Collection Assignment Agreement

Large companies, such as credit card providers, often seek the aid of debt collection agencies when attempting to recover overdue consumer debts. The creditor and the collection firm negotiate a collection assignment agreement based on the policies and preferences of both companies.

Significance

A collection assignment agreement grants the collection agency the right to act on behalf of the original creditor when collecting debts. The collection agreement also includes the amount the creditor intends to pay the collection agency for its services. In many cases, the collection agency receives a portion of any amount it successfully collects from debtors.

Considerations

Some creditors do not enter into collection assignment agreements in which both parties actively participate. These creditors essentially "turn over" their overdue accounts to collection agencies for a fee. Thus, the collection assignment agreement in these cases serves as a sales contract.

Effects

Regardless of whether a creditor hires a collection agency to collect debts or sells its delinquent accounts, the collection agency must maintain a copy of the collection assignment agreement. The Fair Debt Collection Practices Act allows a debtor to sue a collection agency that cannot prove it has the right to collect his debt. A copy of the collection assignment agreement protects the collection agency from the legal consequences of not maintaining proof that it owns the debt.