How do collection agencies operate?

Collection agencies (“agencies”) are known as “third-party” debt collectors. This means that they collect debts originally owed to someone other than the agency. Debts are normally assigned by your creditor to the agency so that the agency has “standing” to take you to court, if necessary. “Standing” means that someone has a legal right to bring a court action. Such an assignment allows the agency to sue you. Both creditors and debtors have clearly defined rights.

Video: View exactly how collection agencies track you down

How are collection agencies paid?

Agencies are paid a fee to collect debts owed to creditors. This is often calculated on a commission basis, although some law firms charge hourly fees when doing collection work (the rules apply to them, too), while other agencies may charge a flat rate. The bottom line -- agencies get paid for getting money from you. They want to get as much as they can so that they get paid more. Agencies will try to make the amount owed as large as possible to give themselves negotiating room. There has to be some legitimate legal basis for making such charges, such as a credit agreement or other contract, or a statute. If it appears you are going to balk at this figure, they will then offer to reduce the amount to something reasonable, but tell you that you have to agree to pay now. They want an immediate agreement to pay. They don’t really want you to go to credit counseling or find someone to negotiate for you, let alone file bankruptcy. They want to get all they can from you right now. Protracted negotiations or litigation will cut into their profitability.

Can collection agencies charge me for their services?

Any fees the agency attempts to assess must be authorized by existing contracts or laws. Most contracts provide for payment of collection costs, including attorney fees.

How long can collection agencies pursue me?

Agencies can seek payment for the length of the applicable statute of limitations (a time limit on when certain types of lawsuits can be brought). This varies from state to state, and can vary from 2 to 7 years, depending on whether a contract was written or oral.

Can a collection agency report on my credit?

Agencies can report to Consumer Reporting Agencies for up to 7 years from the time you incurred a debt in most cases, with 10 years for bankruptcies, and no limits for some types of information (high-paying job and insurance applications).

Are there limits on what collection agencies can do to collect?

Fortunately, there are a number of limitations set by the Fair Debt Collection Practices Act. They can’t harass you, call late at night or at otherwise inconvenient hours, threaten you with anything (other than legal action they are entitled to pursue), threaten to take exempt property, tell others about your alleged debts (other than Consumer Reporting Agencies), call you at work if your employer doesn’t permit outside calls, lie to you, pretend to be attorneys, and so forth. If you tell them you are represented by an attorney, they have to go through your attorney. If it seems unreasonable, check it out. There are links in this article to sites giving the statutes limiting collection tactics and credit reporting.

Video: Can a collection agency sue you?

Collection agencies are not your friends. Check with credit counseling agencies or an attorney who does a lot of debtor representation before you agree to what the agency wants you to do.

Credit Bureau Addresses

Equifax
P.O. Box 740241
Atlanta, GA 30374
1-800-685-1111

TransUnion
Consumer Disclosure Center
P.O. Box 390
Springfield, PA 19064-0390
1-800-888-4213

Experian National Consumer Assistance Center
P.O. Box 949
Allen, TX 75013-0949
1-800-682-7654