About Debt Collection Agencies

When you fail to pay a bill or you have defaulted or a loan, you might well be contacted by a debt-collection agency. A debt-collection agency is an organization that will attempt to recover money owed to an individual or a business. If the debt-collection agency is able to recover the money owed, the individual or the business will pay a percentage of the debt to the collection agency.

Considerations

In some cases, the debt-collection agency is working on its own behalf because it has purchased your unpaid debt from the lender with which you initially defaulted. Lenders are willing to sell your debt to the collection agency at a deep discount, so they can rid their books of your debt. Once purchased, the debt-collection agency will begin the process of trying to collect the "original" debt amount from you (see Resources section).

Function

Once a debt-collection agency has contacted you concerning a debt, the agency also must send you a "validation notice" in writing, stating the details of your debt. The notice also must provide instructions regarding what you should do if you believe you do not owe the money (see References section).

Warning

If the debt is old, you may want to check the statute of limitations, because you may not be obligated to pay the debt--even if the debt is valid. However, if you set up a payment arrangement or submit a payment to the collection agency, you will start the statute of limitations all over again. (To check the statutes of limitation for your state, see the Resources section).

Features

The Fair Debt Collection Practices Act (FDCPA), was formed by the Federal Trade Commission to protect consumers from deceptive practices by debt-collection agencies. For example, the act prohibits collection agencies from threatening, harassing you.
If a debt-collection agency calls you at work, you have the right to stop the phone calls. You must first ask the agency, verbally and in writing, to stop contacting you at work. If the agency continues to do so, it is in violation of the Fair Debt Collection Practices Act.
(For more information on the FDCPA, see References section).

Misconceptions

Some consumers believe that a debt-collection agency cannot contact someone else concerning their debt, but this is untrue. A collection agency legally can contact someone other than you to obtain the following: a phone number, an address or a place of employment. However, the collection agency is prohibited from discussing your debt with the third party, and it may not contact the other person more than once. In addition, if you are being represented by an attorney concerning the debt in question, the collection agency must contact your attorney instead of you.