What is a Collection Agency?

Part 11: As part of series of articles (blogs) regarding Credit and Credit Score, here we go:

A collection agency is a business that pursues payments of 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.

There are many types of collection agencies.

First-party agencies are oftentimes subsidiaries of the original company the debt is owed to. Because they are a part of the original creditor, first-party agencies may not be subject to legislation that governs third-party collection agencies. Typically, first-party agencies try to collect debts for several months before passing it to a third-party agency or selling the debt and writing off most of its value.

Third-party agencies are separate companies contracted by a company to collect debts on their behalf for a fee. Debt buyers purchase the debt at a percentage of its value, then attempt to collect it. Each country has its own rules and regulations regarding them. In the United States, consumer third-party agencies are subject to the federal Fair Debt Collection Practices Act of 1977 (FDCPA), which is administered by the Federal Trade Commission or FTC.

Collection Practices

Debt collectors who work on commission may be highly motivated to convince debtors to pay the debt. These practices are highly regulated by The Fair Debt Collection Practices act, State laws to protect consumers, the Consumer Financial Protection Bureau (CFPB), the Federal Trade Commission, and State regulatory agencies.

The FDCPA also establishes what time of day calls can be made at, to whom and where. Valid times are between the times of 8am and 9pm local standard time.

Please note that this is the consumer’s local standard time and not the collection agency’s local time. There are some collection agencies that are not in the same time zone as the consumer’s time zone and make calls, by mistake or by purpose to annoy consumers, on their own local time and they think is ok, but it is not. For example; if they are in East Coast, making a call at 8:00 AM EST, to a debtor that lives in Central Standard Time Zone, it is 7:00 AM.

For complete rules and restrictions that affects Collection agencies, please see Appendix A5 of Credit Score Tips and Tricks: Fair Debt Collection Practices Act and Appendix A6: Texas Fair Debt Collection Practices Act for consumers in state of Texas.

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I have decided to bring and share with you, chapters or sections of the book, Credit Score Tips and Tricks, as series of articles here. This is the number 11 of such a series.

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