve.