How the Law Treats Lawsuits by Debt Collectors and Original Creditors Differently

As I have pointed out elsewhere, people can be sued for debt by one of two different kinds of plaintiffs: “original creditors” or “debt collectors.” Broadly speaking, original creditors are the persons who originally claimed that you owed them money for some credit-based transaction. Debt collectors are other entities who either came into possession of the debt after it was delinquent or are acting (as independent contractors) for the original creditor.

Loan “servicers,” who come into possession of the debt immediately after it is incurred and administer the debt in the usual course of business, are considered “original creditors” even though the debt obviously did not originate with them.

Legal Impact of the Entity Suing You

Because original creditors have a direct, non-collection relationship with the general public, they have commercial pressures preventing them from acting too horribly during the collection process. Their collection activities risk alienating or annoying the public and thus, in the eyes of the law at least, they are held in check by the market. Therefore, the law does not provide any remedy against original creditors per se. However, this does not mean that original creditors are permitted to do anything without limits during the debt collection, just that there are no laws directed against them specifically. If they commit “outrageous” and abusive acts, or if they “defame” you by publishing false information, or obviously if they assault you or commit some other crime, you would still have your normal rights under the law.

Some states probably have specific laws directed against the collection process, too, either as part of their “merchandizing” codes or otherwise, so you should not automatically write-off the behavior of original creditors.

Against debt collectors, however, you have much more specific rights. And this goes back to the commercial realities underlying the transactions. There is no customer-based relationship between the debt collectors and the people from whom they are collecting. There only customers are either the original creditors, or none at all-they are acting independently on their own behalf and, as far as the market is concerned, are free to take any actions whatever to collect the money. This has given rise to some extreme and shocking abuses, and it led to the passage of the Fair Debt Collection Practices Act (FDCPA), among other legislation.

Because of the lack of market countermeasures to debt collectors and the legislative response, the relationship between individuals and debt collectors has become significantly regulated. The FDCPA makes “unfair” or “deceptive” collection techniques illegal in general, and it specifies a large number of particular practices as violations. But even if the action is not specifically named as illegal by the FDCPA it will still be illegal if it is unfair or deceptive. This allows lawyers and individuals fighting on behalf of people abused by debt collectors to be as creative in stopping obnoxious practices as the debt collectors are in creating and implementing them. The FDCPA provides attorneys fees to people suing debt collectors (if they win), but otherwise the remedies are fairly small, with the exception of “personal injuries,” which can include emotional distress. So that opens the door to real money a little bit.

Again I would remind the reader that remedies are not limited either to federal law (FDCPA), as some states may have better laws, or to debt-collection related laws. Reporting false information is defamation, and behaving beyond certain limits is “outrageous” enough for states to provide a remedy. And these remedies likely include punitive damages, various forms of “compensatory” damages, and other forms of relief that can be much more substantial than those provided by the FDCPA.

In conclusion, it is far more advantageous legally to be sued by a debt collector, as the law provides many more remedies against them. You are not without any remedy, however, against the actions of original creditors if they are sufficiently extreme.