Debt Collection Article
What is Debt Collection?
An entity that pursues payments of debts that individuals or businesses owe is a collection agency. Also known as a collections agency, it is hired by creditors when funds are long overdue or accounts have been left unsettled too long. For convenience, some lending companies have an internal department that acts as its collection agency. A collections agency, also called a repossession agency, is often hired after a company has made multiple failed attempts to successfully collect payment. Collection agencies are hired by creditors to see that amounts due are repaid by debtors. Creditors can also use a process called debt assignments, by which a creditor can transfer the debt owed to him/her by a debtor to collection agencies.
A collection agency can also operate as an agent of the creditor. The agency can charge a fee for collecting debts and the fee can be a percentage of net amount that is due. Debt collectors send demand letters/debt collection letters. Debt collection letters/collection letters are letters that demand for payment of a debt/bill. A collection form letter/demand letter is sent by collection agencies to debtors. A credit and collection letter is different from letters of collection. A letter of collection is a letter authorizing a person to keep in his safe hands the properties of a deceased person.
A formal final demand letter should state the following:
- What amount is due,
- Since when it was due,
- When you would like the amount paid, and
- Who owes the debt.
Dozens of varieties of collection letter samples and collection letter forms are available online. It is also advisable to view a couple of sample debt collection letters before drafting one. But many form letter examples/sample forms are confusing. Our Fair Debt Collection Letter Collection Forms avoid confusion over the multiplicity of fair debt collection forms available online and also explain how to use this forms. You can view the template/sample collection letters of formal final demand letters here.
The Fair Debt Collection Practices Act
The United States debt collection industry, through various regulations, ensures fair debt collection practices at both the federal and state levels. At the federal level, the Fair Debt Collection Practices Act (FDCPA) is the main statute, while at the state level, various debt collection laws play the role of ensuring fair practices. All these laws and regulations protect debtors from abusive and deceptive practices.
In the context of the collection of a debt, the FDCPA defines a "consumer" to include a borrower's spouse, parent, guardian, executor, or administrator. The Fair Debt Collection Practices Act (FDCPA)/Fair Debt Practices Act lays down minute details that address aspects like behavior of debt collectors when they are in the process of collecting debts. Harassment by debt collectors is also prohibited by the Act. Threatening a debtor and using obscene language are examples of harassment. According to the FDCPA,
- Collectors cannot threaten a debtor or pretend to be a credit bureau;
- A bill collector cannot use abusive tactics and unfair practices;
- Consumers are protected from debt collection harassment;
- Bill collectors may not exercise unfair methods to collect debts/checks;
- Debt collectors cannot harass, oppress, or abuse a debtor or any third party who they may have to contact;
- Collecting callers can contact a debtor only at reasonable times or places;
- Calls can be made only between 8A.M. and 9P.M., unless otherwise agreed by the debtor;
- Debtors cannot be contacted at work if they have informed the agency (orally or in writing) that such calls are not permitted at workplace;
A debt collection agency cannot also make false or misleading representations. This includes written communications, the appearance or wording of which make it look like authorizations issued by a federal or state agency. Thus documents or representations that give false authorization of a document's origin are not permitted to be used.
There are two categories of U.S. state laws on fair debt collection:
- Laws that require that debt collectors should be licensed or registered; and
- Laws that safeguard debtors from specific unfair practices by debt collectors.
When debt recovery through debt collectors or collection agencies fails, you can approach a court. Before making claims for recovery of money, it is best to approach an attorney to understand if court action is best suited for you. Attorneys can help you analyze if you are likely to win your claim or not. For example, if a claim is for money owed for work done or goods delivered, you are most likely going to win.
Debt Collection FAQ
What are collection agencies?
Collection agencies are individuals and entities that track down debtors and collect unpaid debts/unsettled accounts. Such agencies may also conduct repossessions. Such agencies guaranty repayment of debt owed by debtors to a creditor. The agency acts as an agent of a creditor and charges creditors a percentage of the debt collected as its fee.
What are the different types of collection agencies?
A debt collections agency may be a first party agency or third party agency.
- First-party collection agencies function as subsidiaries of a creditor company. Creditor companies give authorizations to a collection agency for collecting debt on their behalf.
- Third-party collection agencies act as separate entities to collect debts on behalf of a creditor. A creditor assigns a debt to a third party collection agency. Such transfer of debts and right of receiving payments are known as debt assignments.
Sample forms, templates and form letter examples are available at /.
What are the tools used by collections agencies to collect debts?
The agencies send credit and collection letters/debt collection letters for the collection of a debt. Collection agencies may also employ debt collectors to collect debt. A debt collector/bill collector is a person who works for a collections agency and tracks down debtors and collects unpaid debt. For receiving information about debtors, collection agencies can use a credit bureau/consumer reporting agency. Examples of collection form letters, fair debt collection forms, sample debt collection letters, and sample fair debt collection letter collection forms are available on our website. Before drafting a collection letter, it will be helpful to refer to collection letter samples.
How is a collection agency regulated?
Collection agencies are regulated by the Fair Debt Collection Practices Act ("FDCPA"). Pursuant to the FDCPA, debt collectors and collection agencies are prohibited from threatening debtors. Debt collectors are also prohibited from acts like debt collection harassment and other unfair practices like collecting illegal fees or charges or depositing a post-dated check earlier than agreed.
What are collection letters?
Collection letters are demand letters sent to debtors by creditors or collection agencies notifying them of debts due from them. Collection form letters are generally sent in series. The first few letters will be in the form of a reminder about the debt owed. The final demand letter will serve as a notice for commencement of legal proceedings if the bills/checks remain unpaid. Collection letters must be carefully drafted since the Fair Debt Practices Act prohibits using threatening, abusive, or obscene words in a collection letter. Sample collection letters/collection letter forms samples are also available on our website.
What are the remedies available to creditors if debt collectors fail to collect debt?
After a series of letters and constant inquiries, if a debtor is reluctant to repay the money owed, creditors can file a civil lawsuit. US Legal Forms offers sample forms for a final demand for payment, a complaint to collect a debt, and much more.