When Creditors Are Subject to Federal Fair Debt Collection Rules

Although the FDCPA usually only applies to debt collectors, in some instances it applies to creditors as well.

The Fair Debt Collection Practices Act (FDCPA) prohibits debt collectors from engaging in abusive, unfair, or deceptive collection tactics or harassment of any kind. The FDCPA is aimed primarily at third-party debt collectors -- bill collectors, debt collection agencies, or collection attorneys that creditors hire to help them collect on delinquent debts. It usually does not cover the behavior of creditors collecting their own debts. However, sometimes creditorsare subject to the FDCPA rules. Read on to learn when a creditor may be covered by the FDCPA.

(To learn more about the FDCPA, including specific actions it prohibits, see our Illegal Debt Collection Practices area.)

When the Creditor Is a Debt Buyer

Some creditors are in the business of buying large amounts of delinquent debts from another creditor at a huge discount, and then trying to collect on those debts itself. These businesses are often called debt buyers or debt purchasers. Because these businesses own the debts they are trying to collect, they are technically creditors. However, it is fairly well-settled that debt buyers, because their principal purpose is to collect debts, are considered to be “debt collectors” under the FDCPA. This means that debt buyers must comply with FDCPA rules.

Example. David had a credit card account with Bank A that became seriously delinquent. Bank A sold a large number of delinquent accounts, including David’s account, to Debt Buyer B. Debt Buyer B doesn’t initiate its own credit card accounts. Instead it is in the business of buying delinquent accounts at a discount from creditors and then trying to collect on them. Although Debt Buyer B is actually the creditor now because it owns the debt, it is still covered by the FDCPA, and would be subject to its rules and provisions.

Creditors That Use False Names When Collecting Debts

If a creditor uses a different name when collecting its own debts, so that it appears that a third-party debt collector is contacting the debtor, then the creditor’s actions must comply with the FDCPA. The same goes if the creditor poses as a collection lawyer or a collection agency.

Example. Marcia owes a debt to Singer Department Store. Singer Department Store’s internal collection department sends a letter to Marcia, demanding payment of the debt. On the envelope and letterhead, the company is identified as SDS Collections. Even though Singer is the one actually collecting the debt, its use of a name other than Singer means it will be subject to the FDCPA rules.

Creditors Using Flat Rating Companies to Collect Debts

Some companies charge a few dollars or less to mail out dunning letters in their own names on behalf of a creditor. These businesses are often referred to as flat rating companies. Flat rating companies typically aren’t involved in assessing individual accounts, determining validity of the debts, or any other part of collection other than sending the dunning letters.

If the flat rating company misrepresents its actual involvement in the collection of the debt, so that the person getting the letter would reasonably believe that the creditor has hired a debt collector or attorney to collect, both the creditor and the flat rating company may be subject to the FDCPA.

Some State Fair Debt Laws Encompass Creditors

Many states have laws governing debt collection. In a few states, the laws cover creditors collecting their own debts, as well as debt collectors. To find out the law in your state, contact your local consumer protection office, or check your state’s statutes. (To learn how to find state laws, visit Nolo’s Legal Research Center.)

What Happens If a Creditor Violates the FDCPA?

If a creditor is subject to the FDCPA, and violates one or more of its provisions, you may be able to sue the creditor in court for FDCPA violations. To learn more about FDCPA lawsuits and possible damages see Damages for FDCPA Violations.

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