Debt Collector: Definition, How They Work, and Your Rights

Key takeaways

• A debt collector is an individual or company hired to recover past-due consumer debts or a company that buys delinquent debt and attempts to collect it.
• Collectors are typically paid a fee or a percentage of what they recover; debt buyers keep the full amount they collect.
• Federal law (FDCPA) and CFPB rules limit how collectors may contact and treat consumers and require certain disclosures on first contact.
• Consumers can dispute debts, request collectors to stop contacting them, report violations to regulators, and sue collectors who break the law.

What is a debt collector?

A debt collector is a person or organization that attempts to recover money owed on delinquent accounts. That includes:
* In-house collectors — employees of the original creditor.
* Third-party collection agencies — hired by creditors to collect debts.
* Debt buyers — firms that purchase delinquent accounts for a fraction of the balance and then try to collect the full amount.

Collectors may handle many kinds of consumer debts, including credit cards, phone bills, auto loans, utilities, medical bills, and some types of tax debt.

How debt collection typically works

• When a borrower defaults, creditors often try internal collection efforts for a few months. If unsuccessful, the account may be referred to a third-party collector or sold to a debt buyer.
• Collectors contact debtors by mail and phone and may call personal and work numbers. Some agencies also verify contact information with family or acquaintances (but disclosure rules apply).
• If the debtor pays, the collector is paid according to their agreement with the creditor (flat fee or percentage). Debt buyers retain whatever they collect.

Consumer protections and rules

Debt collectors are regulated primarily by the Fair Debt Collection Practices Act (FDCPA) and by rules issued by the Consumer Financial Protection Bureau (CFPB).

Key restrictions under federal rules include:
* No contact before 8 a.m. or after 9 p.m.
* No threats of arrest or physical harm.
* No harassment or abusive language.
* Limits on repeated calls (e.g., cannot call excessive times to harass).
* Cannot seize property without court approval.
* Cannot publicly disclose details of the debt to others without consent.

CFPB requirements (including the 2021 Debt Collection Rule) require that initial contacts include clear information such as the collector’s name and address, the creditor’s name, the account identifier, the amount owed, an itemized accounting, and instructions on how to dispute the debt.

If you tell a collector in writing to stop contacting you, they must cease communications (subject to limited legal exceptions).

What you can do if contacted

• Ask for written validation of the debt (amount, original creditor, account number).
• If you believe the debt is incorrect, dispute it in writing and request verification.
• Send a written request to stop contact if you want communications to stop.
• Keep records of all communications (dates, times, names, and copies of letters).
• Report suspected abuses to the FTC, the CFPB, or your state attorney general.
• You may sue a collector in state or federal court for violations of the FDCPA.

Credit reporting and impact

• Collectors may report a debt to the credit bureaus after contacting the debtor about it. The delinquency can also appear under the original creditor’s name.
• Negative entries stemming from collections can stay on credit reports for up to seven years and harm credit scores.

Scope and exceptions

• The FDCPA covers consumer debts (mortgages, credit cards, medical bills, student loans, etc.). It does not apply to business debts.
• Some debts, like certain tax debts, may be collected on behalf of the IRS; the IRS also uses private collection agencies in some cases. Always verify official IRS communications (for example, look for official tax notices such as CP40) to avoid scams.

Licensing and state rules

Licensing requirements for debt collectors vary by state. Regardless of state licensing, collectors in the U.S. must comply with federal laws and may also be subject to additional state protections.

Example (brief)

A credit card issuer refers a six-month delinquent $15,000 account to a third-party collection agency. The agency notifies the debtor that it now seeks collection. If the debtor pays, the agency receives a fee or percentage and the creditor is compensated; if the agency bought the debt, it keeps what it collects.

Bottom line

Debt collectors play a role in recovering unpaid consumer obligations, but federal law and CFPB rules limit collection practices and protect consumers from harassment, deception, and improper disclosures. If you are contacted by a collector, request validation, keep records, know your rights, and report or sue if the collector violates the law.

Further resources

• Consumer Financial Protection Bureau (CFPB) — debt collection guidance and rules
• Federal Trade Commission (FTC) — debt collection information and how to file complaints
• Internal Revenue Service (IRS) — information on private debt collection for tax debts