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What Is A Debt Collection Agency?

A debt collection agency is a third-party company hired to follow up on debts by various account holders. A debt collection agency can also purchase debts which have remained uncollected for a longer time from the creditor for a minimal amount and then recover these for profit. They often earn by commission or through a pre-arranged fee. They also provide reports to the credit bureau where a database of outstanding accounts is logged and filed, to also help other agencies and financial institutions. The delinquent account appears on the credit bureau's record for a period of seven years.

How do debt collection agencies work?

Debt collection agencies operate by contacting the debtor either by telephone calls or business letters to follow up on outstanding debt.

Most debt collection agencies have a standard format of a letter containing a simple reminder of the delinquent account. These letters are impersonal, as they are sent to a lot of account holders and are often sent in the most discreet way possible. Sometimes the envelope does not even contain the company's identity, as debts may often prove embarrassing for some people. How the letter is phrased and how it is carried out is very important as this will affect the kind of response sought from the debtor. Sometimes a second letter or a follow up letter is also necessary.

When letters fail to get a response from the debtor, debt collection agencies then make phone calls. There are groups of people hired by agencies to handle different accounts and they work all day by calling each and every person in that account. As always, tact and discreetness is demanded from these collector agents. When a collector agent makes progress by reaching someone who isn't the debtor, the agent must not disclose the nature of the call, except to leave a phone number and a request a return call. When a collector agent successfully contacts the debtor, agents are required to properly introduce themselves and then state the nature of their call. The collector must be able to make arrangements with the debtor, and if a commitment of payment is not reached, any information he or she can extract from the debtor will also be useful in evaluating what the next action will be.

What debt collection agencies should not do?

Debt collection is a highly regulated industry, and debt collectors are required to follow a strict code of conduct. Collection agencies are regulated by a trade commission and by-laws may differ from state to state.

  • They have no legal rights to seize assets, without a filed lawsuit and a verdict. Lawsuits are only seen as last resort and if the debtor remains firm on his stand to deny payment.
  • They do not have the legal right to disclose information of any debt in public. They are only allowed to disclose these in official credit agencies.
  • They do not have the power or the legal backing to have someone be fired from work.
  • They are disallowed from engaging in any verbal or physical threats.

Debt collection agencies can collect almost all kinds of debts

One of the most common fallacies about collections is that laws forbid your creditor from giving your account to a collection agency for your debts to be collected. There is no concrete law that forbids these transactions. Almost all kinds of debts can be turned over to a collection agency to be able to collect your debts.

Another common fallacy that the people seem to have is the misconception that creditors are bounded by laws specifically the Federal Fair Debt Collection Practices. The truth is that this act is designed to protect the rights and the privacy of individuals in debt because it limits the methods debt collection agencies can use in order to collect your debt. For example, harassment and other abusive ways of debt collection are forbidden based on this act. However, this act does not forbid the collection agency from contacting you to collect your debts.

Some other fallacies you need to be aware of

You should also be aware of some other fallacies in debt collection. The Federal Fair Debt Collection Practices only cover third party collectors or debt collections agencies. This act does not cover the methods that your direct creditor can use to collect the debts you owe him so you cannot expect the same protection if the creditor himself is the one to collect the debts. Another fallacy is that your creditor and the debt collection agency cannot take you to court if you do not pay your debts. This is the most important fallacy you have to get rid of because it can get you into serious trouble.

People often perceive debt collection agencies as abusive collectors harass them or their family if they fail to pay. However, this is usually not the case because most of these agencies are professionals and they stick to the laws. The harassments that you usually hear about are just a very small percentage of the overall debt collection efforts that occur everyday.