What is a Collection Agency?
Many consumers aren’t aware of what a collection agency is or the function they perform until they get into a serious financial situation and find out firsthand. A collection agency is a business that’s hired by a creditor to collect money owed to them by consumers. The original creditor may be a business or an individual. Some companies have in-house departments to handle delinquent accounts and are referred to as first party agents, but more often the businesses with large numbers of accounts they can’t collect on will turn them over to an agency to handle the negotiations with the debtor.
When a creditor turns over delinquent accounts to another agency, the company handling the debt negotiations is known as the third party agent. Sometimes the delinquent accounts, also referred to as “junk accounts,” are purchased by the third party collections agent. From that point, the original creditor stays out of all negotiations with the debtor. The third party company buys the accounts for much less than the original price, then attempts to recover the entire amount from the debtor. The original creditor collects payment from the third party, but doesn’t have to pursue the debtor, and use their own resources.
In other cases, the third party collections agency sometimes acquires rather than purchases delinquent accounts. When this is the case, the third party receives a percentage of the amount of the debt once the account is settled. The original creditor writes off the account as a loss.
A lot of people get very intimidated when they know they’re dealing with a collections agency, because they’re under the impression that the agency has more authority than they actually do. Besides the fear factor, many of the third party agencies commonly use unethical, and in many cases illegal means of collecting debts. Some third party collections companies routinely hire people that have problems staying on a job for any length of time, and will use any means at their disposal, including harassment, to get consumers to pay their debts.
The average person does have rights when they’re dealing with these unscrupulous collections agencies, but many people unfortunately aren’t aware of what their rights are. The Fair Debt Collection Practices Act was signed into law by the United States Congress to protect consumers from unethical and illegal collections methods commonly used by third party collections agencies. Generally when an account is sent to a third party agency for collection, the process begins with a collections call.
Once the collections agent has contacted the person who owes the debt, they’re supposed to attempt to set up a repayment plan or offer a discount to the debtor in order to get the account settled within a reasonable period of time. Sometimes, the third party is an attorney who specializes in collecting money from delinquent accounts and has a lot of experience as to what the law allows. They can advise the person owing the debt about possible courses of action.
The actions of third party collectors are regulated by the Fair Debt Collection Practices Act, signed into law in 1978. The law was created by the Federal Trade Commission in response to the thousands of consumer complaints lodged every year against the practices commonly used by collections companies. Some states have also passed laws that work in conjunction with the FDCPA. According to federal law, there are certain practices which are strictly prohibited by third party agents, including how collections calls may be handled, which is one of the major issues.
The advantage that original creditors have by using third party agents is that they don’t have to use their own resources in order to collect the debt. The people hired sometimes have been working as collections agents for a long time and can be very aggressive, at the very least. They’re expected to pursue any methods of collecting debts on a full time basis in order to have a successful outcome. These companies are supposed to initiate all activity regarding how the debt will be collected in an ethical, legal way. Creditors believe that the best chance they have of recovering debts is to hire debt collections companies that have the necessary experience to deal effectively with debtors.
Problems can arise for the original creditors when they use third party agents, because even though they expect the debt collector to only use legal methods to collect debts, in many cases the agency hires people who either aren’t aware of the law, or simply disregard it. There’s no guarantee that the third party company only hires ethical people to carry out their collections efforts. Some collections companies charge such high prices for their services that it isn’t feasible to use them. Another consideration for the original creditor to take into account is that the third party agent can’t guarantee that the debt will actually be paid off. If this happens, the creditor takes a big loss.
The amount that collections agencies charge for their services depends upon the company, but it could be anywhere between 15 and 50 percent. Some of the third party agents allow negotiations, and may allow for any unforeseen circumstances. It’s essential for anyone who owes debts to know what collections agencies can and can’t do under the FDCPA, so that their rights aren’t violated even if they do owe a debt. How any third party agent can communicate with a debtor whether it’s by phone or written communication, is all regulated under federal law. If the consumers’ rights are violated during the process, the collections agency may be liable to pay the consumer up to $1,000 for each violation.
Although some efforts are being made to ensure that third party collections agencies only act within the FDCPA guidelines, there are still numerous complaints filed with the Attorney General’s office in various states, every year. If you owe any personal debt and your delinquent account is handed over to a third party, make sure you understand what your rights are. You should take steps to have the debt verified to make sure you’re actually liable for it. If you’re experiencing problems with a collections agency and are being threatened or harassed in any way, document everything in writing. You may be in a position to bring a civil suit against the collections agency.
Now let’s look break the concept of the collection agency into it’s smallest part – the actual debt collector. Let’s find out what the “average” collector looks like and how they think