Collection agency
From Wikipedia, the free encyclopedia
A collection agency is a business that pursues payments on debts owed by individuals or businesses. Most collection agencies operate as agents of creditors and collect debts for a fee or percentage of the total amount owed. Other agencies, sometimes known as "debt buyers", purchase debts from creditors for a fraction of the face amount of the debt and pursue the debtor for the full balance.
Creditors typically send debts to a collection agency in order to remove them from their accounts receivable records; the account is then written off as a loss.[citation needed]
Debt collection agencies have a reputation for engaging in threatening behavior, harassment or coercion. However, collection agencies are governed by laws under state and Federal laws that prohibit certain abusive practices. Failure to adhere to such laws may result in lawsuits or government regulatory actions that can result in large fines, damages that must be paid to the offended party, or even closure of the agency (see, e.g., CAMCO).
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[edit] Canada
Collection Agencies are regulated by the province or territory in which they operate. The law is typically called the Collection Agencies Act and usually affords a government ministry power to make regulations as needed.[1]However, the regulations typically limit the agency to three contacts with the debtor per 7 day period. Further, a debtor should not be contacted unless they have been notified in writing first that the debt has been assigned to the agency making the contact. [2]Most debts in Ontario, Canada are subject to a limitation period of two years. After the second anniversary of the last formal intention to pay the debt, the collection agency nor anyone else has authority to collect it.[3]
For futher information, see the Ontario regulations section on prohibited practices.
[edit] Scope of article
The information in this article applies primarily to collection agencies in the United States of America. However, much of this information is relevant outside the United States as well.
[edit] First Party Agencies
Some "agencies" are departments or subsidiaries of the company who owns the original debt. These are usually the least likely to settle for less than the total balance. Because they are a part of the original creditor they are not subject to many of the laws which govern collection agencies. These agencies are called "First party" because they are part of the first party of the contract, the merchant. The second party is the consumer, also called the debtor in collections terminology.
[edit] Third Party Agencies
The term collection agency is usually applied to these agencies. They are called "third party agencies" because they were not a party to the original contract. In the United States, consumer third party agencies are subject to a federal law called the Fair Debt Collection Practices Act or FDCPA. This federal law (passed in 1977) is administered by the Federal Trade Commission or FTC.
[edit] Assignment of Debts
Owed bills or debts are referred to as accounts by bill collectors. Today, more and more accounts are being purchased by debt buyers than in the past. Traditionally, it has been common business practice to assign accounts directly to an agency, which costs nothing for the merchant or the collection agency, excluding the cost of communications by mail and telephone. In this way, the collection agency is acting as a legal agent for the merchant. The collection agency makes money only if money is collected from the debtor. The agency will then take a percentage of the amount owed (usually 15% to 50%, depending on the type of debt) and the remainder is turned over to the client (the original merchant).[citation needed]
[edit] Bill Collectors
The modern business model is the primary reason for the many complaints brought against collection agencies. Knowing they will make no money if they don't bring in money, bill collectors are highly motivated to convince debtors to pay the debt, often to the point that they sound threatening to the debtors. Most people are accustomed to being treated with a certain amount of "customer service" and often complain that they do not receive that treatment from bill collectors. In many cases, firm treatment is necessary to convince debtors to pay their debt. Many people find this uncompromising stance "threatening" even though it is not considered as such by bill collectors or by law [4], and it is often necessary to effectively motivate a debtor to pay a bill.
Many bill collectors find their jobs to be stressful. Their base salary is often low, requiring them to bring in enough money to earn commission. [5] They often spend the majority of their day arguing with debtors, and sometimes being sworn at, insulted, and threatened by the people they talk to. Bill collectors also spend time calling debtors who do not answer their phones, often leaving messages stating only that the call "must" be returned. With the advent of Caller ID, debtors are often able to avoid answering their phones to bill collectors.
[edit] Debtors
The person who owes the bill or debt is called the debtor. Some people become debtors because of a lack of financial planning on their part. They become overwhelmed with all of their bills, such as utilities, cell phones, credit cards, and others, until they finally "give up." Often, the only way for a bill collector to motivate this kind of debtor to pay is to explain the actions the collection agency will take if he does not pay the debt.
Other people become debtors because of an unforeseen and uncontrollable event that disrupted their life. Examples include the loss of a well paying job, an accident at work or while driving that leaves them unable to work, or a sudden and serious illness. Usually, the only way to motivate this kind of debtor to pay is to work with him by taking small payments until he can resolve his financial problems and pay off the remainder of the debt.
Finally, others are treated as "debtors" by a collection agency despite disputing that they owe the debt. People in this category include victims of identity theft, people erroneously targeted due to a similar name, or people who otherwise dispute the validity of the debt. Such people can use the procedures found in the Federal Fair Debt Collection Practices Act, including the right to request validation of the debt.
[edit] Legal Remedies
Some debtors simply refuse to pay the bill. In this case, the collection agency will often sue the debtor in the hope that either the debtor will be scared into paying upon service with legal papers or that the court system will help the collection agency to force the debtor to pay.
Most collection agencies in the United States hire outside collection lawyers. These collection attorneys frequently have considerable experience in debt collection lawsuits.
First, the lawsuit is filed with the court. Then, the debtor must be notified of the lawsuit by having the court documents delivered to him, usually in person. This is known as "Legal Service." The person presenting the documents to the debtor is usually a "Process Server" and usually works for a separate process service company, to avoid allegations that service was not done correctly. Depending on local laws process may also be served by a local Sheriff’s Deputy.
Once the debtor is served, he must take some action to respond to the lawsuit, though the specific type of response depends on individual state law. If there is no response, the collection attorney will usually request that the court grant a default. A default judgment basically declares the collection attorney as "the winner" because the other side (the debtor) did not respond to the legal notice. Default judgment is almost always granted if the debtor does not respond to the lawsuit.
Once the collection agency's attorney has obtained judgment, he is empowered to take action to obtain the money from the debtor. A number of options are open, depending on the state the debtor is in and the status of the debtor's employment and assets.
Typically, the most effective method to collect on a legal judgment is to garnish a debtor's wages. The court will send or serve an order of garnishment to the employer. This requires the employer to deduct a certain percentage of the debtor's paycheck and forward it to the court, which in turn forwards the money to the collection attorney. Under Federal law, the amount of the garnishment cannot exceed 25% of disposable earnings or the amount of earnings exceed 30 time the minimum wage. 15 U.S.C. Sec. 1673. Some states have additional restrictions on garnishment as well. However, depending on the state in which the debtor resides, those who are earning less than $20,000.00 per year generally cannot be garnished by third-party collectors. Also, debtors who are already being garnished, especially in cases of child support, cannot have additional wages garnished.
A creditor who has obtained a judgment can also execute against a debtor's assets, such as automobiles, bank accounts, and real estate. Every state has specific restrictions and procedures regarding how and what may be executed against. These are often called "execution exemptions." When an asset (other than money) is executed against, it is usually sold, in many cases by a public official such as a sheriff. The proceeds, minus fees, are then given to the judgment creditor. Any excess proceeds are to be returned to the judgment debtor. Judgment creditors may also place liens on certain bonds the debtor may have with the government, such as the bond that contractors are required to have when operating a construction company.
Specific laws and procedures can vary considerably from state to state. Most states have Statute of Limitations laws that limit the length of time from the commencement of delinquency in which a collection agency can file suit.
[edit] Regulation of collection agencies
Regulation of collection agencies occurs primarily at the individual state level as most states require collection agencies be licensed and/or bonded. In addition, many states have laws regulating debt collection, which agencies must adhere to (see Fair debt collection for a listing of state collection laws).
The Fair Debt Collection Practices Act is the primary United State Federal law governing debt collection practices. The FDCPA allows aggrieved consumers to file private lawsuits against a collection agency that violates the Act. Alternately, the Federal Trade Commission or the state Attorney General may take action against a noncompliant collection agency, including issuing fines, restricting its operations or even closing it down. [6]
The FDCPA specifies that if a state law is more restrictive than the federal law, the state law will supersede the federal portion of the act. Thus, the more restrictive state laws will apply to any agency that is located in that state or makes calls to debtors inside such a state.
[edit] Disclaimer
Please note that this is general information and should not be taken as legal advice. The laws may be different in your country, state, county or city. If in doubt you should consult a lawyer.
[edit] Collection calls
Collection calls rely on repetition to motivate the debtor to pay. In the US, a call center may call the debtor's home up to three times daily within hours, (time-of-day,) prescribed by federal law. Most states also have rules limiting how debts may be collected. For example, in most cases California law does not allow call centers to place calls to the debtor if the call will cost the debtor toll charges or air time charges. If a person answers, the call center may track statistics, (times and days when someone answers,) in order to place calls at times when someone is more likely to be home.
In the case of unlisted numbers, call centers may continue to call even if the party receiving calls claims they are not the debtor. For example, the recorded messages in the sound file below were left on an answering device for persons who previously used the same telephone number. The telephone number had been disconnected and then months later reassigned. None of the names mentioned reside or work at the number called. Telling the call centers the debtor was not at the number did not stop the calls.
[edit] See also
[edit] References
- ^ Collection Agencies Act of Ontario. Retrieved on 2006-12-7.
- ^ Information on collection agencies. Retrieved on 2006-12-7.
- ^ Limitations Act of Ontario. Retrieved on 2006-12-7.
- ^ 15 USC 1692d, viewed May 9, 2006.
- ^ Salary.com, viewed March 15, 2006.
- ^ Selected Commission FCRA Actions, viewed May 9, 2006.
[edit] External links
- Fair Debt Collection Practices Act - Federal Trade Commission.
- Bill and Account Collectors - U.S. Department of Labor, Bureau of Labor Statistics.
