What is a collection agency and what do they do? | Personal Finance

Debt collectors are either heroes or villains, depending on your point of view. If you own a business and owe money, hiring a collection agency can help you get it back. If you are the person who owes money, you may be avoiding that confrontation with a collection agency.

But whatever your feelings are about debt collection agencies, also known as collection agencies, the good guys are just doing their job. This is what a collection agency is and what they do.

What is collection?

Debt collection is an industry that exists to help businesses, large and small, get money owed to them. Debt collection agencies work for collection agencies, with the mission of convincing people to pay what they owe. It can be a stressful and rewarding job at the same time. Creditors come across many people who often want to pay their bills but cannot afford it; at the same time, debt collection agencies help companies, many who cannot afford to keep unpaid bills.

There are many reasons why someone owes money to a company. According to the Consumer Financial Protection Bureau, there are currently $88 billion in medical bills with collection agencies, affecting 1 in 5 Americans.

The job of a bill collector is to try and help the person pay what he owes, which should help improve the debtor’s credit score and also help the business owner.

If you work as a collection agency, you will likely be in a collection agency call center rather than the original creditor’s office. While it sounds like it can be a stressful job, it is said to be a moderate job stress occupation. There are also many pluses, especially if it is a full-time job with benefits. The barriers to getting the job are usually low – you need a high school diploma – although you may need more education if you want a higher paying position. Many bill collectors report having a healthy work-life balance.

How debt collection agencies work

Collection agencies have one main mission: to convince someone to pay back money they owe on a debt. If the debt is significant, it is often done through repayment plans. In general, debt collection agencies contact debtors by telephone or post. A new Consumer Financial Protection Bureau rule that came into effect on November 30, 2021 allows debt collection agencies to contact debtors via email, text and social media. If a debt collection agency gets in touch via social media, it should be through a private message and not, say, a Facebook thread for everyone to see. There should also be a way for the social media user to opt out of communication through that platform.

There are two main types of collection agencies: primary creditors and third-party creditors.

A first-party creditor is not so much a collection agency as the collection department, or a subsidiary or affiliate of a company. If you’ve had someone from your credit card, car loan lender, or financial institution to get you a loan, you were working with a first-party creditor.

Third party creditors are collection agencies or debt buyers. These collection agencies are often hired by the first-party creditors, often 30 days after the due date of an invoice and once the first-party creditor feels there is no point in spending much more time and effort collecting a debt.

Often, the third-party creditor buys the right to attempt to collect the bill within 30 days to six months — and possibly longer, such as a year or two or more.

These collection agencies are expected to collect debts in a responsible manner. For example, they should not belittle or harass you. They cannot send someone to your house to ask for money. They can’t call you more than seven times in a seven-day period, and if you talk to a collection agency, they’ll have to wait seven days before calling you again. They are also not supposed to call you at work, or before 8 a.m. or after 9 p.m.

But some collection agencies overstep their limits and ignore these rules. In 2021, the Federal Trade Commission refunded more than $4.86 million to consumers who have suffered damages from unlawful debt collection practices.

Still, there are plenty of debt collection agencies that are reputable and provide a much-needed service. If you are a small business owner who simply cannot afford to be scammed, a collection agency can be a lifeline.

As for the way they make their money, collection agencies sometimes work on commission – they get some of the debt repaid to the company. And sometimes the debt collection agency, or debt buyer, buys the claim. According to the Minnesota Attorney General’s website, “It is not uncommon for a debt buyer to pay less than five cents per dollar owed.”

So a debt buyer can buy a $1,000 debt for $50 or less. If the debt buyer can convince the person who owes money to pay $1,000, that’s $950 in profit. If the debt buyer can at least convince the debtor to pay, say, $300, that’s still $250 in profit.

What to do if a debt collection agency contacts you?

All you have to do is stand still for a while. Not that you shouldn’t pay a debt you owe, but you should gather some information first.

For starters, it might not be a real collection agency you’re talking to.

“One of the biggest problems with paying off debt, especially student debt, is the constant problem of fake calls from collection agencies and from those offering debt relief. It can be difficult to know exactly who to trust in this environment,” said Melanie Hanson, senior editor for EducationData.org, which provides data on the US education system.

“As a good rule of thumb, never trust a phone call on its own merits,” advises Hanson

She suggests confirming anything you hear over the phone about your student debt by going to the collection agency on the internet and, ideally, checking your loan accounts directly with your lenders.

“Fake collectors and fake utilities thrive on getting personal information from gullible debtors who think they are talking to a government official,” Hanson says.

Ashley Morgan, a bankruptcy attorney who owns Ashley F. Morgan Law in Herndon, Virginia, agrees that you don’t want to rush into paying a debt, even if you’re pretty sure you have the money. owe you.

“If a collection agency contacts you, it’s important to verify the debt,” Morgan says.

She also advises not to admit over the phone that you owe money. After all, you may not, and now is not the time to give a collection agency ammunition that they can use against you later. Instead, Morgan says, “You should ask that they send you written correspondence about the debt they think you owe them.”

If you have that information, and if you have questions about the debt, you should send a request for information in writing, Morgan says.

“The information requested is important to help you figure out whether the debt is actually due or not, and whether the collection agency has the ability to collect the debt,” Morgan says. She points out that the debt may fall under the statue of limitations. After three to six years, and possibly longer – depending on state law – debts are often uncollectible. As in, no one can sue you for the debt.

In fact, you may want to be careful about making a partial payment on an extremely old debt. In some states, if you do, the time period will start again, and suddenly the statue of limitations can’t run out for many more years.

It also helps to learn all about the consequences of not paying a debt, such as seeing your credit rating drop. Remember, you can negotiate with collection agencies and get them to pay you less than what you owe. Know your rights with a collection agency so you know whether to report them to the Federal Trade Commission or the Consumer Financial Protection Bureau. Some of the tactics that collection agencies should not do include:

  • You will be called before 8 a.m. or after 9 p.m.
  • Call you repeatedly.
  • Posting on social media about your debt.
  • Using obscene language or swearing while talking to you.
  • Making threats.
  • Publishing lists of people who refuse to pay debts. (However, they may report information to a credit reporting company.)
  • Lying about the amount you owe.
  • Totally lying to you. (For example, they can’t tell you you’re going to jail if you don’t pay. They can’t call you as if you were someone else.)

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