The debt collection process begins when you first miss a payment A friendly reminder is usually sent letting you know that your payment is late. Mortgage and car payment reminders are often more demanding, since these debts are secured. If the payment isn't made, a series of letters usually follows, each increasing in severity. After anywhere from thirty days to six months, a creditor will usually turn the account over to collections. Many large companies, like Sears and Citibank, have their own collection departments. They save money by not having to pay a commission to an outside agency and are also able, in some instances, to skirt the Fair Debt Collections Act In-house collection agencies are not covered by the federal Fair Debt Collection Act, although many states have created state acts that apply to creditor-owned collection units.
Outside agencies derive their income from the commission they make on each payment they can force from a delinquent creditor. Commissions can range anywhere from 25 percent for a bill that will probably be relatively easy to collect to 50 percent or more on a very old debt. Collection agencies can also purchase debt from creditors at a deep discount and try to collect the money, keeping the difference between what they paid and what they can collect. While in-house collectors and those employed by an original creditor are usually paid a salary and a bonus, outside agencies generally pay their collectors on commission. Outside agencies tend to be far more aggressive. They can afford to be, since they have no relationship with the customer or any expectation of a future relationship other than possibly to collect more money.As in many sales professions, collectors are required to meet targets.
They often tread on laws created to protect consumers and are not above using some fairly unsavory practices to reach their goals. According to a credit industry trade magazine, a collector's performance is usually rated by six criteria: the number of calls made, the contacts made, the promises made, the quality of the promises assessed by the percentage made, the percent of promises paid, and the dollars paid. Modem collection agencies use sophisticated computer programs to track the debtors and automatic dialing machines to harass them systematically. The bottom line is having money sent in so that the collector can receive a commission or a bonus. If the debt remains uncollectible, the collection agency will use progressively extreme tactics. In the end the matter may be turned over to the agency's attorney for legal action, provided a couple of criteria are met. First, the agency has to know where the debtor is and where he can be served; second, it has to be sure he has the ability to pay. The collector has a variety of methods for obtaining this information, which will be discussed later. If a lawsuit is feasible, the agency will usually ask for permission from the original creditor to proceed and then an action will be filed-usually in municipal court, since a collection agency is barred from suing in small-claims court. A frightening trend is the rise of law firms that double as collection agencies. For many years these firms avoided the Fair Credit Reporting Act requirements because they weren't considered collection agencies. To bring in business they often advertised that they could get away with things regular collection agencies couldn't fortunately, a revision to the Fair Credit Collection Act in July of 1986 imposed the same standards on legal firms as apply to any other collection agency. Legal firms often take advantage of their expertise and file immediately in municipal court.
They may not even bother to check the facts of a case. They hope to take advantage of the consumer's ignorance and fear of the legal process, at times even going so far as to call the consumer and offer legal advice. Most consumers, having a certain respect for attorneys, succumb.
This new breed of collector has a cavalier attitude about playing hardball. "We'll go after anyone, from a $40 bad check to a $40 million commercial loan," bragged one executive at a collection agency specializing in lawsuits. Don't take advice from anyone calling to collect a debt Ask for the demand in writing. Refrain from giving any information other than a mailing address (preferably not your residence).
