Collection Agencies: What They Are and What They Are Not

A collection agency is a “debt collector”. Collection agencies are in the business of collecting debts owed to other companies on an on-going basis. A collection agency’s primary goal is to get one individual or business to pay their debt. In other words, collection agencies specialize in debt recovery.

There are primarily two categories of collection agencies: in-house and third-party. In-house collection agencies are a department within the creditor. Such in-house agencies usually focus on debts that aren’t too old (usually 6 months or less). An example of such an agency might be a large department store issuing its own store credit card. The store itself might attempt to recover any delinquent debts – generally before sending this debt to the third-party type of collection agency.

In-house agencies might sometimes use contact information (address, phone, etc) that is different from the actual businesses information to appear as if they’re a third-party agency. They do this in hopes that the debtor might take the collection request more seriously.

Third-party agencies are companies that generally solely focus on debt collection. Third-party agencies might collect debts for a fee or percentage of the debt owed. They also might buy the debt from the creditor for a small percentage of what the debtor owes and keep the difference between this percentage and the actual amount collected. Generally, when a creditor sells a debt to a collection agency, the creditor is then able write off the difference between the debt owed and the sale price as a loss for tax purposes.

Collection agencies generally follow a standard practice for debt collection. They use both written communication (letters), as well as phone calls. These agencies know that the probability of getting the debtor to pay back what they owe decreases over time, so the agencies tend to focus as much effort as possible in the early stages of communications.

During the early stages of communication, the debt collector will usually try to be courteous and genial in tone. They’ll inform the debtor of the debt owed and specify that the debtor can dispute the fact the debt exists or the amount, in writing, by following certain procedures. These communications generally project a mild, reminder-like, effect on the debtor.

If the debtor continues to either ignore the agency’s communications or refuses to pay the debt, the agency may begin informing the debtor about possible legal actions. The collection agency might find the debtor to be contentious or hostile. Therefore, the agency may need to describe and outline, to the debtor, legal actions they can use force the debtor to go to court and insist on debt repayment.

While the agency might need to resort to a more forceful tone for later communications, the US Federal and State governments enforce strict policies limiting what a collection agency can and can’t do.

Collection agencies can’t attempt to get a debtor fired or contact a debtor’s employer other than to directly contact the debtor at his or her place of employment.

Collection agencies can only give the reason for their contact or call directly to the person (or person’s spouse in some cases). They can’t leave a voice message detailing the reason for their call, and any written communication can’t describe the reason for the communication such that another person, say, looking at an envelope, can determine what is in the letter.

Collection agencies may not harass a debtor or threaten physical harm. They can’t seize assets, and they can’t garner or threaten to garner the debtors pay without first going to court and having such a judgment against the debtor.

For any business, using a third-party collection agency can be a necessary step in recovering debt. In many cases, collection agencies can be the only effective means of receiving the money due them.