The well known saying goes “If you think no-body cares, try missing a few payments.” Debtors have found this to be very true, often receiving letters and phone calls continuously from debt collection agencies, to the point of feeling cornered and worn out.
Agencies collect outstanding debt on behalf of lenders. They may also buy a bad debt book which has been designated as a charge off by the original creditor. A charge off means that the debt has been written off as uncollectable and the debt is written off by the original creditor against tax for the year. Once a collection agency has become the new creditor, the debtor will not be able to negotiate with the original creditor.
Any person who has a charge off on his or her credit report will have a very bad credit rating and it will impair any future attempt to obtain credit.
How do Collection Agencies make their Money?
Collection agencies typically work on commission, receiving a percentage of the money collected.
Agencies who purchase a charged-off bad debt book will become the new creditor and will try to recover outstanding debts through phone calls, letters and/or legal action.
Letters are standardized and start with a friendly reminder, progressing to ultimatums. The debtor's reaction to letters will affect which letters the agency will send next. If the debtor agrees to co-operate and comes to a payment arrangement, the collection agency will send out letters with a gentler tone, if the debtor ignores the letters or is hostile, he or she will start to receive letters that are more threatening in tone.
Collection agencies try to set a deadline or create a sense of urgency in order to intimidate the debtor into paying up.
Collection agency call centers will use a collector who usually spends the whole day on the phone trying to recover debts and usually gets paid on a commission basis. Debtors often get intimidated by the relentless calls and some are not aware of their legal rights.
Time Limits on Debt Collection
Collection accounts are subject to the normal seven-year time limit for appearing on credit reports, based on the date of the original delinquency. The seven year limit only covers the filing of lawsuits and the credit reporting time limit only covers bureau listings. There is no time limit on letters and phone calls that can be made to a debtor.
What Collection Agencies Cannot Do
Debt collecting agencies cannot:
- legally seize a debtor's assets, bank accounts or paycheck unless there has been a successful lawsuit against the debtor,
- legally make disclosures concerning the debt except to the credit bureau,
- get a debtor fired from his/her job,
- legally engage in physical violence, threats, profane language, abuse or use coercion in the course of collecting outstanding debts.
Can Collection Agencies be Prevented from Calling?
According to the Fair Debt Collection Practices Act, Section 805 “If a consumer notifies a debt collector in writing that the consumer refuses to pay a debt or that the consumer wishes the debt collector to cease further communication with the consumer, the debt collector shall not communicate further with the consumer with respect to such debt”.
All that a debtor has to do is to send a debt collection agency a written notice (preferably quoting the FDCPA) and order them to stop collection letters and calls. The collection agency is obliged to comply and collectors usually back off at this point.
After a "cease and desist" notice from the consumer, the debt may then be returned to the original creditor, passed on to another third-party agency or filed away. The agency may still report the account to the credit bureaus.
Source:
1. Collection Agency FAQ, cardreport.com, information retrieved on 7 September 2009
2. Fair Debt Collection Practices Act
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Credit Card Debt Consolidation and Debt Relief
Getting Out of Credit Card Debt
Is Consolidating Debt the Best Thing to Do?
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