Difference between Original Creditors and Debt Collectors

Debt Collector or Original Creditor

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We used to face a simple either/or question in debt defense. Were you being harassed or sued by the original creditor? That’s the person who allegedly lent you the money in the first place. If so, you were dealing with a person who had better rights against you – but some concerns over public perception that could help you. If it was a “debt collector” who had bought the debt from someone else and had nothing else to do with you, you had better rights and a better chance of winning.

Various things have blurred the line somewhat, but it is still worth keeping the distinctions in mind. There are now really three important categories to consider: original creditors, debt buyers, and “debt collectors,” and the last two categories overlap to some extent.

How Debt Arises

Debt can arise in a number of ways. If you buy a club membership, for example, and then stop paying on it, the club is the original creditor. If you stop paying, the club will bug you for a while, and then they may send the account to a debt collector to bug you some more. Eventually, they may sue you or sell the debt to another company. Whatever they do directly to you, however, they must worry about their reputation in the community, and harsh collections might reduce their sales.

This concern, that they needed to have – about reputation, was considered a check on their debt collection practices. The legislature thought that was enough protection against the worst abuses.

Debt Collectors

Debt collectors, by contrast, lack that relationship with the consumer. Their only client is the creditor company or, if they have purchased the debt for themselves, their only loyalty is to their own bottom line. Thus that protection from abusive collection practices was not there, and the FDCPA was designed to put it there.

The emphasis was on how the debt originated and how it came into the possession of the person bugging you. Thus for a long time we simply considered anyone who bought debts as a “debt collector.” Such people or companies had no need to protect their relationship with the public, and so the public needed protection from them.

Supreme Court

The Supreme Court has made things a little tougher for debt defendants by holding that debt buyers are not, by that fact alone, now defined as “debt collectors” under the Fair Debt Collection Practices Act. Legally, a company can be a “debt collector” under the FDCPA if its “principle business” is the collection of debts. But otherwise a debt buyer isn’t necessarily a debt collector.

This will protect some very bad people from consequences for some of their actions, and it will prevent many people from being able to get lawyers to protect themselves from debt lawsuits.

It will also complicate the way you handle your lawsuit against someone who may be a debt collector, since you will have to try to prove the company bugging or suing you is a debt collector. We have changed our model discovery to address that new reality, and if you’re being sued, you will need to take it into account.

New Reality

Unfortunate as the Supreme Court decision was, it’s now the law until and unless it gets changed. In the current political climate, that seems unlikely. So you must bear in mind some practical distinctions.

Debt buyers, whether or not they are “debt collectors” under the FDCPA, will have difficulty getting or using certain evidence in court. The distinction is very important in assessing your defenses against a lawsuit for debt. Debt buyers will likely face major hurdles from the hearsay law, and they won’t have the same records as an original creditor.

You will have more and easier counterclaims against those who are defined as “debt collectors” under the law, but you will need to conduct discovery specifically to prove that they are, in fact, debt collectors.

Original creditors will probably have fewer issues with hearsay and may or may not have many records. They seem to have fewer records and less control over their files than they used to, for whatever reason, so you will need to explore this in your discovery and defense strategy. And you will have a better chance defending against an original creditor than used to be the case.

Difficulty of Defense

It is not more difficult to defend yourself from one group than another. The legal process itself is basically the same. You have to do all the same things to defend yourself, from answering the petition to showing up in court, responding to discovery, and going to trial if necessary. But the content of the discovery as well as the process of the suit, will likely be different. The original creditors will be more reluctant to sue you, but will have more materials to support the suit. The debt buyers will be more willing to sue, but have less material to support their claim, and if you  can prove the other side is a debt collector, you’ll probably have a counterclaim.

Whichever you’re facing, you should defend yourself. We suggest our materials and membership if you’re ready to do that on your own.

Your Legal Leg Up

Your Legal Leg Up is a website and business dedicated to helping people defend themselves from debt lawsuits without having to hire a lawyer. As you can see below, we have a number of products as well as memberships that should help you wherever you are in the process. In addition to that, our website is a resource for all. Many of the articles and materials are reserved for members, but many are available to everyone.

Finding Resources

Our website is both a business and a public resource, and you can use it to find information on a wide variety of debt law-related topics. While many of our resources are restricted to members, of course, many more are free to the public. Please feel free to use it. Every page has a site search button in both the header and footer. It’s a little magnifying glass icon that looks like this:

Click on the magnifying glass icon, and a small window opens. Put in a key word – a word you think relates to what you’re looking for – and enter. You will get a page of results.

The Rules – Your Anchor to Justice – Learn and Follow Them

Find the rules that will apply to your case, learn them, and follow them even if you have good reason to think you could get away without doing that. That’s because it’s the debt collectors who need the court to “relax” (ignore) certain rules, and there’s a risk that a court that gives you a break on some procedure ALSO gives the debt collector a break on the rules of evidence.

That’s what you don’t want.

Avoiding Service of a Debt Petition and Summons

The nearly universal advice of process servers and collection lawyers is that you should never attempt to avoid service of process. Many lawyers who represent people being chased by debt collectors also recommend the same thing. Is this good advice, though?

That depends.

Debt collectors are usually not the most energetic litigants, and anything that increases their costs of suit makes them think twice. On the other hand, it is not extremely difficult or expensive for them to get you served by alternative means. Our conclusion is that avoiding service can have some benefits, but there are risks, and you must pay attention to the lawsuit.

In answering the question, it will help to clarify the purpose and effect of service of process, and then to define “avoiding service” more carefully. Then, we will look briefly at what you are attempting to avoid.

Purpose and Effect of Service of Process

Obtaining “effective” service of process is necessary for a court to have jurisdiction over any person.  This is because of a constitutional requirement of “notice” any time the state exercises judicial power against a person.[1] The most effective form of service is by physically handing a copy of the lawsuit to the defendant. The process server gives you the suit, fills out an “affidavit of service” (sworn statement that you were served), and the case proceeds.

Is it Possible to Avoid Service?

Given the lives most of us lead, it is not possible to avoid service of process if the process server is determined and a little bit resourceful. Many, and perhaps most, of them are, but debt collection is characterized by a factory approach at every level. You have a better chance of avoiding service of debt collection cases than other kinds of cases. Even for process servers, time is money, and a very significant number of cases are dismissed for failure to obtain service. This is at least partly because so many debtors move from place to place – process servers are never sure whether you’re still living where they’re trying to find you, and they hate to waste the time looking if you aren’t.

Getting you physically served is obviously not always possible, and it isn’t required. Under some circumstances, other things can be allowed. What these other things are is established by state law but can include giving the suit to certain members of your household, or serving you through mail or “publication” (which is basically advertising in a legal publication). None of these things would normally require any sort of acknowledgment by you to be effective – which means that the suit could go forward whether or not you ever heard about it. If you avoid service, this is the risk you take.

Avoiding Service

Let’s consider the crudest way to avoid the process server. The service processor meets you in front of your house, says “Are you Mr. Smith,” and when you say “yes,” attempts to hand you the lawsuit. You run away without accepting it.

That would be considered “constructive service” – in the eyes of the law, you are “served” when you are offered the suit regardless of whether you take it or not. If you run away after the introduction and offer, you have probably been served. How far does that go? What if you see the process server and run away before the introduction, and the process server never gets closer than 20 feet? Or what if you see the process server coming and close and lock the door? He knocks and introduces himself, but you don’t answer or make a sound?

These are gray areas in the law. As a practical matter, sometimes the process server will swear that he served you, and the court will accept that unless you challenge it. Process servers do NOT always tell the truth. On the contrary, they frequently lie, and if they claim, rightly or wrongly, that you have been served, our suggestion, usually, is to defend yourself from the lawsuit.

Evading Service

What if you move to a different residence? Will that prevent service?

It might, and the wisdom of this would depend largely on what you’re trying to accomplish. If you don’t mind being served by publication, and you’re just hoping that the collectors won’t find you to collect the money, then moving might be effective. One would think that they have plenty of means to find you even then, but the practical fact is that they often don’t spend the money.  A judgment would hurt you, though, in various ways other than just collection.

Of course, it is very possible that if you move the debt collector will just drop the case – they often do.

If you think you may be getting sued sometime, it makes sense to watch the courts and see if you are. If you find that you are being sued, then the next question is whether they ever claim to have served you. Watch for that – if they do make that claim, then you will need to do something about it or else they’ll get a default judgment.

The Cost of Avoiding the Process Server

Avoiding the process server is one of the things that people hate most about being in debt – you never feel safe about  opening your door, you worry about strangers, and you’re afraid to answer your phone. As we discuss below, if you are being chased by a debt collector, there is no need to be afraid – you can and should win that case. We don’t suggest that you try to make the process server’s job easier, but there’s nothing to fear and no need to hide from strangers.

What if it Just Happens – they Just Never Reach You

Our position has been that you should never go out of your way to make things convenient or easy for the process server. It’s their job to get you – if they can’t do it, that isn’t legally your problem and in fact will benefit you. If they leave you a note asking you to come get the suit or asking when you’ll be around to be served, you don’t have to answer and probably shouldn’t. This method of (the process server) trying to ease the job shows a willingness to use cunning and trickery, though, in my opinion. If you receive some sort of request for help or cooperation, you must be careful that the process server doesn’t lie about serving you. Again, process servers often lie.

What to Do

The chief danger, once you have been sued, is that the debt collector will claim you have been sued one way or the other. If you have become alerted to a suit against you, you will need to monitor the case and see if that happens. Sometimes it will happen, but often it will not, and where it does not, the case will eventually be dismissed. When it does happen, however, you will need to take action to defend yourself. Until it is dismissed, you must not forget about the case even if they never serve you. You are gaining some time. Use this time to learn how to defend yourself or to put yourself in a better position to settle or win the case.

What Are You Running From

We have treated this lawsuit as a danger and suggested that avoidance is not always a bad idea. It will result in delay of the suit and sometimes its complete dismissal, both of which are good things. Lawsuits are always dangerous and often expensive, so we’re confident our approach makes sense. On the other hand, lawsuits are not all created equal by any means. Your chance of winning a suit brought by a junk debt buyer, if you have the resources in time or money, is very good – debt collectors would lose almost all their cases if they were fairly run and intelligently fought. Many original creditors should lose their cases, too. So fighting is a good idea.

Our suggestion is not to make the process servers’ jobs easier, but if they do get it done, you should certainly not lose heart. Fighting will give you an excellent chance of winning, and even if you can’t win, fighting will delay the suit and improve your chances of settling on better terms.

 


[1] In cases of real estate and certain other things, the thing being sued over – your apartment, for example, in an eviction action – is considered the “defendant” in the eyes of the law. The thing is adequately given notice by stapling or taping a notice of suit on the door, perhaps. There are lots of interesting legal cases and theories describing and explaining this, but debt collection cases typically involve jurisdiction over the person being sued, so that discussion is beyond the scope of this article.

Beware this Rule of Evidence – You Could Lose Your Right to Object

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Rule against Hearsay Evidence

The Rule against Hearsay is as close to a silver bullet as you get in debt litigation. I’ve often said that debt collectors don’t have and can’t get (cost effectively) what they need to beat you. The rule against hearsay is the rule that lets you keep the records they do have out of evidence.

A Critical Definition

Hearsay is an out of court statement offered for the truth of whatever was said. That is, a statement that was made (or written, usually in debt cases) somewhere other than a courtroom, under oath.

For example, if you testified that “Mr. Smith said the dog was white,” this would be hearsay if you wanted the jury to believe the dog was white. That’s because in order to believe that, the jury would have to believe Mr. Smith – and he hasn’t testified under oath in the presence of the jury.

If you testified that “Mr. Smith said the dog was white” would not be hearsay if you wanted to prove that Mr. Smith could talk, though, because in that case the jury could evaluate your statement that he did talk and would not need to form a belief as to whether the statement was correct.

In debt collection cases, the debt collectors often seek to use affidavits or business records that say the debt was a certain amount, that certain procedures were followed, etc. But these are only helpful if you believe the records – and thus the records are hearsay. To keep the judge from allowing the records to count, you must object to their admission. And you will probably have to be prepared to argue they aren’t subject to the “business records exception.”

 

 

Entry of Appearance

The way you let the court and other side know, formally, that you are going to defend yourself, is by filing an “Entry of Appearance.” This video discusses this requirement and some other “red tape” like how days are counted.

The Entry of Appearance is important because once you do that, the court and other side must provide you notice of anything that is happening. Before that, you are subject to default without notice. You CAN enter a case without answering it, but you’re still subject to default. So enter your appearance AND answer the petition at the same time – even if you aren’t required by the court to do so.

In the lower courts in Missouri, people often show up for court and announce their presence when called. But if they don’t file an answer, if they miss another hearing they still get defaulted. Don’t let this happen to you.

Click here for a sample Entry of Appearance.