How Do Collection Agencies Work?

Debt collection agencies recover past due balances from consumers. Agencies employ more than 136,000 debt collectors who are responsible for locating consumers, sending dunning letters, phoning consumers for repayment, and reporting debts to credit bureaus.

A debt collection agency acts on behalf of a creditor in order to recover past due balances from consumers. Typically, a creditor – a credit card issuer or a hospital, for example – tries to collect the debt by themselves for between 60 and 180 days. If they’re unsuccessful, they may turn the debt over to a debt collection agency, which attempts to collect the debt in exchange for a percentage for the amount collected – usually between 25 percent and 45 percent.

Locating the consumer

In order to collect the debt, the collection agency undertakes a number of activities. First, they may need to locate the consumer. This is called skip tracing. A debt collection agency typically combs through various databases and public records in order to find a person’s location information. These records might include:

  • Credit reports
  • Utility bills
  • Property tax records
  • Driver’s license databases
  • Vehicle registrations

Even if a debt collector can’t find a consumer through these records, they may be able to locate the consumer’s place of employment, former neighbors, or relatives. Under the Fair Debt Collection Practices Act (15 U.S.C. Section 1692b), a debt collector can contact a third party to ask for the consumer’s address and phone number. However, they cannot talk about the person’s debt or say that they’re a debt collector. Under the FDCPA, if asked, a debt collector can state the name of the debt collection agency (their employer). It’s important to note that the debt collector can only contact the third party one time, unless that person asks the debt collector to call again.

Initial contact with the consumer

Once a debt collection agency knows where the consumer lives or has their telephone number, the agency contacts that person. Often a debt collection agency uses an automated dialer (also known as robocalling) to call the consumer. If someone answers the phone, the call is transferred to a debt collector, who asks for the consumer. If no one answers, the debt collection agency may or may not leave a voicemail message.

Once the consumer is on the line, the agent is required to identify themself as a debt collector. In Foti vs. NCO Financial Systems, the court held that the following message violated Section 1692(e) of the FDCPA:

Good day, we are calling from NCO Financial Systems regarding a personal business matter that requires your immediate attention. Please call back 1-866-701-1275. Once again please call back, toll-free, 1-866-701-1275. This is not a solicitation.

The court ruled that this message was in violation of the FDCPA because the law says that the debt collector must notify a consumer that they are attempting to collect a debt and that any information obtained will be used for that purpose.

Following the initial contact, a debt collection agency must send a written notice to the consumer within five days. According to 15 U.S.C. 1692g(a), the notice must include the amount of the debt, the name of the creditor, and three statements:

  • The consumer has 30 days to dispute the debt.
  • The debt collector will send verification if the debt is disputed.
  • The debt collector will send the name of the original creditor.

What else does a debt collection agency do?

After initially contacting a consumer, a debt collection agency can take a variety of measures to collect the debt. For example, it can send a series of written communications, called dunning letters, demanding payment of the debt. Debt collectors can regularly call the consumer asking for repayment of the debt. Keep in mind, though, that the FDCPA regulates the character of allowable debt collection calls. For example, although the law doesn’t state how many calls are allowed, 15 U.S.C. 1692d(5) does prohibit calling excessively, or to the point of annoyance or harassment. Similarly, 15 U.S.C. 1692c(a) prohibits calls at times or places known to be inconvenient to the consumer or calls to the workplace if the debt collector knows that the company prohibits personal calls at work.

It is common for debt collection agencies to report debts in collection to credit reporting agencies, also known as the credit bureaus Experian, TransUnion, and Equifax. When that happens, a consumer will see the debts on their credit reports and will likely see a drop in their credit score.

Often, a debt collection agency is authorized to negotiate a payment settlement to satisfy the debt. For example, they may take 50 percent of the amount due in a lump sum payment and forgive the rest of the debt. When agreeing to a settlement, it’s crucial to get all of the terms of the settlement in writing.

If debt collection attempts are unsuccessful and the creditor wants to continue to pursue collection efforts, a debt collection agency will forward the debt to its internal legal department or to an outside debt collection law firm. If this happens, the consumer may be sued in court for the amount of the debt, and possibly for any allowable costs and fines.

How do debt collectors work?

According to ACA International, the professional association for the debt collection industry, debt collection agencies employ more than 136,000 people. The U.S. Department of Labor reports that the average debt collector makes a little over $35,000 per year, and that the job market for debt collectors is anticipated to shrink by three percent by 2026. The five states with the most debt collectors are California, Texas, Florida, New York, and Ohio, but the areas with the highest concentration of debt collectors are Sioux Falls, South Dakota; San Angelo, Texas; Logan, Utah; Pueblo, Colorado; and the area around Lawrence, Massachusetts.

Debt collectors typically work in a high-pressure environment. They may have background experience doing call center work, telemarketing, or sales. Sometimes, though, a debt collection job is an entry level position. Debt collectors’ pay is often performance-based. They may get a percentage of the amounts they collect – a commission – or they may receive bonuses based on whether or not they achieve recovery goals.

Debt collectors typically work at desks in offices, but usually work unconventional hours. Because they work when they’re most likely to be able to reach consumers, shifts often include late afternoons, evenings, and weekends.

Reputable debt collection agencies train and certify their debt collectors in FDCPA compliance. Less reputable debt collection agencies may employ unsavory tactics to collect from consumers, sometimes in violation of the FDCPA.

If you’ve been harassed by debt collectors, Lemberg Law has a team devoted to representing people just like you. Call and set up a free consultation at 844-685-9200 or submit the online request form.

Case citation
Foti vs. NCO Financial Systems, Inc., 424 F. Supp. 2d 643 (S.D.N.Y. 2006)

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