Debt Collection Agencies and Debt Collection Companies

Unpaid debts, if not recovered, translate into revenue losses for creditors and lenders. Recovering long standing debts is critical to a business set up. With stringent laws keeping an eye over debt collection measures, debt collection has become a skilled, legal and professional task. It is to accomplish the purpose of collecting debts in a legalized and approved manner that debt collection agencies have cropped up.


Debt collection agencies are independent companies that specialize in debt recovery measures. These agencies are hired by creditors, lenders, banks, and similar organizations that trade on credit to recover debts and unpaid amounts from erring debtors. A debt collection agency recovers debts on behalf of a creditor. It is important for a debt collection company to be registered with the state they are to recover debts from.

What are in-house debt collection agencies?

In-house or first party debt collection agencies are an extension of a company’s division and work on collecting debts on behalf of the company. Though there are slightly different laws applicable to them, the first party debt collection companies can still be sued by consumers for unbecoming tactics. A first party company generally pursues an account for six months. In case no payments turn out during these six months the account is marked as bad credit and handed over to independent debt collection agencies.

What are third party debt collection agencies?

Third party debt collection agencies are independent agencies that are in the business of collecting unpaid debts for their clients. As these are autonomous work force, they fall within the Fair Debt Collection Practices Act (FDCPA) and have to abide by the clauses and regulations as listed. Third party debt collection agencies immediately swing into action once they receive a bad credit account.

These debt collection agencies send out written notices to debtors to draw their attention towards pending debts. The agencies are required to furnish information about the client they represent including the client’s address and contact information. Along with this, a 30 day period is granted to debtors to challenge the debts, in case of any discrepancies. In case a debtor agrees with the debts, negotiations are done to arrange for the payments. The agency can proceed with legal action in case the debtor remains oblivious to the notices or does not owe up the debts.

Third party debt collection agencies either charge a fixed fee for the debts they recover or charge some percentage of the amount they recover. Alternatively, a debt collection agency may buy an account from a creditor at prices much lower than the outstanding amounts against the account. They pursue debt collection independently once they own the account.

Along with the FDCPA, debt collection companies additionally need to comply with laws of the state that they operate in. In the event of state as well as federal law implying similar rules on a certain issue, the stricter one shall be enforced.

The Federal Trade Commission is the principal regulatory body that overlooks the debt collection agencies. Almost all states have a mandatory requirement that debt collection agencies have a valid license and be registered with the state they operate in.

It is important to run a credential check on a debt collection agency before going on and hiring it. Owing to the nature of the work that debt collection agencies carry out, the chances of legal actions being pursued against them are quite high. However, if the debt collection agency presents a clean face against any charges pertaining to harassment or threats, it should present a sound case for hiring.

The debt collection agencies are entitled to report cases of pending debts on a person’s account to the credit bureaus. In case a debtor has had one or more unpaid accounts referred to debt collection agencies over the last seven years, it will reflect on their credit report. In case payments are received on the accounts, they are not wiped off from the debtor’s credit report but are marked as “paid”.

Debt collection agencies are instrumental in pursuing debtors on drawn up debts. The FDCPA and other laws ensure that debtors’ integrity is not lost and harassment through collection agents is nipped in the bud. However, the fact is that a case passed on to a debt collection company is an indicator that somewhere finances need to be managed better.

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