What you should know about collection agencies...

Tough economic times attract annoying, unwanted telephone calls from collection agencies, collecting on debt they purchase from creditors. Collection agencies buy consumer debt for pennies on the dollar. The reward - A nice profit if they collect the full outstanding debt.

So what should you know about your bad debt and the pesky, annoying telephone calls you receive from collection agencies during your dinner hour?

The first thing you should know about collection agencies is that they are nothing more than call centers, employing anybody and everybody with or without credentials. A typical collection agency will jam all their agents into one room - open concept with the supervisor pit in the middle to monitor calls.

Collection agencies CANNOT harass, threaten, seize, garnish, hold, or threaten you with any legal action. It is against the law and against the Fair Debt Collection Practices. They cannot contact your employer or any of your extended family. Contacting family is a tactic collection agencies use to try and shame you into paying your debt but it is illegal.

The Process For Delinquent Accounts Leading to Charge Off

• Creditors that hold delinquent accounts attempt to collect on outstanding balances internally first. They often use a different company name and mailing address. 

• Creditors internal collection cycle will last between six to eight months. Beyond this period of time debts are passed off to a third party collection agency. Companies acting on behalf of the original creditor will try to recuperate some or all of the outstanding balance and are paid commission. There is very little negotiating power at this stage. You might work out a deal, making a nominal monthly payment.

Charge Off

• The definition of “Charge Off” is a debt that has been determined uncollectible by the original creditor, usually after the consumer has become seriously delinquent. This is when collection agencies buy debt for pennies on the dollar and when you the consumer have the greatest opportunity to negotiate.

• Confirm your debt was sold by checking your credit report. The credit report will indicate a “Charge Off” if in fact the debt was sold.
  

Okay now what? 

• After you confirm your debt was sold - the next time you receive an annoying telephone call from a collection agency you simply say: PLEASE DO NOT CONTACT ME ANYMORE. They can contact you one more time, after the second phone call it then becomes illegal and the collection agency will be violating the Fair Debt Collection Practices. They can and will send you mail threatening legal action, but that’s all it is, an empty threat.

• Or, you can offer to pay 1% of the total amount owing. The collection agency will flex their muscle and reject your offer. Request they do not call you again. Just be aware they will call again. The next time they call you offer 2% and so on up to 5% of the total debt. 

• On average, collection agencies buy debt for 3% - Your offer of 5% will yield a profit of 2%. If they accept your offer, verify with your credit report in a few month that your debt indicates “PAID”. You are clear and free
  

You should also know collection agency can sell debt up to three times and have sophisticated software that run credit reports on delinquent consumers that do not pay. When the economy recovers and delinquent consumers begin the process of applying for credit, guess what Collection agencies will soon be calling again. 

Knowledge is Power... Use knowledge to your advantage. 

Bruno LoGreco Master Life Coach & Mentor

What you should know about collection agencies...