COLLECTION AGENCY

 

Collection Agency

 

A third party collection agency is a debt recovery service whose business is to pursue debt owed by businesses or individuals to a particular client or creditor. These collection agencies are broken down into two categories:

 

• Client based collection agencies: Agencies like WNRS, who have an established group of clients who rely on their services to collect on their account receivables.

• Debt purchasing collection agencies: Agencies who purchase debt from a particular client at a lower cost, becoming in essence the owners of the debt, and who then pursue the owed amount. Because of the large volume of accounts involved, and the lack of having to report to a particular client, these type of collection agencies usually lack the diligence and effectiveness needed for higher collection returns.

 

Several times companies operate their own subdivisions or departments that are in charge of recovering their own debt. These efforts are referred to as “first party” because they are in fact the first party in the contract (the company) who is owed money by the second party (the company’s client). Collection efforts in these cases begin early and are usually pursued until efforts are exhausted. At this point a company can choose to write off the bad debt, sell the bad debt to a debt purchasing agency, or turn it over to a client based third party collection agency like WNRS. Generally, the term collection agency refers to a third party agency whose name was not part of the original contract between first party (the company) and second party (the company’s client).

 

Bad debt or unpaid accounts are transferred over to these agencies in order for them to begin servicing and trying to collect on the debt. Many agencies charge a placement fee for its creditors to place over the accounts. Others, like WNRS however, work on a contingency basis, which only charges the client when payment is made on any of the placed accounts. Once collection is rendered, the collection agencies will take a percentage of the amount collected, referred to as the collection agency fee or commission. The typical collection agency ranges in fee from 20 to 35% of the original debt. Some cases however, do result in slightly higher rates.

 

What’s the difference between commercial collections and consumer collections?

 

Commercial collections are collections in which the form of the account or debtor is a business. These cases usually require maneuvering through the right channels to speak to the appropriate person who is in charge of payments in the company.

 

Consumer collections are collections in which the form of the account or debtor is an individual consumer. This is usually the case in retail collections, where the individual debtor is liable for the debt as opposed to an entire company or an organization.

 

How do these collection agencies recovery the owed money?

In most agencies the recovery process is two-step.

 

1. A pre collect, letter service, also referred “Soft collections” process. This service is usually offered at a flat rate, and sends increasingly urgent demand payment letters.

 

2. “Hard Collections” or a complete collection’s approach. This service is offered at a commissioned rate. This approach is more complete in terms of skill, cost, and labor. Instead of only focusing on a letter campaign, as does the “soft collections” approach, this approach includes the letter campaign as a small aspect of its collections process. Other approaches at collecting the debt including; telephone calls, door to door visits, investigations, settlements, negotiations, repo, attorney intervention, and various other tactics are used.

 

Are these collection agencies regulated?

In the United States, a federal law known as the Fair Debt Collection Practices Act of 1977 (FDCPA) regulates acceptable collection practices for third party collection agencies. Collection practices are regulated in areas such as: hours, procedures, communication to third parties, and other consumer protection areas.

 

Are there licensing requirements for collection agencies?

In the United States, collection agencies must be licensed to practice in each state in which they peruse their collection matters. Licensing is obtained by registering with the appropriate regulatory body for each state, and paying necessary fees.

 

How can a debtor be contacted via phone?

The FDCP act strictly governs the acceptable phone call practices of a collection agency. For example, when contacting a debtor a collection agency must bare the costs of pursuing the debt and not the individual or company debtor. The skill and technique used during a collection call is perhaps the most important asset a collection company holds. Without the properly trained collectors who fully understand the nature of the company or individual who needs debt collection, the result of the collections call will not be favorable. Being able to negotiate and work with the debtor and sticking to the guidelines set forth by the FDCPA is extremely important. The FDCPA also guards who can be informed of a particular debt by the debt collectors. For example, depending on the state, a collector may be able to inform a persons spouse about the debt. Collectors usually spend the entirety of their day pursuing accounts to be service and collected. Collectors are usually paid salary plus commission. In some agencies collectors are paid strictly commission. Other agencies pay what is known as draw against commission. A collectors success depends on several factors including his/her skill, volume of accounts, age of accounts, amount of accounts assigned over for collection, and nature of the accounts assigned over for collection. The job takes a particular character who can handle hearing touch situations on a daily basis.

 

What if the debt is incurred abroad?

International Collection Agencies like WNRS, handle a broad range of accounts in a number of countries around the world. Each country has their own governing consumer protection laws similar to the FDCPA and international collection agencies must comply with the licensing requirements of each country. The ability to understand the nature of the debt, assume considerably higher phone call costs, and ability to collect successfully in a foreign language are great factors that influence the success of international collection agencies.

 

Reporting to Credit Bureaus

Many collection agencies have accounts set up with the major national credit bureaus in order to report delinquent accounts. In the United States the major national credit bureaus are: Experian, Equifax, and Transunion. These accounts appear on that particular person’s credit report and can have a negative effect on their credit rating. Once the account is paid, the item will remain on the records of the bureaus for documentation and credit history purposes.

 

Attorney Intervention: Collection Agencies and Lawyers

Some agencies, like WNRS, have in-house attorneys, while others outsource legal work. Through its in-house attorneys, and through its network of national and international attorneys, WNRS litigates collections cases for its clients around the world. Before filing lawsuits, out of court negotiations and collections are attempted until such efforts are exhausted. The in-house attorneys, along with the clients and collections managers, review the cases for which lawsuit is to be filed, and a decision is made on a case by case basis to move forward. Factors that are reviewed include the amount in controversy, the age of the debt, whether a dispute exists, and whether a statute of limitations has expired. When the lawsuit is filed, the debtor is “served,” usually by a process server, and is thus notified of the lawsuit and given an opportunity to respond. The legal process varies on a state by state basis; however, usually, if there is no response, the lawyer for the collection agency will seek a “default” judgment from the court as a result of the defendant’s failure to respond. Such a default judgment will be in favor of the collection agency, and will give the collection attorney the power to enforce the judgment through various mechanisms available, depending on the state. For consumer debts, a common method used for enforcing payment of a judgment is the garnishment of the debtor’s wages, within limitations established under Federal law and certain State laws. With this process, the employer is instructed by court order to deduct a portion of the debtor’s paycheck and send it to the court for payment towards the debt. Other methods of enforcing judgments include the execution, or levying, against a debtor’s assets. For corporate debts, this method is more common, being that a corporation is not receiving a “wage” that can be garnished. However, this method is also used for individual debtors. Execution against a debtor’s assets permits the creditor to execute against cars, bank accounts, boats, airplanes, real property, and other such assets of the debtor, again, within legal restrictions. In many cases, such assets are sold by the sheriff, in order to provide the proceeds to the creditor.