Debt collectors are heroes or villains, depending on your perspective. If you are a business owner and you are owed money, hiring a debt collector can help you collect it. If you are the person who owes money, you may be avoiding this confrontation with a debt collector.
Yet, whatever your feelings about debt collectors, also often referred to as debt collectors, the good ones are just doing their job. Here’s what a collection agent is and what they do.
What is debt collection?
Debt collection is an industry that exists to help businesses large and small recover the money that is owed to them. Collection agents work for debt collection agencies, with the mission of convincing people to pay what they owe. It can be stressful and rewarding work at the same time. Collection agents meet many people who often want to pay their bills but cannot afford it; at the same time, debt collectors help businesses, many of which cannot afford to let unpaid bills slip away.
There are many reasons why someone ends up owing a company money. According to the Consumer Financial Protection Bureau, $88 billion in medical bills are currently with debt collection agencies, affecting 1 in 5 Americans.
A debt collector’s job is to try to help the person pay what they owe, which should help improve the debtor’s credit rating and also help the business owner.
If you work as a debt collector, you’ll likely be in a collection agency call center, rather than the original creditor’s office. Although it may seem like a stressful job, it is a profession with medium occupational stress. There are also plenty of perks, especially if it’s a full-time job with benefits. Barriers to getting a job tend to be low – you’ll need a high school diploma – although you may need more education if you want a higher paying position. Many debt collectors report having a good work-life balance.
How Debt Collection Agencies Work
Debt collection agencies have one main mission: to convince someone to pay back the money they owe on a debt. Often, if the debt is considerable, this is done by arranging installment plans. Typically, debt collectors will contact debtors by phone or mail. A new rule from the Consumer Financial Protection Bureau that took effect November 30, 2021 states that debt collectors are allowed to contact debtors via email, text and social media. If a debt collector contacts social media, it’s supposed to be by private message and not, for example, on a Facebook feed that everyone can see. There should also be a way for the social media user to opt out of communication through that platform.
There are two main types of collection agencies: first creditors and third party creditors.
A direct creditor is not so much a debt collection agency as it is the debt collection wing, or a subsidiary or affiliate, of a business. If you’ve had someone from your credit card, auto loan lender, or financial institution help you catch up on a loan, you’ve worked with a first-party creditor.
Third-party creditors are collection agencies or debt buyers. These collection agencies are often hired by primary creditors, often after 30 days from an invoice’s due date and once the primary creditor feels there is no point in spending much more time and effort to collect a debt.
Often the third-party creditor buys the right to try to collect the bill within 30 days to six months – and possibly longer, like a year or two or more.
These collection agencies are expected to collect debts responsibly. For example, they are not allowed to put you down or harass you. They can’t send someone to your house to ask for money. They’re not supposed to call more than seven times in a seven-day period, and if you speak to a debt collector, they must wait seven days before calling you back. They’re not supposed to call you at work either, or before 8 a.m. or after 9 p.m.
But some debt collection agencies exceed their limits, ignoring these rules. In 2021, the Federal Trade Commission issued more than $4.86 million in refunds to consumers harmed by illegal debt collection practices.
Yet, there are many reputable debt collection agencies out there and they provide an indispensable service. If you’re a small business owner and just can’t afford to be scammed, a debt collection agency can be a lifesaver.
As for how they make their money, debt collection agencies sometimes work on commission – they will get some of the debt paid back to the company. And sometimes the debt collection agency, or the buyer of the debt, redeems the debt. According to the Minnesota Attorney General’s website, “it is not uncommon for a debt buyer to pay less than five cents on every dollar owed.”
So a debt buyer could buy $1,000 debt for $50 or less. If the buyer of the debt can convince the person who owes the money to pay $1,000, that’s a profit of $950. If the buyer of the debt can at least convince the consumer in debt to pay, say, $300, that’s still a profit of $250.
What to do if a debt collector contacts you
The only thing you should do is stay still for a while. Not that you shouldn’t pay a debt you owe, but you have some information to gather first.
For starters, it might not be a real debt collector you’re talking to.
“One of the biggest problems with paying off debt, especially student debt, is the constant problem of bogus phone calls from debt collectors as well as those offering debt relief. Knowing exactly to whom trusting in this environment can be tricky,” says Melanie Hanson, senior editor for EducationData.org, which provides data on the US education system.
“As a general rule, never trust a phone call on its own merits,” advises Hanson.
She suggests confirming everything you hear on the phone about your student debt by checking out the Debt Collector on the Internet and, ideally, checking your loan accounts directly with your lenders.
“Bogus collectors and fake relief programs thrive on getting personal information from gullible debtors who think they’re talking to someone official,” Hanson says.
Ashley Morgan, a bankruptcy attorney who owns Ashley F. Morgan Law in Herndon, Va., agrees that you don’t want to hastily agree to pay a debt, even if you’re fairly certain you owe money. .
“If a debt collector contacts you, it’s important to verify the debt,” Morgan says.
She also advises not to admit on the phone that you owe money. After all, that might not be the case, and now is not the time to give a debt collector ammo he can use against you later. Instead, Morgan says, “You should request that they send you written correspondence about the debt they think you owe them.”
Once you have this information, if you have any questions about the debt, you should send a request for information in writing, Morgan says.
“The information requested is important to help you determine whether or not the debt is actually owed, and whether the debt collector has the ability to collect the debt,” Morgan says. She recalls that the debt can fall within the scope of the prescription. After three to six years, and possibly longer — depending on state law — debts often cannot be collected. As in, no one can sue you for the debt.
In fact, you may want to exercise caution before making a partial payment on extremely old debt. In some states, if you do this, the time period will restart and suddenly the statue of limitations might not run out for many years.
It also helps to learn all you can about the consequences of not paying a debt, such as lowering your credit score. Remember that you can negotiate with debt collectors and get them to agree to let you pay less than what is owed. Know your rights with a debt collector so you know whether you should report them to the Federal Trade Commission or the Consumer Financial Protection Bureau. Some of the tactics debt collectors are not allowed to use include:
- Call you before 8 a.m. or after 9 p.m.
- Calls you repeatedly.
- Post messages on social media about your debt.
- Using obscene language or swearing while talking to you.
- Make threats.
- Publish lists of people who refuse to pay their debts. (However, they may report information to a credit reporting company.)
- Lying about the amount you owe.
- Lying to you at all. (They can’t, for example, tell you that you’ll go to jail if you don’t pay. They can’t call pretending to be someone else.)