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.Some agencies, sometimes referred to as debt buyers, purchase debts from creditors for a fraction of the value 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 difference between the amount collected and the full value of the debt is then written off as a loss.
Some agencies are departments or subsidiaries of the company that owns the original debt. First party agencies typically get involved earlier in the debt collection process and have a greater incentive to try to maintain a constructive customer relationship. Because they are a part of the original creditor, first party agencies are not subject to some of the laws which govern collection agencies [citation needed. These agencies are called first party because they are part of the first party to the contract (i.e. the creditor). The second party is the consumer (or debtor). The modern business model is the primary reason for the many complaints brought against collection agencies (citation needed). Debt collectors who work on commission may be 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 debt collectors. The term collection agency is usually applied to third-party agencies, called such because they were not a party to the original contract. The creditor assigns accounts directly to such an agency on a contingency-fee basis, which usually initially costs nothing to the creditor or merchant, except for the cost of communications. This however is dependent on the individual service level agreement (SLA) that exists between the creditor and the collection agency. The agency will then take a percentage of the debt that is successfully collected; sometimes known in the industry as the Pot Fee or potential fee upon successful collection.
This does not necessarily have to be upon collection of the full balance and very often this fee is paid by the creditor if they cancel collection efforts before the debt is collected. The collection agency makes money only if money is collected from the debtor (often known as a No Collection - No Fee basis). Depending on the type of debt the fee ranges from 10% to 50% (though more typically the fee is 15% to 35%).Collection calls inform a debtor of his obligation and motivate repayment. In the US, the FDCPA prohibits 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 (e.g., the times and days when someone answers) in order to place calls at times when the debtor is more likely to be home.
Collection account is the term used to describe a person's loan or debt which has been submitted to a collection agency through a creditor. The term is not used on debts with only original creditors. The collection account normally appears on the credit report of a person (debtor) who has had one or more accounts referred to collection agencies, within the last seven years. Collection fees can range from dollar 500 to dollar 50 000. The name of the collection agency, and the amount of money a person owes, will be listed in the report. Also, in some cases, the agency's contact information is listed.
![[Valid RSS feed]](http://www.mwagitaa.com/images/icon_Rss.png "XML Feed For RSS"){kind=icon}
Category Rss Feed
Print This Article
Add To Favorites
