Debt collection is the mechanism of collecting loans and debts which have remained unpaid for a long period of time and have become delinquent. The individuals or agencies assigned to perform this task are called debt collectors.
It’s an unpleasant job to do, but somebody has to do it. Nobody likes to be contacted by debt collectors. They are avoided like a plague. The best way not to come in contact with them is simply not to default on your payments. Try not to overcommit yourself financially and always have a repayment plan handy when you decide to borrow. Having said that there are unforeseen circumstances that may land you in financial hot waters. So, unwillingly you get to hear from a debt collector. Here we shed light on debt collectors, their brief history, types, how they operate and what are your legal rights when you get to hear from them.
Background and History:
Debt collectors have been around for as long as debts existed. That means for thousands of years. Ancient civilizations had codified laws that governed the process of collecting unpaid debts. There were certain remedies available for both creditors and debtors in case of non-payment of debts. With the development of banking industry in modern times and the availability of loans from financial institutions, debt collection has morphed into a highly professional and regulated job.
Types of Debt Collectors:
The debt collectors are generally classified in two broad categories;
- First-Party Debt Collectors
- Third-Party Debt Collectors
Let us briefly look at both of them;
First-Party Debt Collectors: Certain banks and organizations have departments or individuals whose sole duty is to collect unpaid debts. They are hired and trained for this specific purpose and contact the delinquent debtors whenever needed.
Third-Party Debt Collectors:
These are agencies that are not part of the organization that originally owns the debt. They are hired by the creditor and asked to contact the defaulting debtors to collect debts. They do so on the basis of a fixed fee or a percentage of the unpaid debt ranging from 10%-50%. The percentage varies according to the age of the debt, it’s value, how many times the debtor has been contacted, and other such factors. Usually, organizations find it cheaper to hire third-party agencies to collect debts than do it on their own.
Another type – if you can call it that of debt collectors is called debt buyers. Here the creditor lumps together all it’s defaulting debtors and offers them to debt buyers as a package. The debt buyers examine these packages and buy them usually through bidding. The debts are usually bought at a fraction of the original cost. The general principle is a debt of US$ 1 is bought at US$0.04. The debt buyer then assumes the full ownership of the debt and whatever he eventually manages to recover will be his sole property. In this way, they sometimes earn a lot of money. Different types of debts have different values. For example, unpaid utility bills have no takers whereas mortgage debt is worth more.
How Debt Collectors Work:
Debt Collectors are professional bodies who have the required resources, tools and techniques to persuade the buyer to pay his dues.
- They write to a debtor a letter or a notice reminding him of his obligation and asking him to pay.
- The debtor on the number given by him when the debt was given.
- Call the debtor at his workplace.
- Can even show up at the debtor’s place of residence or his workplace.
- If the debtor is missing, they may inquire after him through his family, friends, neighbors, etc.
- If everything fails, the collector may contact the credit bureau and update the credit report of the debtor with a ‘collection’ status. This will adversely affect the credit score of the debtor.
- A collector can also get a legal order against the debtor ordering him to pay. For that, a lawsuit has to be filed in a court of law and the court will give the verdict after hearing arguments from both sides.
- A collector can try placing a lien on a property or forcing the sale of an asset to recover unpaid dues. This too can be done through the intervention of a court of law.
Depending on the case, the collector might employ one or more of the above methods to recover the bad debts.
Know Your Rights:
Debt Collection is a nasty job. It is not always smooth sailing for the debt collector. The Federal Trade Commission receives more complaints about debt collectors than others. As a consumer, you should know your rights when you come into contact with debt collectors. Here’s what you need to know;
- The debt collection is regulated by the Federal Debt Collection Practices Act or FDCPA. It lays down specifics which a debt collector should adhere to while performing his duty.
- A debt collector cannot harass or threaten a debtor in any way.
- A debtor on the basis of race, region, religion or color.
- Call you before 8 AM and after 9 PM.
- Cannot disclose or publicize his inquiry against you to anyone.
- You can bar a debt collector to call you at your workplace citing restrictions from your employer.
- A debt collector cannot pose as a security or law enforcement official.
- Threaten you to put you behind bars.
- If he chooses to collect a debt that has been declared uncollected. This happens when a borrower filed for bankruptcy or is untraceable.
In case you are wrongfully charged for a debt, you have every right to contest it and tell the collector it is a case of identity theft. The collector must verify this and if found true, inform the original creditor about this.