How Do Collection Agencies Work?
A good portion of America today has some sort of debt that they are unable to pay in full. What happens is after a certain period of time which varies from each individual company, if a debt is left unpaid they will turn it over to a third party called a collection agency. The collection agency then does everything within their legal rights to collect the full amount of the debt. This is where their source of profit originates from.
Collection Agencies as a company earns their profits in one of two different methods. Depending on the company, age of debt, amount of debt; are various factors that determine how a debt is purchased or contracted. Some will simply collect a percentage based on the amount of the debt, the other method that some will use is to outright purchase the debt from a company that has totally written it off as bad debt that is not believed to be collectible. In this situation the collection agency will purchase it for a percentage and any amount over that percentage paid would be gross profit. The most common though is thru contract where they collect a percentage of what they obtain from the debtor without having to purchase the old debt. A good average for this would be around ten percent of the amount of the debt would go in the hands of the collection agency.
The practices for which they used to collect debts are regulated by Fair Debt Collection Act. Their main practices for collecting on these debts are letters, and phone calls. Some of the things they are NOT allowed to do are as follow:
- Collection agencies cannot legally take a debtor's assets, bank accounts, or paycheck unless there has already been a successful lawsuit with the courts awarding this to the collection agency.
- Collection agencies cannot legally make any kind of public announcements or disclosures concerning the debt, except to the credit bureaus.
- Collection agencies cannot legally get a debtor fired from his/her job.
- Collection agencies cannot legally make use of physical violence or threats.
Collection agencies have multiple ways of contacting you their most common are letters and phone calls as stated before. Their letters and phone calls are very much similar. They cannot legally discuss your debt with anyone other than you or your spouse. Although this will vary based on state to state as some will not even allow them to speak with your spouse. Their first letter will include your ability to dispute the debt and ensure the amount is in fact valid. However some companies may bend the laws a bit, make sure your aware of them. By doing this you can avoid issues with them like debts staying on your credit report longer than they should as a good example. If you happen to notice this you can contact them in writing and ask it to be removed, if this does not work then you would be forced to contact an attorney to get those items removed from your credit report. They will do everything within their legal rights to collect on the debt as those you will be speaking to over the phone is mostly commission based. So the more money they bring in the more they earn. This is one of the many reasons collection agencies have a high employee turnover rate.
Be wary of dodging and avoiding collection agencies as they can take you to court to settle the remaining balance plus court costs. At which time you would be forced by the courts to pay the debt. However for small amounts this is rare it is still a possibility. Generally speaking if the amount owed is over one thousand dollars there is a chance they will take you to court to collect on the unpaid debt.
Most debts are only able to stay on your credit report for seven years before you can have them remove it from your credit report. However if there is any account activity they are able to prolong the duration it may stay on your credit report. The guidelines for how long they may maintain a debt on your credit report is regulated by Section 605 of the Fair Credit Reporting Act.
The biggest question most will have is how to make them stop calling you. For this there are multiple different answers. Of course paying off the debt is one guaranteed method however there is a second method also.
Section 805 of the Fair Debt Collection Practices Act
"(c) CEASING COMMUNICATION., If a consumer notifies a debt collector in writing that the consumer refuses to pay a debt or that the consumer wishes the debt collector to cease further communication with the consumer, the debt collector shall not communicate further with the consumer with respect to such debt, except --
(1) to advise the consumer that the debt collector's further efforts are being terminated;
(2) to notify the consumer that the debt collector or creditor may invoke specified remedies which are ordinarily invoked by such debt collector or creditor; or
(3) where applicable, to notify the consumer that the debt collector or creditor intends to invoke a specified remedy.
If such notice from the consumer is made by mail, notification shall be complete upon receipt."