Collection Agency vs. Debt Buyers
COLLECTION AGENCY
Typically, “Collection Agencies” collect debts for business/creditors. These debts are typically recent medical or dental bills that your insurance company failed to pay, recent traffic or parking tickets, and late telephone or utility bills. Once the debtor pays the debt, the collection agency pays the money to the business, minus a small percentage or fee for collecting the debt. Although difficult to deal with, these businesses are generally more reputable and ethical than debt buyers.
DEBT BUYERS
Instead of collecting a debt for the original creditor, “Debt Buyers” purchase debts from the original creditor and collect the debt for themselves. Typically, these debts come about by a defaulted credit card or auto loan. Federal banking law requires that these types of debts must be charged off within 180 days of default.
Once the debt is charged off by the original creditor, the creditor may either attempt to collect the debt, or sell the debt to a debt buyer. In most instances, the creditor simply sells the debt to a debt buyer.
When debt buyers purchase these old debts, they purchase the same contractual rights that the original creditor held. The debt buyer steps into the shoes of the original creditor. While debt purchasing is technically legal, the process is prone to significant legal problems.
The problems arise when the debts are transferred from the original creditor to the debt buyer. Typically, no paper documents are transferred with the account. The original creditor will simply send a few fields of electronic information to the debt buyer. This information is often incomplete, misidentifies the debtor, or misrepresents the debt. Often times the information does not include an original contract, proof of payment, billing statements, or any other identifying information.
To further complicate the issue, many creditors only retain documents on the accounts for 2 to 3 years. Therefore, debt buyers often file lawsuits or make other attempts to enforce debts for which they have no evidence to support the debt. Sometimes, because of the lack of evidence, debt buyers file lawsuits after the statute of limitations has passed. These old debts are commonly referred to as “zombie debts.”