Debt Collector

A debt collector is the person the Fair Debt Collection Practices Act regulates. The definition is at 15 USC 1692a(6), and its structure is what matters: two independent tests, then six exclusions, then two special extensions.

The two tests are alternatives. The term reaches "any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts," or who "regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another." A caller can fail the second and still satisfy the first. Courts and consumers alike have collapsed the two, and the whole of the Supreme Court's 2017 decision on debt buyers turns on keeping them apart.

The paragraph then adds two people who might not otherwise be caught. A creditor that, in the process of collecting its own debts, "uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts" is treated as a debt collector, and published material on debt collection covers that point. And for the single purpose of 15 USC 1692f(6), which prohibits threatening or taking nonjudicial action to dispossess property without a present right to it, the term also includes any business whose principal purpose is the enforcement of security interests. That is how a repossession company is inside the Act for one provision and outside it for the rest.

Note what this page is and is not about. The Act's conduct rules, the validation notice, the written dispute, the instruction to stop contacting you and the remedies for a violation are all the subject of the debt collection page. What follows here is the prior question: whether the person calling is covered at all.

The six exclusions are where most real cases are decided, and two of them are worth knowing by heart. Section 1692a(6) says the term does not include: an officer or employee of a creditor collecting in the creditor's name; an affiliated company collecting only for affiliates where collection is not its principal business; a federal or state officer or employee collecting in the course of official duties; a person serving legal process; a nonprofit organization performing credit counseling and distributing consumers' payments to creditors; and, at (F), a person collecting a debt owed to another to the extent the activity is incidental to a bona fide fiduciary obligation or escrow arrangement, concerns a debt the person originated, concerns a debt "which was not in default at the time it was obtained by such person," or concerns a debt obtained as a secured party in a commercial credit transaction.

The clause at (F)(iii) answers the question that comes up most often about servicers. A mortgage or student loan servicer that took over the account while it was current is collecting a debt that was not in default when it obtained it, so it is generally not an FDCPA debt collector even though collecting payments is exactly what it does. Other law reaches servicers, including the mortgage-servicing rules and state statutes, but not this Act. The corollary is that the same servicer taking on an account that was already in default is in a different position.

The exclusion at (E) is narrower than it looks and matters to a whole industry. It covers "any nonprofit organization which, at the request of consumers, performs bona fide consumer credit counseling and assists consumers in the liquidation of their debts by receiving payments from such consumers and distributing such amounts to creditors." Read it closely: the exclusion is drafted around that specific combination of activities, which is what a debt management plan is. It is not an exclusion for nonprofits generally, and not for a counseling agency that does something else.

The attorney exclusion was struck in 1986. The original 1977 definition excluded any attorney-at-law collecting a debt as an attorney on behalf of and in the name of a client. Public Law 99-361 deleted that clause, and the Code's own amendment note records the deletion. So a lawyer or a law firm that regularly collects consumer debts is a debt collector, and the collection letter on a firm's letterhead is subject to the same Act as the one from an agency.

The debt-buyer question, and the honest state of it. In Henson v. Santander Consumer USA Inc., 582 U.S. 79 (2017), the Court considered a company that had purchased defaulted auto loans and was collecting them for itself. Reading the "owed another" test, the Court said the language "seems to focus our attention on third party collection agents working for a debt owner, not on a debt owner seeking to collect debts for itself," and that "all that matters is whether the target of the lawsuit regularly seeks to collect debts for its own account or does so for 'another'." On that basis a debt purchaser "may indeed collect debts for its own account without triggering the statutory definition in dispute."

The last four words are the ones to keep. The Court reserved two questions in terms, and said so on the page. It declined to consider whether Santander also regularly acted as a third-party collection agent, because the petitioners had not raised it in their petition. And of the other test it wrote that "the parties haven't much litigated that alternative definition and in granting certiorari we didn't agree to address it either." Courts have since applied that principal purpose test to businesses built on collecting what they buy. So the accurate position is that Henson closed one route to covering debt buyers and left the more natural one open, and that whether a particular buyer is a debt collector turns on its own business rather than on its category.

Why the answer changes what a consumer can do. If the caller is a debt collector, the Act's specific machinery is available: the validation notice, the written dispute that stops collection until verification is mailed, the written instruction to cease contact, the limits on time, place, medium and third-party contact, and a private right of action with fee shifting. If the caller is outside the Act, none of that machinery applies to them, and the consumer is left with state law, other federal statutes, and the Consumer Financial Protection Bureau's complaint process. That is a large practical difference produced entirely by a definition.

Identify who is contacting you and what their relationship to the debt is. Apply the two tests: is the principal purpose of their business collecting debts, and do they regularly collect debts owed to another. Then check the exclusions, in particular whether the debt was already in default when they took it on. The answer tells you which set of federal obligations they are under, and therefore which of your own tools work against them.

A hypothetical example, because one debt can pass through three callers whose legal positions all differ. Assume a single car loan.

The servicer. A company took over administering the loan two years ago, while every payment was current, and now calls because two payments have been missed. Under 1692a(6)(F)(iii) it obtained a debt that was not in default at the time, so it is generally not an FDCPA debt collector. It collects payments for a living, and that does not change the answer.

The agency. After the account is charged off, the lender retains a collection agency on commission. The agency is collecting a debt owed to another and its principal business is collection, so both tests are satisfied and no exclusion applies. Everything in the Act binds it.

The buyer. The lender instead sells the account, and the purchaser calls to collect for itself. Under Henson the "owed another" test does not reach it, because the debt is now its own. Whether the principal purpose test does is a question the Supreme Court left open, and the answer turns on what that company's business actually consists of rather than on the label "debt buyer."

And the repossession company the buyer engages is inside the Act for the single purpose of 1692f(6), which is the provision about taking nonjudicial action to dispossess property without a present right to it, and outside it for everything else.

Pros

• The definition is textual and public, so a consumer can read 15 USC 1692a(6) and reach a defensible answer about a particular caller.
• It has two independent tests, which means a company cannot escape the Act merely by showing that it does not collect for anybody else.
• The 1986 removal of the attorney exclusion closed a large gap, so a collection letter from a law firm carries the same obligations as one from an agency.
• The security-interest extension keeps repossession businesses inside the Act for the provision that matters most about seizing property.

Cons

• The most consequential exclusion, for a debt that was not in default when obtained, puts ordinary loan servicers outside the Act, which is where a great deal of collection activity happens.
• Whether a debt buyer is covered remains unsettled, because Henson answered one test and expressly declined to address the other.
• The definition governs who is regulated rather than whether the debt is owed, so establishing that a caller is a debt collector does not by itself help with the underlying balance.
• Determining which category a particular company falls into can require information the consumer does not have, such as when the debt was transferred and whether it was in default at the time.