Collection Agency

[lopez]

Hai,

I am Lopez.

A collection agency is a business that pursues payments on 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. Some agencies, sometimes referred to as "debt buyers", also purchase debts from creditors for a fraction of the value of the debt and pursue the debtor for the full balance.Creditors typically send debts to a collection agency in order to remove them from their accounts receivable records; the difference between the amount collected and the full value of the debt is then written off as a loss.

Debt collection agencies have a reputation for engaging in threatening behavior, harassment, and coercion. However, in many countries, collection agencies are governed by laws that prohibit certain abusive practices. Failure to adhere to such laws may result in lawsuits or government regulatory actions.

First Party Agencies
Some agencies are departments or subsidiaries of the company that owns the original debt. First party agencies typically get involved earlier in the debt collection process and have a greater incentive to try to maintain a constructive customer relationship. Because they are a part of the original creditor, first party agencies are not subject to some of the laws which govern collection agencies.

These agencies are called "first party" because they are part of the first party to the contract (i.e. the creditor). The second party is the consumer (or debtor).

Third Party Agencies
The term collection agency is usually applied to third party agencies, called such because they were not a party to the original contract. The creditor assigns accounts directly to such an agency on a contingency fee basis, which initially costs nothing to the creditor or merchant except for the cost of communications. The collection agency makes money only if money is collected from the debtor (often known as a "No Collection - No Fee" basis). The agency will take a percentage of the amount collected as its fee, which can range from 10% to 50% depending on the type of debt (though more typically the fee is 15% to 35%).

In the United States, consumer third party agencies are subject to the Fair Debt Collection Practices Act of 1977 (FDCPA). This federal law is administered by the Federal Trade Commission or FTC.

Sale of Debts
Another option for creditors is to sell their debts to the fast growing debt buying industry. This allows the creditor to generate immediate revenue from their accounts receivables, save infrastructure costs associated with managing collection agencies, and avoid the possible legal liability and public relations risks associated with debt collection.[3] This practice has developed principally in the USA but now the debt purchase market is burgeoning in the UK, Europe and Asia.