For most people who are up to their necks in debt, getting a phone call from a collection agency can seem like the end of the world. When you’re hounded day and night with calls— sometimes from different collection agencies—it can seem like you’re the worst criminal in the world. However, you need not feel this way. You can handle the stress that debt collectors bring, but you have to understand who or what they are first.
Collection agencies are entities who are engaged in the business of pursuing debts owed by individuals to a creditor. They are also called debt collectors or debt collection agencies and usually work as agents of the creditor for a fee or percentage of the money that was owed. Debt collectors fall under the jurisdiction of the Federal Trade Commission (FTC) and have to follow the provisions of the Fair Debt Collection Practices Act (FDCPA). It is also important to understand that the FTC does not get involved with individual cases. Rather, they accept complaints from the consumers and examine these to determine if certain agencies have violated provisions which can later lead to sanctions. In contrast, the original creditors (i.e. credit card companies) are regulated by state law and as such any complaints about them should be coursed through the Attorney General’s office in your state.
There are various types of collectors in this business. The first are the first-party agencies. They are simply subsidiaries or even departments of the original lending company. While they might give the impression that they are another collection agency, they are still considered as one with the original creditor and are not subject to the same rules that govern third-party agencies—the main subject of this report.
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Third party agencies are called such because they are not part of the agreement between the creditor (first-party) and debtor (second-party). Lenders can either assign or sell delinquent accounts to collection agencies that make money when they are able to convince (nicely or otherwise) the creditor to pay. Under the FDCPA, collection agencies, law firms who are in the business of collecting debt, and junk debt buyers are all considered debt collectors.
One of the main reasons why creditors hire the services of a third-party collection agency is that they do not have the time or the resources to pursue long-overdue accounts. By hiring a debt collector, they get the chance to recover these debts (or at least a part of it) without spending too much money or effort. Sometimes, businesses who already have a large portfolio of bad debts (charge offs, those that other collection agencies have been unsuccessful at collecting, and those that have gone past the statute of limitations) that they know they cannot anymore collect will choose to sell these to junk debt buyers for anywhere from a penny to six cents on the dollar. This way, they still get something from these accounts.
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