Debt Consolidation
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What Are Debt Collection Agencies?

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Content was accurate at the time of publication.

When you have a past-due balance on a loan or other credit account, your creditor may sell that debt to a debt collection agency or hire one to collect the money you owe. While some companies have in-house debt collection services, many creditors hire third-party agencies to work on their behalf.

While consumers have some legal protections from debt collection agencies, you’ll ultimately have to pay any legitimate debts you owe, even if a debt collector has purchased them. However, you may be able to negotiate the terms of that settlement in some cases.

What is a debt collection agency?

Debt collection agencies are companies that work to recover unpaid debts. They often purchase consumer debt from lenders and creditors, sometimes for a much lower dollar amount than the balance owed. Once they’ve bought the debt, they’ll work to collect any money they can from borrowers who have fallen behind on payments.

Many companies don’t have the resources to collect debts themselves, so they hire debt collectors. The federal government and many states strictly regulate debt collectors, and they must abide by the Fair Debt Collection Practices Act (FDCPA). Some debt collectors use unfair or predatory practices to collect debt, and you have the rights laid out by the FDCPA for protection.

But, as long as they’ve purchased a legitimate debt and the statute of limitations on debt hasn’t passed, they’re entitled to contact you to get you to pay back what you owe. Your credit score will take a hit every step of the way, from missed payments to the account being sent to collections.

Debt collection agency list

There are a lot of collection agencies out there, including those that specialize in collecting certain kinds of debts and local agencies that work in specific areas. Here are some commonly used national collection agencies:

  • Alcoria
  • Encore Capital Group
  • IC System
  • PRA Group
  • Qade
  • Rocket Receivables
  • Summit Account Resolution

How debt collections works

Bound by the FDCPA, debt collectors must follow certain procedures. If you request it, they’re required by federal law to send a written notice called a debt validation letter within the first five days of attempting to contact you over the phone or in writing. The debt validation letter must contain detailed information, like the amount you owe, your original creditor and your ability to dispute the debt.

Here are some things debt collectors aren’t allowed to do during the debt collection process:

  • Contact you before 8 a.m. or after 9 p.m. (your local time)
  • Harass, threaten or use obscene or profane language
  • Misrepresent themselves as working for the government
  • Claim that you’ve committed a crime
  • Collect any additional interest, fees or other charges

It’s generally better to work with debt collectors instead of avoiding them, though you should be careful of what you say. If you can, you should take the opportunity to pay off debt in collections. If you stall or ignore the debt collector, they’re more likely to pursue legal action over the debt. While you can challenge the lawsuit, chances are that you’ll still have to pay — unless there’s been some mistake, like if you’ve already paid the debt or the debt is time-barred.

  Responding to debt collectors

Keep the debt validation letter throughout the debt negotiation and repayment process. After receiving the letter, you have 30 days to dispute the debt or request further information from the debt collection agency. If you believe you don’t actually owe the debt, you should explain the situation as quickly as possible (and be sure to provide documentation).

Even after you’ve received the debt validation letter, the debt collector will probably continue trying to contact you — though you can send them a letter formally requesting that they only contact you through certain methods. For example, if you don’t want debt collectors calling you at work, you can tell them that they may only contact you at home.

When talking with debt collectors, be careful about the information you provide, especially if you believe that the debt is not valid or has passed the statute of limitations. If you verbally agree to make a payment on time-barred debt, you may revive the debt and make it collectible again.

  Negotiating your debt

Debt collectors would generally prefer to negotiate a debt settlement and avoid taking you to court. The Consumer Financial Protection Bureau (CFPB) recommends taking a three-step approach to debt settlement negotiations:

  • Learn about the debt. You’ll want to know exactly what your debt looks like: how much you owe in total, what your current monthly payments are supposed to be and how long it would take to pay off. The debt validation letter should provide a lot of this information.
  • Plan a realistic repayment proposal. You should consider your monthly budget, other debts and your ability to repay the amount owed. Figure out how much you’d be willing and able to pay — and your timeline for repayment — and be honest with yourself about the situation.
  • Negotiate with that plan. If the debt has been sent to collections, chances are that you may have more flexibility to negotiate a lower amount to pay off the debt. Keep records of the specific negotiations you have with debt collection agencies, and get any promises in writing.

Fair Debt Collection Practices Act

The FDCPA is comprehensive legislation that applies to the consumer debt collection industry; business debt isn’t covered. The act prohibits debt collectors from communicating with most third parties, allows consumers to request that debt collectors cease communication and prohibits certain practices, including harassment or abuse, false or misleading representations and other unfair or deceptive practices.

If you suspect a debt collector of FDCPA violations, you can submit a consumer complaint to the Federal Trade Commission, which is responsible for enforcing consumer protection laws and regulating a wide range of industries.

Signs of debt collection scams

Unfortunately, scammers pose as debt collection agencies to scare and intimidate people — and to steal their money. For this reason, it’s wise to avoid giving out any personal information to unsolicited callers.

If a debt collector doesn’t send a formal letter, it’s likely that they’re a scam. If a caller blatantly violates the FDCPA by threatening you or being evasive when you ask for details about the debt, you should be very skeptical of the legitimacy of their claims. Debt collectors shouldn’t ask for bank account information or personal data like your Social Security number.

If you think you might be dealing with a scammer, ask them for their information. If they don’t tell you their company name, phone number or mailing address, it’s probably a scam.