What’s the Difference Between a Loan Servicer and a Debt Collector?
![Loan Servicer vs Debt Collector]()
General Difference: A loan servicer manages a debt while the debt collector owns it.
The debt collection process can get confusing at times. You may receive a call from a company you do not recognize that says they are servicing your loan. This typically occurs when they are managing a debt owed by another company.
However, you want to be careful, as there are many companies and individuals out there posing as debt collectors. The Fair Debt Collection Practices Act (FDCPA) provides various requirements for collection agencies. Understanding these requirements will help ensure you are talking to a legitimate collection agency or loan servicer.
The below information will help you understand the difference between a loan servicer and a debt collector. You will also learn to recognize when you are being contacted by an illegitimate company.
What is a Debt Collector?
A debt collector is a company that owns the actual debt. Oftentimes, this is the original creditor you entered into the agreement with. However, sometimes another company may purchase a debt. The FDCPA defines a debt collector as any person whose principal purpose is to collect debts.
As a result, if a debt collector you do not recognize contacts you about a debt, confirm where the debt came from. One way to accomplish this is by reviewing the validation notice. If a third-party debt collector takes over a debt, they must send you a validation notice within 5 days of their first communication with you.
This validation notice must contain the following information:
- Debt collector’s contact information
- Name of the original creditor
- Account information, including the account number, interest, fees and any payments
- Amount of debt you currently owe
- Details on your rights to dispute a debt
What is a Loan Servicer?
A loan servicer does not own a debt. Instead, they are responsible for servicing the loan. This includes tasks such as
- Communications about your debt
- Setting up a payment plan for debt collection
- Managing your account and sending statement updates
A loan servicer receives payment through an agreement with the debt collector. This usually is through late charges and other fees.
There are ways to recognize that a loan servicer is contacting you. For example, when they call they will tell you that they are contacting you on behalf of the debt collector. Loan servicers are most often seen with the following types of debts:
- Mortgages
- Student Loans
- Medical Bills
Is a Debt Collector or Loan Servicer Violating the Law?
Third-party debt collectors and loan servicers managing a debt in default fall under the scope of the FDCPA. If they are violating any of your rights under the FDCPA you can take action. Violations can range from wrongful debt collection to harassment.
If a debt collector or loan servicer is violating your rights, consider taking action. Below are some situations you may encounter and the action you can take.
| Situation |
Action |
| A loan servicer or debt collector used obscene language on the phone. |
Send a demand letter to stop the illegal action. Send the letter via certified mail to verify delivery. |
| You are getting repeated calls or calls at unusual times. |
Send a cease-and-desist letter. A collection agency or loan servicer must then end all communication with you. |
| The debt collector told someone else about your debt. |
File a complaint to a federal agency. You can submit a complaint to the Federal Trade Commission (FTC) which enforces the FDCPA. In addition, submit a complaint to the Consumer Financial Protection Bureau (CFPB). |
| You paid charges not part of the original agreement with the creditor. |
Recoup your damages by filing a lawsuit. The court can also put a stop to any ongoing illegal behavior. |
| A violation occurred but your debt is valid. |
A debt collector may be open to a favorable settlement if you agree to not sue them. |
| The debt is not yours. |
Dispute the debt within 30 days of receiving a validation notice from the debt collector. |
Conclusion
You must understand who you are talking to when you get a call about a debt. If you do not recognize the company it could be a loan servicer. However, you may be dealing with a scam or an otherwise unscrupulous debt collector.
If you are not sure who is contacting you or why, seek a consultation with a consumer rights attorney. They can evaluate your situation and assist you if you need to take any action.
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