What is a Debt Collector?
The term “debt collector” refers to an agency that is engaged in the recovery of debt that is either past due or in default. Typically, the debt collectors are hired by the creditors whose money is stuck in delinquent accounts. These debtor collectors operate either for a pre-determined fee or a certain percentage of the amount of debt recovered. Some of the debt collectors purchase the delinquent accounts at a discount to their original value and then try to recover the full amount of the debt. Thus, the debt collectors are also popularly known as collection agencies.
How does a Debt Collector work?
The process of debt collection might vary based on the debt collector. Although many agencies resort to harmful, illegal practices for recovering debt, most agencies adhere to the prescribed regulations and go about their job of retrieving the money from delinquent accounts in a professional way.
Initially, they send letters to the borrower’s address as provided to the creditor. Otherwise, the agency can also call the borrower in an attempt to recover the debt. Whether through letters or telephonic calls, the debt collector is required to provide specific details about the debt, such as the original creditor’s name and the total amount outstanding, including late fees & other charges. The borrower is offered a certain period of time (say 30 days) by the agency to dispute the debt claim in writing. If the borrower doesn’t dispute the claim within the stipulated time period, then the agency considers that the debt is valid and starts contacting the borrower for the recovery process.
When the debt collectors follow the regulations diligently and work within the statute of limitations, they seldom resort to unlawful practices, and the borrowers also don’t feel harassed or threatened.
Types of Debt Collector
There are three major types: internal debt collector, third-part debt collector, and debt-buyer.
1. Internal debt collector
An internal debt collector (also known as a first-party debt collector) is usually a sub-unit of the creditor entity. Typically, the task of debt recovery is assigned to the sub-unit internally rather than hiring any outside parties. The selection of an internal debt collection team depends largely on the company policies, such as type of debt, period of overdue, etc.
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2. Third-party debt collector
The creditors hire third-party debt collectors for the recovery of debt either due to company policies or when the internal team failed to recover. These agencies are usually paid a certain percentage of the amount of debt recovered, which means they don’t get paid any fees in case they are unable to recover the debt. Given that these debt collectors are external to the creditors, they don’t represent the creditors and thus may be less customer-friendly to the borrowers.
3. Debt buyer
If both internal and external debt collection efforts don’t yield any meaningful results, the creditors may file a lawsuit against the debtors or sell the debt to some debt buyers. These debt collectors purchase the delinquent accounts at a discount to their original value and then attempt to recover the full amount of the debt. The difference between the purchase price and the recovered amount is their profit.
Regulation of Debt Collector
The actions of the debt collectors are governed by the Federal Trade Commission (FTC) under the Fair Debt Collection Practices Act (FDCPA), which forbids the debt collectors from using unfair, abusive, or misleading practices during the collection process. For instance, the debt collectors can only contact the debtors between 8:00 AM to 9:00 PM on weekdays. Further, they can’t resort to false claims to pressure the debtors or physically harm and threaten them. Although a debt collector can seize a debtor’s assets, it is only possible after it has won a lawsuit against the debtor.
It is important that the debtors know their rights. A debtor can issue a cease and desist letter to a debt collector if it contacts repeatedly within a short period of time as it is considered a form of harassment as per the FDCPA regulations. If the debt collector continues to harass even after receiving the cease and desist letter, then the debtor can report the issue to the Consumer Financial Protection Bureau (CFPB).
Who can Debt Collector contact?
A debt collector can contact the borrower’s relatives, employer, friends, or neighbors in order to retrieve the borrower’s telephone number or address. However, the restrictions are relieved if:
- the contacted person is the guarantor or co-borrower of the loan
- the employer is contacted for confirming the borrower’s employment
- the borrower gave consent for contacting the person
In case of oral confirmation by the borrower, he/ she should receive written confirmation of the consent either on paper or electronically.
Key Takeaways
Some of the key takeaways of the article are:
- A debt collector is an entity that is engaged in the recovery of debts past due or in default.
- It is usually paid a certain percentage of the amount of debt recovered.
- The debt collectors who purchase the delinquent accounts at a discount and recover the amount on their own are known as debt buyers.
- The actions of the debt collectors are governed by strict regulations to protect the debtors from the hands of abusive collection agencies.
Conclusion
So, it can be seen that the work of debt collectors is very difficult and requires strong experience in the field of recovery. Typically, when a creditor fails to recover its loans, it assigns the recovery to an internal team, hires an external agency, or sells the loans to a debt buyer. A debt collector starts its work by ensuring the genuineness of the debt and then carries out an independent analysis before jumping into the collection process.
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