The Supreme Court of the United States (SCOTUS) recently made a landmark decision regarding borrowers and lenders. In short, they’ve disabled the protections provided by the Fair Debt Collection Practices Act (FDCPA) and given a lot of power back to the lenders and debt collectors, whose predatory actions were what caused the creation of the FDCPA in the first place. This comes on top of another recent decision that, again, favors debt collectors.
What do these two decisions ultimately mean?
First off, some things you, as a borrower, should know:
- It is entirely legal for someone to “buy” your debt and try to collect it. For example, if you owe Mastercard $5,000 and don’t pay it back, they can “sell” that debt to a collector for as little as pennies on the dollar. Basically, Mastercard gives up on even trying to collect their $5,000 from you, so they will sell it for, say, $1,000 to a debt collector, who will then try to collect the full $5,000 from you (netting them a hearty $4,000 profit).
- The FDCPA, originally passed in 1977 and amended, most recently, in 2010, makes it illegal for debt collectors to harass, bully, badger, lie, or otherwise use deceptive or aggressive practices to try and collect your debt. If a debt collector calls and says they’re going to take your house away and steal your car if you don’t pay them, you can legally sue them. One woman famously sued a debt collector in 2010 for making abusive phone calls and was awarded $8.1 million.
- Legally speaking, a “Debt Collector” is someone who tries to collect on a debt for someone else. A “Creditor” now also means someone who tries to collect on their own debts.
That last point is important, and the key to this whole decision, so we’ll explain it further with an example:
Bob works for a debt collection agency we’ll call DebtCo. DebtCo is contracted by Mastercard to collect debts for them. For every $1,000 that DebtCo collects for Mastercard, they earn $100. Because DebtCo is trying to collect money owed to Mastercard, DebtCo is a Debt Collector.
Let’s say Bob is so good at his job, that Mastercard hires him and puts him to work collecting debts directly. Mastercard is a Creditor.
Still with us? Good. Under the FDCPA, if DebtCo threatens to burn your house down if you don’t pay back the $5,000 you owe Mastercard, you can sue DebtCo for harassment. However, if Mastercard calls you and threatens to burn your house down if you don’t pay back the $5,000 you owe them, you cannot do anything about it but hang up the phone and hope to speak to someone else the next time they call.
The reason this recent decision is so important is because, according to the SCOTUS, if someone buys your debt and tries to collect, they are now considered a creditor trying to collect for themselves, and are no longer subject to the protections provided by the FDCPA.
We urge all of our readers to take special care in the future, should you find yourself facing angry phone calls from people trying to collect on a debt. If you receive these calls, always ask who the creditor is — if DebtCo says they’re collecting on a debt for Mastercard, you are safe, and you cannot be harassed. If DebtCo says they’re collecting on a debt for themselves because they bought your debt from Mastercard, be patient, be strong, and do your best to protect yourself and pay off your debts. Learn about your local bankruptcy laws and know what the statute of limitations is on debt write-offs.
No matter what sort of financial troubles you may be facing, you deserve to be treated with respect.