What is a Debt Collection Agency?
The economic state of the world and the U.S. these days makes many people take out loans so they can pay for basic needs and get from one month to the next. Unfortunately, a lot of people find themselves unable to re-pay their debts to banks, credit companies, and other creditors. When this happens, creditors begin a process of debt collection, usually through a collection company. It is important to know how a debt collection agency works, and learn about your legal rights if you are ever in a situation where you can't pay off your debts.
What is Debt Collection?
When creditors do not get the money owed to them, either from companies or individuals, they begin the process of debt collection. The process involves planning a payment plan for the debt owed to the creditors by the debtors. To make sure the money gets to them, creditors will hire a collection agency to take money from debtors until the debt is fully paid. Collection agencies will take a percentage of the fee as payment.
How a Collection Agency Operates
The first thing collection agencies need to do is track down the debtor (individual or company). Such agencies use special tools to find creditors, especially in cases where the debtors have changed their address and contact information. in some cases, an agent will contact friends and family of the debtor to confirm their contact info (without revealing the purpose of the communication). On the next stage, collection agencies will try and contact the debtors to claim the money they owe. If calls go unanswered, the agency will go as far as showing up at the debtor's residence to collect the money.
In some cases, an agent will send late payment notices to the debtor's address to notify them of the debt collection process. Some debtors will be required to pay off their debt all at once, while others will have a payment plan where they pay the debt in monthly installments. If the debtor cannot or will not pay the debt they owe, the agent will update the debtor's credit report to a status that reads "collection".
Once this happens, the debtor's credit score will drop, and they will not be able to take out other loans until the matter is resolved.
Regulations of Collection Agencies
While it may seem that debt collection agencies can do pretty much whatever they desire, they are closely monitored and regulated. Third-party collection agencies are regulated by the Fair Debt Collection Practices Act (FDCPA). In-house collection agencies are not bound by the FDCPA. If a collection agency tries to collect an old and uncollectible debt, it will be found in violation of the FDCPA.
Another limit for collection agencies is a debt that the statute of limitations (runs between four to six years from the day the debtor defaults on their payment) has run out on.
To make sure the FDCPA is not violated, collection agencies need to win a lawsuit against a debtor if they want to seize the debtor's assets as a form of payment. If an agent wants to contact a debtor, he can only do so 8 a.m. and 9 p.m.
In cases where the debtor owes child support, federal student loans, and alimony, an agency can contact the individual's employer. If the employer has not approved such communication, collection agencies are prohibited from contacting the debtor employer.
In cases where a collection agency contacts a debtor several times in a short time period, the debtor has the right to issue a cease and desist letter against it (this behavior may be classified as harassment under the FDCPA. If the non-stop contact attempt does not stop after the cease and desist is issued, the debtor has the right to make a report with the Consumer Financial Protection Bureau (CFPB).
What is a Debt Buyer?
Certain companies and debt collection agencies can be debt buyers that purchase debts from creditors. A debt buyer will buy debt for a percentage of its value based on the potential of debtor paying off the debt. After a debt buyer purchases a debt, it can begin to collect the money on its own, or by using a collection agency.
The debt collection industry is now worth $13.7 billion dollars, and it is estimated that Americans owe over $12 trillion to various types of creditors. While most of these types of debts are paid in full, there are people who cannot make the payments to pay off their debt. In these cases, a debt collection process will begin, and it is crucial to be aware of the restrictions and regulation that debt collection agencies face to make sure your rights are not violated in any way.