Debt collection happens when the creditor decides to collect some long time not paid debt. This is the result of monthly payments being ignored, when the company is forced to use any possible means to get the money back. To this term the sum grows significantly due to the penalties.
A lot of creditors in USA use the collection agencies services. These agencies help the creditor to collect the troubled debt, getting the stated sum or the percent in return as a reward. Most creditors agree since they do understand they will have to spend a lot of time and efforts to get their money back from the original debtor. However business debt collection agencies know exactly how to make you pay off the debt.
Here are two main types of collection agencies in USA
First-party debt collection agencies
These companies are actually departments of companies owning the original debt. They are comparably mild to the debtor, while being concentrated on creating fine relationships with him. They’re usually not the subject to legislation unlike the third-party agencies.
The actual name “first-party” comes from the knowledge that they’re the first party according to the contract (with second party being a consumer). You can interact with them for several months and only in case you do not find the suitable solution, your debt will be passed to the third-party agency.
Third-party debt collection agencies
Here we have to deal with really seriousbusiness debt collection agency. It’s not the part of the creditor company. The main goal of the collection agency is to collect your debt successfully, that is the only thing the company does, receiving the percent or the stated Pot Fee for every collected credit.
The amount of fee is regulated by Service Level Agreement. There’s the penalty fee for the creditor as well. If for some reason the company decides to cancel the debt collection, it has to pay fee to the collection agency to cover the efforts been made. However if the process wasn’t stopped, but the sum wasn’t collected due to any reason, the collection company receives nothing for its efforts. No collection – no fee, this rule is basic one in the field.
The fee amount varies from 25% to 40% depending on the debt type, the account age and the quantity of tries to collect the debt. In rare cases the fee can vary from 10% to 50%.
Some companies deal with a lot of different debt collection agencies and tend to use Master Servicer to assist them in this complicated task. Working with this asset helps the company and the first-party agency to manage the time-sensitive credit matters. The fee for the program is about 4-6% of the total collection amount.
Some companies try to avoid turning to debt collection agencies since they understand it’s harmful for the debtor and not too profitable for the company. For this they send urgent letters every 10 days with strong recommendations to pay off the debt, since otherwise it will be turned to collection agency and the credit history of the debtor will be spoiled.
Debt collection in USA
The collection agencies in USA are regulated mostly by Federal Trade Commission along with the Bureau of Consumer Financial Protection. The final supervisor rules were formed at the end of October, 2012. Over 175 companies were included under the definition of the collection agency.
Most States require the agency to be bonded or licensed or both. Also the actions of these agencies shall be regulated by certain laws. The main one is the well-known Fair Debt Collection Practices Act. According to it the debtors are able to use the help of lawsuits to deal with collection agencies acting against the law. If the agency is noncompliant, the Federal Trade Commission can issue fine, restrict operations or even close down the agency.
On the other hand the less restrictive federal law will be primary to the harsher state law. However if the agency is dealing with the citizen of the defined state, the state law will be in charge.
Most of debt collection agencies belong to the ACA International Trade Group, sharing the ethics code and membership conditions. The main rules are treating debtors with respect and dignity, otherwise the special officer handles complains from the authority.