Collection Agency Problems

A collection agency may work on commission for a creditor, receiving a percentage of the amount it collects, or it may purchase bad debts from creditors for far less than face value. The agency then makes a profit by adding interest charges and fees and collecting more from the debtor than it paid to buy the debt. Although collection agencies are required to follow the law, consumers should be aware of potential problems that may arise when their debts are managed by a collection agency.

Features

One of a collection agency's primary weapons is the telephone. If you owe a debt to a collection agency, you can expect to get numerous telephone calls a day from debt collectors. A collection agency may send letters demanding payment and report the debt to the credit reporting agencies. This results in a collection account appearing on your credit report. Some collection agencies intentionally re-age the debts on collection accounts to ensure that the derogatory entries remain on a debtor's credit report for longer than the law allows.

Time Frame

Calling a debtor and threatening to sue is a common collection technique employed by debt collectors that can leave consumers scared and confused. A collection agency must take legal action within the statute of limitations for debt collection in the debtor's state of residence. If it does not, the consumer may cite the expired statute of limitations as a legal defense and have the lawsuit thrown out of a court.

Benefits

The Fair Debt Collection Practices Act (FDCPA) contains the laws that govern collection agencies and the actions they can and cannot take to collect a debt. Individuals who have problems with collection agencies can review the FDCPA to find out if the debt collector they are dealing with is breaking the law. In the event that consumers feel their FDCPA rights are being violated, they may file a civil suit against the collection agency, as long as they do so within one year of the alleged violation.

Considerations

Consumers who feel that they have been victims of illegal collection methods should report the collection agency to the Federal Trade Commission (FTC). Although the FTC does not mediate individual complaints, it does keep a record of the complaints it receives. If multiple complaints are received concerning a particular company, the FTC may investigate. If the problem proves to be valid, the FTC has the power to fine the collection agency or even revoke its license to conduct business.

Warning

Settling with a collection agency for a lesser amount may seem like a good way to get rid of your collection agency problems. Unfortunately, agreeing to a debt settlement may be just as dangerous as not paying the debt at all. Unless you request a written contract that states otherwise, the debt collector retains the right to sell the "forgiven" amount of the debt to yet another collection agency. It may also fail to acknowledge your settlement once the amount you originally agreed to is paid if you do not get the agreement in writing.