Debt collection is the process of pursuing debt payments owned by individuals or businesses. An organization that specializes in debt collection is known as a collection agency or debt collector. Most collection agencies operate as creditor agents and collect debt at a cost or a percentage of the total debt.
Video Debt collection
Histori
Debt collection has existed as long as the debt has existed and is older than the history of the money itself, as it was in the previous system based on barter. (See: Barter) Debt collection back to ancient civilizations, beginning in Sumerian in 3000 BC. In these civilizations if indebted debt can not be repaid, the debtor and his wife, children or servants are forced into "debt bondage", until creditors recover losses through their physical labor. According to the Babylonian Act, strict guidelines regulate the payment of debt, including some basic protection of the debtor.
In some societies, debt will be brought to the next generation and debt bondage will continue. However some early communities are provided for periodic debt forgiveness such as yubile or will set a time limit on debt.
Both the Bible and the Qur'an explicitly state how much interest is charged for a loan. Abrahamic religions undo the loan and prohibit creditors from drawing interest on debt owed. In the Middle Ages, the law appeared to deal with the debtor specifically. If creditors can not collect debt, they can bring the debtor into court and get a judgment on it. This results in a court ruler going to the debtor's house and collecting goods in lieu of debt, or the debtor sent to the debtor prison until his family can repay the debt or until the creditors forgive him.
In the occupied territories of the Roman Empire, tax collectors were often associated with extortion, greed, and abuse of power.
In medieval Britain, a fisherman, formerly a freelance tax collector, was a law officer, working for the court clerk, who was responsible for collecting debts, using coercive methods.
During the Great Depression of the 1930s in the United States, major financial institutions rely heavily on foreclosures to collect extraordinary mortgage lending, which gained a very negative public perception.
Maps Debt collection
Debtors
The person who owes the bill or debt is the debtor. Debtors may default (default) for various reasons: due to lack of financial planning or too much commitment on their part; because of unexpected possibilities such as job loss or health problems; disputes or disputes over debt or what is billed; or dishonesty to the creditor or debtor. The debtor may be a person or entity such as a company. Individual debt collection is subject to much stricter rules than law enforcement to business.
Development of a debt collection agency
After the debtor's jail was abolished in the early 1800s, the lender did not have a solid solution to the troubled borrower.
If there are collateral involved in debt, such as with a mortgage, creditors may take property to cover their own losses. However, for unsecured debt, there is no way for creditors to collect their investments if the debtor has no money. Even if the lender gets an assessment against the debtor in court, the collection remains dependent on the debtor being able to repay the verdict. In transactions involving the sale of goods, the court has the potential to order goods that will be confiscated and returned to the seller, but many creditors and creditors have limited means outside of trying to verify the borrower or the creditworthiness of the customer before entering into a loan or transaction.
Type of debt collector
There are many types of collection agencies. The first-party agency is often a subsidiary of the original company to pay its debts. Third party agencies are separate companies contracted by the company to collect the debt on their behalf for a fee. The debt buyer buys the debt at a percentage of its value, then tries to take it. Each country has its own rules and regulations.
First-party agents
Some collection agencies are departments or subsidiaries of companies that have original debt. First-party agents are usually involved early in the debt collection process and have a greater incentive to try to maintain a constructive customer relationship. Because they are part of the original creditor, the first-party agency may not be subject to laws governing third-party billing agencies.
These agencies are called "first parties" because they are part of the first party in the contract (ie the creditor). The second party is the consumer (or the debtor). Usually, the first-party agency tries to collect the debt for several months before handing it over to third-party agents or selling debt and wiping out most of its value.
Third-party agents
The billing agency is a third-party agency, so called because such an agency is not a party to the original contract. The creditor assigns direct accounts to such agents with contingency fees, which usually initially cost nothing to creditors or merchants, except for communication expenses. However this depends on the existing service level (SLA) agreement between the creditor and the collection agency. The agency takes the percentage of debt collected; sometimes known in the industry as a "Pot Cost" or potential cost after successful collection. This should not be done at full balance collection; very often these fees have to be paid by the creditor if they cancel the collection attempt before the debt is collected. Collection agencies make money only if money is collected from debtors (often known as "No Collection - No Fees"). Depending on the type of debt, the age of the account, and how much effort has been made to collect it, the cost can range from 10% to 50% (the more common cost is 25% to 40%).
Some debt buyers who buy a sizable portfolio use Master Servicer to help manage their portfolios (often in thousands of files) in various collection agencies. Given the time-sensitive nature of these assets, many in the Accounts Receivable Management (ARM) industry believe there is a competitive advantage in utilizing this technique as it gives buyers more debt control and flexibility to maximize collection. Master Service Fees may range from 4% to 6% of gross collections in addition to collection agency fees.
Some agencies offer a fixed cost "pre-collection" or "soft collection" service. The service sends an increasingly urgent series of letters, typically ten days apart, instructing the debtor to pay the amount owed directly to the creditor or taking the risk of negative billing actions and credit reports. Depending on the SLA terms, this account may return to the "hard collection" status of the agency's regular rate if the debtor is not responding.
In many countries there are laws to restrict harassment and practices that are considered unfair, such as limiting the hours at which an agent may call a debtor, prohibit communication of debt to a third party, prohibit false, deceptive or misleading representations, and prohibit threats, as distinct from notification planned and not illegal steps.
In the United States, consumer third-party institutions are subject to the federal Fair Debt Accreditation Act of 1977 (FDCPA), administered by the Federal Trade Commission (FTC).
In the UK, third-party billing agents pursuing debt laid down by the Consumer Credit Act must be approved and regulated by the Financial Conduct Authority.
Sales of debt
Debt collection can involve selling debt to third-party companies, sometimes referred to as "factors" or "debt buyers". The debt buyer buys the accounts and debts of the creditor for a percentage of the value of the debt and can then pursue the debtor for the full balance due, including any interest arising under the original loan terms or credit agreement. Debt and account sales provide creditors with direct income, albeit less than the face value of debt, while shifting jobs and the risk of debt collection to debt buyers.
In the United States during the savings and loan crisis of the 1980s, there was a great revival of foreclosure and account abolition, albeit on a much smaller scale, than the Great Depression. Some financial innovators decided that there might be some profit in buying a delinquent account and trying to collect a fraction of the amount due. They buy these accounts from the original creditor for a penny, and make a profit by collecting some of what the debtor owes.
Some states have special laws relating to debt purchases. For example, Massachusetts requires companies that buy debt to be licensed while California does not.
Collections practice
Debt collectors working on commissions may be highly motivated to convince debtors to repay debt. These practices may be governed by the country in which the collection activity takes place. Billing agencies are sometimes allowed to contact individuals other than the debtor, usually in an attempt to find the debtor but without mentioning the debt.
Sometimes a person without a connection to a debt or a debtor can be contacted by a collector by mistake. Examples include identity theft victims and wrong people because of similar names. Alternatively, an accused debtor may argue that the debt should be paid. In such a case, the accused debtor may ask the collector or creditor to prove that the debt should be paid - no jurisdiction exists only because a collector says so.
The relatives of the deceased do not have to pay the debt to the deceased, but the debt must be paid by the deceased. However, where the deceased person is the property owner secured by their debt, the lender may be able to force the sale of the property to meet the debt.
International debt collection is a special field. Not many companies specializing in such collections as collectibles may require that their employees communicate in multiple languages ​​and have knowledge of the legal systems, laws and regulations of all the countries in which they operate. Communication with foreign debtors may occur in a different language than that used in the creditor country. Some debt collectors will network or partner with foreign debt collection agencies, with each agency involved in the collection process familiar with the law and language of the country in which it operates, allowing debt collection to occur through a local agent even when the debtor is in a country that different.
Collection Account
A billing account is a person's loan or debt that has been submitted to a collection agency through a creditor.
Credit note
The credit record is a credit history record of a person or business entity, possibly including payment history, default and bankruptcy. Information about debt, late payments, and negligence can be done with borrower credit records, and usually remain for several years. Reports to credit reporting agencies may not need to be authenticated or checked for accuracy correctly.
Aging back debt
In some cases, a debt collector will try to revive a debt that has expired because of the statute of limitations with their own making payments on the debt, "to reinvent the account to have more time to collect". Such payments, usually in relatively small amounts, may appear on credit card statements as "agency payments" or "transactional payments", and may also be referred to as "ghost payments" as done by collection agencies, without the knowledge or consent of the debtor. Because these payments are not made by the debtor, the agency's payment does not extend the statute of limitations beyond the last date when the debtor personally makes payments on the debt, and should be ignored by the court when the debtor claims that the debt is expiring under applicable restriction laws.
Debt collection rule
Canada
In Canada, regulations are provided by the province or region in which they operate.
This law is usually called the Procurement Agency Act and usually gives the government ministries the power to make the necessary rules. Rules include call time, call frequency and requirements to send correspondence before making phone contact. Most of the debt in Ontario and Alberta is subject to a two-year time limit. Most other provinces of the limitation period are six years. After the anniversary commemoration (two or six years, depending on the province) of the last formal intent to pay the debt, collection agency or anyone who has the legal authority to take it. The credit bureaus will still keep the debts and collections on your credit file for 6-7 years depending on the province. Although collection agencies may continue to collect or attempt to collect debts, they can not deduct or place lien on borrowers beyond the restriction period unless the court upholds the date of the most recent activity on the account based on other factors. Further information can be found in the regulations for the Province of Ontario relating to the practice of collection of illicit debt.
In Manitoba, the governing document is the Manitoba Consumer Protection Act. Complaints regarding violations of the Act should be directed to the Manitoba Consumer Protection Agency which will mediate or enforce actions when damaged.
Provincial special law:
- Alberta - Collaborative Practice Act
- British Columbia - Business Practices and Consumer Protection Act
- Manitoba - Consumer Protection Act
- New Brunswick - Collection Agent Act
- Newfoundland and Labrador - Collections Act
- Nova Scotia - Collection Agent Act
- Ontario - Collective Agent and Debt Collection Act
- Prince Edward Island - Collection Agent Act
- Quebec - Act Honoring Specific Debt Collections
- Saskatchewan - Collection Agent Act
United Kingdom
In the UK, debt collection agencies are licensed and regulated by the Financial Conduct Authority (FCA). The FCA establishes guidelines on how debt collection agencies can operate and lists examples of unfair practices. These guidelines are not legal but they represent summaries and interpretations of different areas of the law. Compliance with this guide is also used as a test of whether the institution is deemed eligible to hold a credit license.
Examples of unfair practices include wrong enforcement of enforcement forces (eg, claiming that property can be confiscated), falsely claiming to act in an official capacity, harassment, claiming unfeasible or excessive allegations, misrepresenting the legal position to the debtor, and falsely claimed that a court decision had been obtained while not yet. The legal basis for these practices comes from section 40 of the 1970 Justice Act Administration.
Their collection agencies and debt collectors in the UK are not the same as the court-appointed court officials.
Scotland
UK-based debt collection and collection agencies are allowed to invite debtors to try to repay debt but have no legal authority in law to enforce debt. Similarly, a court appointing a bailiff has no legal authority to act in Scotland. Debt collection in Scotland can only be done by sheriff's officers or messenger-in-arms.
Spanish
If talking to the debtor is unfruitful, the lender may write a letter to the debtor that outlines the following details:
- debt holder
- the amount of debt
- the purpose of the debt
- previous steps taken to restore debt
- steps to take to recover the debt
- the date on which the debt payment is expected (at least seven days)
- requests for disputed issues to write
Assignment of claims against debt shall not be effective if the debt granted is not real, valid, receivable arising from a crime or debtor is a public institution, political party or homeless individual.
Collection agencies are usually better and faster. Some dressed in costumes just to underline the message.
United States
In the United States, debt collectors and debt collectors are subject to state and federal regulations. Inside the federal government, the Federal Trade Commission is the main federal regulator of collection agencies. The Consumer Financial Protection Bureau, which is housed within the US Federal Reserve, also has regulatory power against collection agencies. CFPB announced on October 24, 2012, that they have completed the rules to oversee debt collection agencies and debt buyers under a definition that will include about 175 US companies.
Many US states and some cities require that collection agencies be licensed and/or bound. In addition, many states have laws governing debt collection, which institutions must comply with (see fair debt collection).
Fair Practice Debt Collection Act
The Fair Debt Collection (FDCPA) Practice Law is the main federal law governing the practice of debt collection. FDCPA enables aggrieved consumers to file private lawsuits against collection agencies that violate the Act. Alternatively, the Federal Trade Commission or the state attorney general may take action against a non-compliant collection agency and, if found infringing, may impose penalties including fines, damages, restrictions on debt collection operations or shut down operations, as happened with CAMCO in 2006. Between 2010 and 2016 the Federal Trade Commission banned more than 60 companies that did not follow the Fair Debt Collection Practice Act.
The FDCPA stipulates that if state law is more stringent than federal law, state law will replace the federal section of the law. Accordingly, tighter country laws will apply to any agent located in that state or to make a call to a debtor in such country.
Among the safeguards provided by FDCPA are as follows:
- A debtor has the right to request written validation of the debt;
- A debtor may sue a collector to stop communication. Section 809 of the Act directs that for debts disputed "debt collectors should stop collection of debts, or disputed sections, until debt collectors obtain debt verification". When consumers file lawsuits against collectors who fail to verify debt, collectors are responsible for the legal costs of claimants if the debt is known to be false.
- Debt collection can not initiate a call to the debtor if a call will be charged for the debtor toll fee (in most other countries the recipient is not charged, so this problem does not appear).
- The limit is placed on the day when a debt collection call can be made, to whom, and where. If a person answers, the call center can track statistics (eg, time and day when someone answers) to make calls at a time when the debtor is more likely to be at home; this is usually done by an automated calling system between 8 am and 9 pm. local standard time. Collectors should not use illegal and deceptive practices (for example, threatening debtors with the arrest or impersonation of law enforcement).
- Collectors can not use obscene language and should notify the debtor about the nature of the call, their name, and the name of the collection company when requested.
- The gatherer must name his name and must specify the name of his employer if the person inquires specifically. They can only contact each person once, unless it is believed that the person is giving incorrect or incomplete information to the collectors at the time, but now has complete or updated information.
Collectors may contact the debtor at work unless the collector has been notified that the employer forbids the call. FDCPA allows a collector to call a neighbor or relative to assist in placing the debtor, but they can only ask for "address, home phone number, and workplace" and "not allowed to discuss debts with others from [debtor], [them] spouses, or [them] lawyers ". The debtor may grant a debt collector's consent to the collection agency to speak with another person, but otherwise contact with an unauthorized person violates FDCPA.
Fair Credit Reporting Act
In the United States, the Fair Credit Reporting Act (FCRA) is a federal law governing the way in which consumer credit reporting agencies can retain credit information. Among the protections FCRA offers to consumers:
- If an error occurs in debt reporting, credit reporting agencies and information suppliers have a safe harbor period of 21 days to correct errors and a safe harbor period can be used as an affirmative defense in the lawsuit.
- If a debtor pays a billing account, the item may remain on the debtor's credit report but must be marked "paid".
- If information about the debt that appears on the credit report is debated by the debtor, the credit reporting agency should investigate the dispute. Unless the dispute is underestimated, the credit reporting agency usually has to complete its investigation within thirty days.
Voluntary standard
In addition to state and federal laws, many US collection agencies are included in trade associations called ACA International and agree to comply with their code of ethics as a condition of membership. ACA's standards of conduct require members to treat consumers with dignity and respect, and appoint officials with sufficient authority to deal with consumer complaints. Consumers may try to resolve disputes with a collection agency that is a member of the ACA through the organization's consumer complaints resolution program.
See also
- Bankruptcy
- Debt relief
- Collection of forensic companies
- Distraint - "confiscation of a person's property to get rental payments or other payable money"
- Dunning (process)
- Neglect of tax returns
- Predictive analysis
- Repossession
References
External links
- National Association of Collection Agents (NACA).
- Debt Collection in the UK
- The Fair Debt Collection Practice Act - Federal Trade Commission.
- Account Charges and Collectors - US Department of Labor, Bureau of Labor Statistics.
- ACA International, Association of Credit Collection and Collection.
- "Inside the Dark, Labyrinthine, and the World of Debt Consumer Collections of High Profits", The New York Times
Source of the article : Wikipedia
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