A creditor is an entity or person that has provided you with goods, services, or money and expects repayment. Examples of creditors include banks, mortgage companies, auto lenders, merchants, utilities, and hospitals.
Essentially, there are two types of creditors:
- Secured creditors.
- Unsecured creditors.
Who are secured creditors?
Secured creditors are those that can lay claim to your property in the event that you don’t repay the debt. For example, the company that holds your mortgage is a secured creditor because, if you don’t make your house payments, the mortgage lender can foreclose on your mortgage and take possession of your house. Similarly, the company that holds your car note is a secured creditor because, if you fail to make your car payments, the lender can repossess your car. Leasing companies and rent-to-own companies are other examples of secured creditors.
Who are unsecured creditors?
Unsecured creditors are those that can’t make a claim on your property or possessions. For example, property isn’t used as collateral for credit card debt – whether the credit card is issued by a bank or by a department store. The same is true for cable television bills, cell phone bills, and electricity bills. A hospital, doctor, or dentist may be a creditor if you receive bills for their services, but any debt you accrue is unsecured debt. None of these creditors can automatically put lien on your house because you didn’t pay their bill.
What happens if I don’t pay an unsecured creditor?
If the debt you owe isn’t secured by your personal property or real estate, a creditor will likely report your delinquency to one or more of the three major credit reporting agencies, Experian, TransUnion, and Equifax. These credit bureaus use information about your payment history as one element of your credit report.
Because your credit report can be used (and misused) in a variety of ways, you should know that you have rights under the Fair Credit Reporting Act (FCRA). The FCRA says, for example, that you are entitled to one free annual report from each of the credit bureaus. It also says that you have the right to dispute an item on your credit report, and that the credit bureau must flag the item under dispute and then conduct an investigation into the matter. In addition, if you directly contact a creditor to dispute an outstanding debt or your payment history, the creditor must notify the credit bureaus that the item is under dispute.
In Crane vs. TransUnion, Mr. Crane had a debt that had been discharged, but TransUnion continued to list the debt on Mr. Crane’s credit report. Mr. Crane disputed the item, asked TransUnion to investigate, and sent supporting documentation. TransUnion eventually updated Mr. Crane’s credit report, but characterized the item in a way that would be considered detrimental to Mr. Crane. In fact, Mr. Crane was denied for mortgage pre-qualification at the competitive interest rates available to consumers with good credit. TransUnion argued that the case should be dismissed, but the court denied the company’s request.
Under 15 U.S.C. 1681n, consumers can sue for FCRA violations. If they prevail, they can be awarded actual damages or up to $1,000, as well as punitive damages, court costs, and attorney fees.
The role of debt collectors
If a creditor is unable to collect money owed, they may turn your account over to a third-party debt collection agency. Debt collection agencies employ a number of tactics, such as skip tracing, collection letters, and phone calls, to attempt to collect debts. Typically, the debt collection agency keeps a percentage of the amount collected.
The Fair Debt Collection Practices Act (FDCPA) protects consumers form unsavory debt collection tactics, such as harassing phone calls, discussing your debt with third parties, and using profane or abusive language. As with the FCRA, the FDCPA allows for a private right of action. If a consumer sues an abusive debt collector and prevails, the consumer is awarded up to $1,000, plus court costs and attorney fees.
Lemberg Law has a team devoted to representing people who have been harassed, threatened, deceived, or abused by debt collectors.
Case citation: Crane vs. Trans Union, LLC, 282 F. Supp. 2d 311 (E.D. Pa. 2003)
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