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The Good, Bad and the Ugly in Debt Collection Business

Adam J Krohn / Posted: 2009-01-07 12:00 am

In the commercial collection industry, every debtor is a potential source of profit. Anybody might need to borrow money for the purpose of business. Any amount of loan is as important as the other. In fact, small borrowers form 30% of annual turnover in the financing industry. Such borrowers include:

  • Individuals
  • Sole proprietors
  • Partnerships
  • Corporations

The players in the financing industry help to drive this reality. A first party creditor is company that originally lent the money or extended the credit at issue. These original creditors are not subject to the Federal Fair Debt Collection Practices Act. The employees of the first party creditor are responsible for:

  • Recovering debt from the debtor, and
  • Maintaining cordiality in customer relations

To ensure a positive cash flow, these original creditors often hire third-party debt collection agencies or individual collection agents to recover the debt. Many a lender, like credit card or insurance companies, take such action only 60 days after the debt was due, or even earlier. If a loan collection process is more expensive than the amount of the loan itself, the original creditor may not be willing to try very hard to collect. These creditors often write off these loans. They may then sell these debts to third-party collectors at fire-sale prices. Third-party collectors, although governed by the FDCPA, operate by a different set of rules.

  • They are not a party to the original contract
  • They are assigned accounts by the creditors directly for a contingency-fee
  • They may initially cost nothing to the creditor/merchant, except for the cost of communications
  • They charge the creditors depending on their contact with the creditor
  • They charge a percentage of the debt upon successful collection - fees ranging from 10% to 35% of collection

Third-party collectors often start by sending a series of increasingly urgent letters instructing the debtors to 

  • Pay the amount owed directly to the creditor or to the third-party collector, or
  • Risk a legal action and negative credit report

Should the debtor fail to respond, the collector may move into hard collection tactics. These tactics frequently include violations of the FDCPA, such as repeated and continuous phone calls, obscene language, threats, and other forms of harassment. When these tactics are used, the FDCPA mandates that they stop, and provides for compensation to the victims. Click for more information. Fill the form for a free case review.
Tags : Debt Collection, Debt Collectors, Fair Debt Collection Practices Act, Fdcpa

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