A debt buyer is a person or entity that acquires accounts for the purpose of collecting the underlying debt. Entities that purchase debt typically acquire it after a significant delinquency has occurred and the original creditor has determined that it will not seek further remedies against the person obligated on the account. Such debts are commonly labeled as being “charged-off”.
Many different types of accounts are assigned or transferred, including:
- past due credit card balances,
- auto and mortgage loans,
- delinquent student loan accounts,
- unpaid medical bills and other receivables.
Due to the delinquent status of the accounts,debt buyers typically acquire them for pennies on the dollar. They then seek to recover as much of the original debt as possible. Collection strategies may include direct contact with the debtor, placement with agencies specializing in collecting debt, or referral to a law firm to pursue formal legal remedies.
Companies buying debt are almost always regulated by the Fair Debt Collection Practices Act (FDCPA) and other federal and state laws. These rules outline the parameters in which debt could be collected.
While acquiring debt is a legitimate business, it has its share of challenges. Delinquent accounts tend to be old and pass through several entities. This sometimes makes it difficult for a buyer of debt to obtain documentation and information usually needed to back up claims for money. Original account documents are often no longer available, assignment paperwork could be flawed, or collection of the debt may be barred by a statute of limitations. For those reasons, debt buyers and consumers need to exercise vigilance in interacting with one another.