Defaulting on personal debts, viz. interest payment on credit card balance, the amortization payment on auto loans, the remaining balance on unpaid student loans, and the monthly mortgage payments, results in the consumer having to deal with debt collection agencies.
This may be an in-house agency, such as the creditor's collection department, or a third party that has been entrusted with the task of collecting unpaid debts. Generally, if a debtor has not paid the dues for a period of 6 months or less, the creditor employs an in-house debt collection agency.
Debts that are deemed bad may be recovered by employing third-party collection agencies. These debt collection agencies receive a percentage of the amount that they collect as commission. Sometimes, the debts may be sold off to agencies that specialize in purchasing bad debts, for just a small percentage of their actual amount.
In this case, the agency benefits by pocketing the difference between the amount that is recovered and the amount that is paid to purchase the supposedly bad debts. Debt collection by collection agencies is very different from wage garnishment.
The latter requires the creditor to file a petition in the court and get a writ that allows the creditor to legally withhold a portion of the defaulter's salary. Debt collection agencies, on the other hand, cannot legally seize the debtor's assets or salary, unless they sue the debtor and win the case in a court of law.
The Federal Fair Debt Collection Practices Act (FDCPA), enforced by the Federal Trade Commission (FTC), regulates the collection of debt by a third-party agency; while State laws apply to the in-house agencies.
Dealing with a Collection Agency
Consumers need to understand the Dos and Don'ts of debt collection in order to avoid unnecessary grief. The debt collection agency cannot make public disclosures regarding the inability of the debtor to repay debts. However, the agency is authorized to provide correct information about the consumer's financial position to the credit bureaus.
As mentioned earlier, the agency for debt collection cannot threaten to seize the assets of the debtor, ask the debtor's employer to garnish wages, or threaten to remove the consumer from his/her job. The agency cannot call the debtor at unreasonable hours. Generally, calling after 9 p.m. and before 8 a.m. is considered unacceptable.
They cannot engage in physical violence or use abusive language. Adopting unfair practices like claiming to be attorneys, government representatives, or employees of a credit reporting company are some forms of misrepresentation that a collection agency may resort to, in order to expedite the process of collecting debts.
Since the agents earn primarily through commissions, they may try and levy additional interest. Resorting to unfair practices and misrepresentation are strongly condemned by the Federal Trade Commission.
Although the FTC does not get involved with individual consumer cases, they do have the authority to oversee the collections industry, and penalize a collection agency for repeated consumer rights violations.
The Fair Debt Collection Practices Act (FDCPA) authorizes the debt collector to levy an interest, on the amount of debt, during the collection period strictly in accordance with state laws and the terms of the debt agreement.
A debtor, who is able to arrange for the necessary finances, may dispatch the payment by first-class mail, debit card or check, regardless of the mode of payment advised by the debt agency.
Hopefully, this information would have provided some insight on dealing with collection agencies. It may behoove the debtor to try to negotiate with the creditors earlier in the day, than deal with debt collection agencies later.