Debt Collectors vs. Debt Buyers: What's the Difference?

A consumer may not know the difference between a debt collector and debt buyer, but the fact is they are quite different – and consumers can benefit from knowing which is which. While debt buyers have been around for awhile, over the last decade they have become much more prevalent in consumers’ dealings with bad debt. Debt collectors, on the other hand, have been around much longer than debt buyers, and with consumers facing a historical amount of delinquent debt in recent times, debt collectors continue to garner front-page coverage because of how many consumers they come in contact with.

Debt buyers are also commonly referred to as asset buyers, since they are purchasing the assets of entities and their accounts receivables. Technically, any private entity that is owed monies can sell the debt. In doing so, the private entity relinquishes the legal rights to the existing debt and transfers that right to the entity purchasing the debt — the debt buyer. The most common types of defaulted debts sold are medical and financial services-related products such as depository accounts, credit card debts and installment loans, among others.

It is also important to note that just because a debt is purchased from the original entity doesn’t absolve a consumer of the debt as the original contract generally has provisions allowing the debt to be sold, thus forging a new relationship with the debt buyer and consumer.

Are Debt Collectors the Same as Debt Buyers?

Debt buyers generally are also not debt collectors, but rather the debt buyer serves as a pseudo-originator and plays the role of client to the debt collector. Debt buyers structure their corporations as such and tend to focus solely on debt acquisition and management, leaving the actual collections up to a debt collector. While there are some debt buying companies who also have set up debt collection companies, mostly they remain separate from each other, in which case the debt buyer will contract with a debt collection agency and place accounts with them to work on a contingency basis. Once a debt buyer attempts to collect on their own purchased debt, they in fact become a debt collector and are held to the strict legal and regulatory standards that apply to debt collectors.

Being a legitimate debt collector is no easy task in today’s environment and requires strict adherence to the law. Debt collectors are required to be fully licensed, insured and bonded, which is why most debt buyers outsource their accounts to a debt collection agency. So for a consumer, it is important to understand the difference between a debt buyer and a debt collector. Odds are when a consumer is speaking with a debt collector, that debt collection agency is not the owner of the debt in question and didn’t purchase it. It’s also important for a consumer to ask for a verification of the debt so they can see where it originated, and they should also check their credit reports to see how the debt is being reported. (Consumers can get their credit reports for free every year on AnnualCreditReport.com, and can get a free credit report summary on Credit.com every month to watch for any changes.)

Debt collectors may not be on consumers’ list of favorite things, but the debt collection process is a necessity to help businesses to recover monies owed to them. In the greater scheme of things, it helps keep the balance in a credit-based economy, and ultimately is an important part in maintaining access to credit for consumers.