Disclaimer: In no way do I wish to suggest that people shouldn’t repay their debts. But with bankruptcies reaching an all time high and bankruptcy protection being re-visited, its best to have a little advice when having to deal with these people. Think of it as a public service announcement. One more thing, this only applies to collection agencies in the States. Different countries probably have different guidelines.
For whatever reason, divorce, loss of job, physical or mental health problems, many people fall behind in the repayment of their debts. Collection agencies are the ones you want to avoid. Let’s take a look at some the things these folks can do to try and collect a debt and simultaneously make your life miserable. I guess its better than going to debtor prisons
What are collection agencies?
Basically there are two types. Let’s try and illustrate the first with an example.
Suppose you have a credit card with Ripemoff Savings and Loan and for whatever reason cannot make the payments. You can bet your bottom dollar that you will start receiving calls and letters from Ripemoff asking when they might expect payment. If you cannot make the payments, stall long enough or simply ignore the communication, chances are you’ll start receiving the same type of communication from a collection agency.
Now, if Ripemoff is a large enough company, they might have their own collection department that goes under another name. This is based on a theory that you will be more inclined (threatened) by the “outside “agency” than you were be Ripemoff and thereby more inclined to pay.
Chances are though, that your debt has either been charged off by Ripemoff and sold to a third party or “worked” on by a third party on behalf of Ripemoff in exchange for a commission on any amounts that are collected.
How do these agencies make their money?
As I mentioned earlier, they most often work on commission. You know that person on the phone with the made up name, the individual collector? Well, they’re usually paid like shit but can make more based upon the commission they collect and any amount you might pay
How did the agency get my debt?
How else, they bought it. They usually pay a small percentage of the face value of the debt to the original creditor and they now own your ass. Example:
You run up a credit card bill of five grand and can’t make the payments. After a while, your credit card company will sell the debt (the amount you owe) to a collection agency for somewhere between 5 to 10 percent of the face value.
In the case of the five grand, they now own the debt for either 250 or 500 dollars and stand to profit on the difference between that price and the amount you eventually pay off. Of course, this is less salaries and commission and various other overhead expenses for the people working the phones
How do these agencies work?
Should you be targeted or made yourself a target of a collections agency, you can expect to be bombarded by what seems like a never ending series of letters and phone calls.
What are the tone of the letters?
Since they are computer generated, impersonal would be the best description I could ascribe. They usually start out as friendly “reminders” but soon might advance to
The first letter that you get must also state that you (as the debtor) have a right to disoute the validity of the debt. Should you choose this course of action, you must do so in writing. The collection agency then must send you some sort of confirmation that the debt is indeed valid after verifying it with the original creditor.
The letter must also state that any information the agency has gathered is being used for the sole purpose of collecting a debt and will not be used for any other purposes.
Even the envelope is subject to regulation. It can make no mention or suggest that the contents or nature of the communication is for the purpose of collecting a debt. The return address is often just a post office box with the company’s initials.
The letter itself will try and create a sense of urgency. This is so that the agency can collect the debt in the shortest amount of time. They might set deadlines such as 10 or 30 days or they will “proceed with further collection action.” Usually, that means another letter with the same basic demands stated in more threatening terms.
They will also usually encourage you to call the collection agency and set up terms of repayment.
What if I start getting phone calls, what will they be like?
Folks, let me start by saying that very few people make careers out of being individual debt collectors. As I said, low wages, long hours, and endless confrontations between themselves and debtors contribute to high turnover.
That being said, should you speak to an actual collector, you can expect a scripted presentation depending on your response to their questions. They will also try and create a sense of urgency since the bulk of their pay is in the form of commissions.
If they reach someone in your household other than yourself, they can leave a message but cannot reveal the reason for the call. Should they get your machine, they usually leave a message that “this is not a sales call” and to please contact them in regards to an “urgent business matter.” They must also provide you with a toll free number to call back.
But what can a collection agency actually DO?
If the agency is working the debt on commission, you can expect some more form letters and some more scripted phone calls.
They can also report your ass to the credit bureaus. If your debt is large enough, they can recommend a lawsuit, or if they own the debt outright, they can haul you to court and sue. However, the actual chances or intentions of this are often significantly less than they try to suggest to the debtor that they pay up
What can a collection agency NOT do?
Collection agencies can not legally seize your assets, bank accounts, or paycheck unless there has already been a successful lawsuit with a judgment awarded to them.
Collection agencies can not legally make any kind of public announcements about you or disclosures concerning your debt, except to the credit bureaus.
Collection agencies can not legally get you fired from your job.
Collection agencies can not legally engage in any type of physical violence or threats against you.
So why should I pay?
Well, it is a debt and you do owe somebody. Often though, collection agencies will either try and guilt you into through intimidation and threats. They count on you not knowing or understanding your legal situation.