What is a collection agency and how it works?

Americans are nation which has the biggest quantity of debts. We used to take credit when they want to purchase something. Of course credit amounts were bigger before economic crisis but people still borrow money actively. Not everyone manages to pay off the sum in full and in time. And then collectors come in – professionals on debts reimbursement.  At first they start to write letters to borrower and ask to pay off the debt, gradually messages become stricter and actions more persistent and aggressive. You can get email letters, phone calls with threats and other measures of influence. And if all these actions don’t work, collectors go to the suit to get sanction on sequestration and its selling.

Usually when we here about collection agencies, we expect the worst situation. It happens because people don’t really understand what collections do and what authority they have. I offer you to examine what exactly collection agencies deal with and if you should worry about it. 

Collection agency is also known as debt agency – agency which professionally specializes in exacting of overdue accounts receivable. It is a form of business when company assists in making payments on liabilities of individuals and corporate bodies. Most collection agencies work as creditor’s agency and collect debts for fee. This fee depends on money collected and is a fixed interest of total amount.

Description of activity

Conception of collection agency appeared in America. In fact this institution is a mediator between creditor and debtor, which takes obligation to carry out work to get debt paid off for appointed interest.

Sometimes big quantity of collection agencies is associated with “debts buyers-up”. They purchase debts from creditors who couldn’t recover debts themselves for some interest of total sum of debt. And then they exact this sum from debtor or even sum plus additional fee. Financial organizations and big trade networks (which are usually creditors) send debts of their customers from accounts receivable group. Difference between sum received and total amount of debt is written off as a loss. First party agency or agency which owes a debt usually takes part in debt repayment in early stages of delay. During this time probability to solve the conflict with minimum loss of time and efforts is the largest. And this type of agencies makes maximum efforts to gain the purpose.

There is another scheme (participation of Third party agencies) – collection agency works with financial organization-creditor without agreement about ransom of liability. According to this scheme debtor still makes payments on his debt to organization-creditor, and debt agency gets compensation in amount of fixed interest of total sum collected. According to the type of debt which agency exacts, amount of compensation fluctuates between 10 and 50%, but standard and usual sum is 15-35%.

Regulation of activity

In many countries collection agencies are limited in their rights by law which prohibits some irksome actions as to debtor. In United States collector can’t phone several times in order to pester the debtor and force him pay off his credit. Also he can’t make calls in night time.

Activity of collection agencies is regulated by Fair Debt Collection Practice Act (FDCPA). All collectors’ and debtors’ duties and rights, order of conflict regulation and order of disputes are described in this document. Collection activity starts from agreement. It can be reassignment of debt and agency service

Practice of activity

Collectors’ phone calls inform debtor about their duty to pay off debts and call up to motivate the fact of payment. Collection agency activities are regulated by legislation of agency residence and duties which were voluntary taken by agency.

Authorities of collection agency activity

There are some limits on collectors’ actions. For example collector can’t use unquotable expressions when makes call to debtor; in most cases he can’t allow aggressive voice intonation. As a rule, collector can’t mislead debtor in order to force make payment, can’t threaten with arrest and has to inform debtor about his name, surname, company name and purpose of calling. 

In rare cases collection agency can make calls using native language of debtor, if his language differs from government or generally used in this region or country. It happens because foreign debtor explains non-payment of debt with lack of knowledge of residence language. Collection agency can collect information about debtor in order to optimize process of debt recovery. Also some collection agencies collect personal information about debtor besides data which he let know himself. For example telephone number that was changed, living address and location, work contacts.

According to legislative acts which FDCPA contains, agency can’t make recurring phone calls to neighbors and relatives in order to motivate them to force debtor to make payment. It can make single call even if agency suspects that these people gave incorrect and incomplete information about debtor.

In case of debtor’s death, his relatives aren’t obliged to pay off to the bank or agency debts of late with the exception of cases when they inherit the property. In United States this property can be used to clear off debts.

Credit terrorists

But of the late years debtors go to law as to collectors. Reason to sue as a rule is violation by agencies of FDCPA regulations.

In 2009 American courts had to examine 8347 suits of borrowers to collection agencies. This figure is 55% higher than in 2008 and twice higher than that in 2007. In most cases people soundly complain on surplus aggressiveness. But there are other claimants. Often it is large debtors who didn’t return tens and hundred thousand dollars.  They register claims to collectors one after another in the hope that verdicts will frighten off other agencies.  This type of debtors, collectors call “credit terrorists”.

Collection agencies representatives affirm that usually they act in strict correspondence to FDCPA rules. But sometimes mistakes happen. They explain this that in the law some procedures are described inexactly. For example it is difficult to understand if they can call debtors and leave answering machine messages.

Every year collection agencies return to American business more than 40 billions dollars. Their clients pay taxes to state from the income, and it goes back to Americans who don’t want to pay off debts.