The mention of debt collection agencies might be enough to send your heart racing. Yet, learning about debt collectors will give you some helpful insights in case you are currently receiving collection calls or think you may in the near term.
Yes, debt collection agencies all pester you to get you to pay what you owe.
However, their tactics and collection practices are not all the same.
There are three main types of collection agencies: first-party,
third-party, and debt buyers.
First party collection agencies are not really agencies, but usually just the collections department of a company. They go after a debt early on, when they believe it is still possible to reestablish a relationship with the client.
Although they might send letters, they’re usually “soft” and somewhat friendly with
wording that suggests maybe you forgot to pay or to forgot to give them a call if you’re
having trouble making your payments.
Third-party agencies are the ones most people fear. They usually take over when the consumer hasn’t responded to the letters and the bill remains unpaid.
Most third-party agencies work on a contingency-fee basis, which means they only make money if they can successfully collect from the debtor. Although these collection agencies must adhere to the Fair Debt Collection Practices Act, they still get a lot of free reign when it comes to contacting you in order to get you to pay.
Sending letters continuously, calling you at home or work (at reasonable
hours), reporting you to credit bureaus, and other tactics are commonly used.
Debt buyers work on a unique concept. These debt collection agencies buy the debt from the original company for pennies on the dollar and then pursue the debtor on their own.
While they might have paid a
small amount to the original creditor, they will still go after the debtor for
the full amount owed. Sometimes they also add interest, late fees, and other
extras to the debt to increase their earnings.
Debt Collection Statistics
Debt collection is a tricky
business. According to the Mid-Atlantic
Collectors Association, companies transferred over $150 billion in debts into
the hands of collection agencies in 2010. Of that amount, debt collection
agencies were only able to collect $40 billion.
That might give you an idea of why some agencies are so aggressive in their efforts to get you to pay. They already know most people won’t. Agents are also authorized to work out payment plans with debtors, sometimes as low as a few dollars a week.
Who’s on the Other Side of the Phone?
Ever wondered what the average debt collector is like? Seems like a tough job. According to the Bureau of Labor Statistics, a debt collector is a high-school graduate with two months of on-the-job training, and earns a median annual wage of $31,310.
Chances are, the employed debt collectors they have some debt themselves. Although most work on a fixed salary, it’s becoming more and more common to offer bonuses or commissions to those who successfully collect the most debts (or the highest amount). This further explains why some debt collectors are very aggressive in their collection practices.