Although most collection agencies are separate entities that purchase bad debt from creditors, some companies use internal collection departments that use a different name and address to give the appearance of being a collection agency, report consultants at Credit Report. There are a variety of terms used by collection agencies that work for retailers, credit card companies, banks and other businesses that provide credit to consumers.
Features
Some collection agencies work for creditors through professional collection agents that send notices and call debtors about overdue accounts. They are paid by commissions on the money they collect. Telephone collections agents are typically paid minimally and receive bonuses on the collections they receive. Other agencies purchase bad debts for significantly lower amounts than the face value of the debt and make their profits on any amounts above their purchase price they are able to collect.
Function
Companies use credit collection agencies because collecting bad debts is very time consuming and can take valuable time away from the firm's main business. A collection agency uses proven scripts that work to get debtors to pay and can make regular calls to remind debtors of their obligations. Consultants at Account Services report that receiving a call or a letter from a collection agency sometimes has more clout than overdue notices from the original creditor. Collection agency notices show consumers that the creditor is serious about collecting the money they are owed.
Limitations
Although collection agencies can bring debtors to court and sue for the amount owed, they cannot seize bank accounts or receive paycheck garnishments without a court order. Collections agencies often use threats of court action to get debtors to pay their bills, but they cannot publicly announce the bad debts, except to a credit bureau. They also cannot make threats of violence.
Benefits
In addition to getting money that a business might not otherwise ever collect, some collection agencies use skip trace techniques to locate debtors that have moved or changed their phone numbers. A thorough collection agency reports the status of bad debts to the major credit bureaus and advises clients if consumers have filed for bankruptcy.
Guidelines
The Federal Trade Commission regulates credit collection agencies. The Fair Debt Collection Practices Act, which defines the rules, pertains to personal and household debts and does not cover business loans. The rules prevent collection agencies from calling consumers before 8 a.m. and after 9 p.m. Consumers can prevent collection agencies from calling them at work by sending the collector a request by mail.
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