How Debt Collection Agencies Work

If you've ever been late paying a bill, either accidentally or on purpose, you may have had the opportunity to come into direct contact with a debt collection agency. Though some businesses do keep debt collection procedures entirely in- house, a great number find it preferable to farm that sometimes unpleasant work out to third parties that work for a commission or a percentage of whatever money they recover. Though often cursed in the court of public opinion, remember, if people paid their bills, no debt collection industry would be needed.

Third Party

A debt collection agency is a third party organization hired by a business to collect on bad debt. The company at which the debt is incurred will likely make efforts to collect the bill (usually with written demands) for a period of time up to 90 or 120 days. At that point, the delinquent account might be sold to a third party debt collection agency, which enters the picture with a set of procedures in place proven to be effective in recovering bad debt.

Written

Usually the first order of business for a debt agency is to notify the debtor in writing of the amount of the debt and that the account has been turned over to it for collection. The agency will probably send a series of letters spaced several weeks apart, with wording that escalates the urgency that the debt should be paid. Eventually an "all or none" type of letter will arrive that informs the debtor a lawsuit will be filed against him unless the entire bill is paid by a certain date.

Telephone

Depending upon company philosophy, telephone calls might start early in the process or could be delayed until a few letters have been sent. Debt collection agencies are granted the right (within reason) to attempt to contact the debtor, family members, or even employers to try to establish contact with the debtor and discuss a plan for repayment. The general strategy is to overwhelm the account holder by any legal means necessary in order to coerce payment. Having been unsuccessful in other efforts, the agency certainly can file a lawsuit and obtain a default judgment if the defendant doesn't respond.

Practices

As many people have learned who have had dealings with a debt collection agency, these businesses can be quite tenacious in pursuit of wringing payment. Still, debt agencies must take care not to run afoul of federal law, which forbids any sort of threat, abusive language, or harassment by telephone. In addition to federal standards established by the Federal Trade Commission, most states have established certain rules that debt agencies must abide by, for example, no late night or early morning phone calls.