You should always pay your original creditor instead of the debt collector when you can. Don’t hide from the situation with either one, though. Ignoring the situations will only make things worse.
- A collector is not the same as a lender’s collections department.
- It is always better to pay the lender when you can.
Your creditor sees you as a customer, but the collector only wants as much money as he/she can get from you.
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Pay the Creditor is not the Same as Debt Collector
Generally, people think of collections as the original creditor, while a collector is a third party that the lender hires to recover money for them. This is an important distinction because the Fair Debt Collections Practices Act (FDCPA) protects consumers against third party collectors.
- Creditors – the lender who originally extended credit is not subject to FDCPA rules
- Collection agencies – Third-party recovery services that are subject to FDCPA rules
The original lender may be subject to FDDCPA rules if they contact you under a different name and imply that they are a third party.1
FDCPA Restrictions
The authorities don’t allow any collector, including the original lender, to abuse, give false information, or engage in unfair practices. The act goes beyond that with third parties to further protect debtors. Collection agencies cannot:
- Talk to other people about what you owe
- Call at inconvenient times or at work
- Harass, including threats of violence, verbal abuse, or calling repetitively
- Give false or misleading information
- Engage in unfair practices
They may tell you that you owe more than you do, claim to be someone else (like the IRS), or tell you an untrue consequence. All of these are false/misleading information. Unfair practices include depositing postdated checks early or wrongfully threatening to take your property.
If a collector crosses the line, you can sue them. If you win, they must pay fines and compensate you for damages.
What FDCPA Recognizes as a Debt Collector
Collectors are third party companies engaged in the business of collecting debts owed to another person. They include:
- Collection agencies
- Collection attorneys
What FDCPA Does Not Recognize as a Debt Collector
There are a lot of exceptions to this law. Many aren’t considered collectors under the FDCPA. They include:
- Business debts
- Federal and state governments
- Buyers collecting on accounts they own
- Legal process servers for judicial proceedings
- People not regularly engaged in the business of collections
- A person whose principal business is not debt collection but collects on behalf of a related entity
- Nonprofit organizations performing credit counseling
- Debts incidental to a fiduciary obligation or escrow arrangements
- Debts originated by the collector
- Accounts obtained as security in a commercial credit transaction with the original creditor
As you can see there are a lot of exceptions, but collectors of any kind should not abuse people over repayments.
Debt Collector Breaks the Law
If you feel that the agency crossed the line and engaged in illegal activities then you have ways to deal with the problem.
- Send them a letter stating that you want them to cease all communications with you.
- Document any violation as soon as it happens and keep a record of each offense.
- File a complaint with the Federal Trade Commission (FTC) and your state’s regulatory agency.
- Sue the debt collector.
If you are behind, it’s better to deal with it as soon as you can. While you should not accept them illegally harassing you, ignoring the problem will only make things worse. If you are resolving the situation and you need a remedy for over the top efforts, start with a letter. It’s your right to tell a collection agency to stop calling you. After that, they should only contact you about future remedies they plan to pursue.
Documentation is important when you file a complaint. Include the collection agency’s name and address, collector’s name, dates and times of each incident, and witnesses. Also, make sure you attach copies of all material evidence you have. Send copies to the FTC, your state’s regulatory agency, the original creditor, and the collection agency.
If you have a good case, you can win damages to recover financial losses and up to $1,000 for any FDCPA violation. Also, sometimes the original creditor is concerned about their own liability and may offer to cancel the amount owed.
If you aren’t sure whether the actions are illegal, talk to a lawyer. They will give you options and objective opinion about the merits of your case.
Better to Pay Creditor or Debt Collector
It is always better to talk to your original creditor if you can. The reason is simple. Your creditor sees you as a customer, and even if you are delinquent on your payment, they still may do business with you again under better circumstances. A collection agency only wants to get as much money out of you as they can. You will never be their customer. If the company:
- Retains the debt within their collection department you negotiate directly with your creditor.
- Contracted a collection agency to recover the money for them you can negotiate directly with your creditor.
- Sold the account to a collection agency you must deal with the agency because your original creditor has no stake anymore.
You should go through your bills and income to determine how much you can pay before you negotiate with either. You don’t want to commit to a payment that you can’t make.2
Final Thoughts on Whether to Pay Creditor or Debt Collector
If you are getting harassing phone calls about overdue bills the best place to go to start to resolve the situation is with your original lender. If they won’t talk to you then ask the agency what they are collecting, how much it is, and for proof that they own it. These delinquent accounts are bought and sold quickly. So, even if they bought it, they may have already sold it to someone else.
If it is an old debt check your state’s statute of limitations to see if it’s past that date. If it is, then you don’t have to pay. Do this before you make any partial payments, because you may reinstate an expired balance by giving them any money.
If you owe them money, figure out how much you can afford and negotiate. The Consumer Financial Protection Bureau has tools and sample letters that you can use. The sooner you begin the better.
