What is a Collection Agency?

At some point in time, you may have been contacted by a collection agency to pay a debt. What is a collection agency and how do you know they’re authorized to handle your debts?

A collection agency is a third-party business that collects debts on behalf of banks and other businesses. These collection agencies are entirely separate entities from the original creditors and exist solely to get debtors to pay their bills. Collection agencies are made up of debt collectors, individuals who do the work involved with collecting debts.

What's in it for them

Collection agencies are typically paid a certain percentage of whatever they’re able to collect. For example, a collection agency may be able to keep 10% of whatever debts they collect. If the collector can convince you to pay a $1,000 debt, then he gets to keep $100.

How they operate

Debt collectors primarily call and send letters to get you to pay debts. They have been known to send emails, text messages, or even visit debtor’s homes. All of these things are allowed by the Fair Debt Collection Practices Act (FDCPA), the Federal law that dictates what debt collectors can and cannot do to collect a debts, like credit debt.

Collection agencies and the debt collectors who work for them don’t always follow the credit card debt law. (This is partly because they don’t completely know the law themselves and partly because they believe debtors aren’t aware of their credit card debt collection rights). Indeed, many of us aren’t.

Letters from collection agencies typically start with a notification of the debt and statement letting you know your right to dispute the debt. If you don’t respond to the first letter, the debt collector will continue to send them. The letters will request, and even demand, that you send payment. Soon after, if not before, the collection agency will begin calling you.

The FDCPA prohibits collection agencies from calling you before 8 a.m. or after 9 p.m. your local time. They also cannot call at times they "know or should know to be inconvenient."

Debt collectors are often very persistent in collecting payment. This is more evident when you talk to a collector over the phone rather than when you read their letters. Collectors are trained to push for a payment and not to accept "no" for an answer. They use a range of tactics from intimidation to guilt trips to try to get you to pay up. However, the FDCPA prohibits collectors from harassing or threatening you. For example, they cannot tell you they will sue if the do not intend to or cannot legally do so. They also cannot use profanity or obscene language when speaking to you.

The impact on your credit report

Collection agencies are able to add legitimate collection accounts to your credit report where they remain until they fall off after the seven-year reporting time limit. You may be able to have these blemishes removed from your credit report by negotiating removal with the collection agency. They have the authority to take the account off your credit report and sometimes do so in exchange for payment. This type of negotiation needs to be made in writing and done before you make payment on the debt.

Related Links:

Fair Debt Collection Practices Explained