Debt Collection Explained

Collection agencies are responsible for debt collection. These businesses, organizations, and entities tend to operate on behalf of a creditor, and use a variety of methods to pursue payments of debts owed by either individuals or businesses.

Ads

Collection agencies usually take a percentage of the debts collected as a fee for their services. 

Debt collection can be conducted by different types of collection agencies. There are two main types of agencies: first-party agencies and third-party agencies. First-party agencies are subsidiaries of the crediting body, while third-party agencies operate independently, offering debt collection services and charging a fee to creditors who enlist their services. In addition, debt buyers may also collect debt. Debt buyers purchase the debt from the company or individual it is owed to at a percentage of the debt’s value. They then attempt to collect the debt. Different countries have different laws in place regarding debt collection.   

Types of Debt Collection

Many debt collectors work on commission, and are therefore motivated to pursue debtors and pressure them to pay their debts. This practice is, however, regulated in the United States by the Fair Debt Collection Practices Act (FDCPA), the Federal Trade Commission (FTC), the Consumer Financial Protection Bureau (CFPB), as well as various state agencies. 

As a result, in the United States, it is prohibited to call a debtor if the call incurs a toll charge to the debtor. The FDCPA also has a set of strict guidelines regarding when debt collectors may call debtor and who they may call. If a debt collector makes a call and someone answers the phone, a call center can track certain statistics, such as the times the debtor is most likely to be home. But debt collectors are not permitted to use illegal means to secure repayment. For instance, a debt collector cannot impersonate a law enforcement official, make threats, or use obscene language. Collectors must clearly explain the nature of call, their name, and the name of the collection agency which they work when requested by the debtor.

In some cases, collection agencies may be allowed to contact individuals affiliated with the debtor, but only as an attempt to locate the debtor. In the United States, debtors may call neighbors and relatives to gather strict information about the debtor. However, they are not allowed to discuss the debt with anyone save for the debtor, the debtor’s spouse, and the debtor’s attorney, unless explicitly given permission to speak to another party by the debtor. Collectors can only contact individuals other than the debtor once, unless there is a change in the information provided or required, and they are required by law to state their name and company when asked. Finally, a debt collector may contact the debtor at his or her place of work, unless the employer prohibits it. 

In some cases, an individual with no connection whatsoever to the debtor is contacted by a collector by mistake. This can happen in cases where identity theft has occurred, or when the debtor shares a similar name to the person contacted. The debtor also has a right to dispute the debt. When this occurs, the collection agency or debt collector is required to provide proof of the existence of payable debt.

Ads