Debt collection is the process of pursuing payments of
debt
Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The ...
s owed 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 agents of
creditor
A creditor or lender is a party (e.g., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property ...
s and collect debts for a fee or percentage of the total amount owed.
History
Debt collection has been around as long as there has been debt and is older than the history of money itself, as it existed within earlier systems based on
barter
In trade, barter (derived from ''baretor'') is a system of exchange in which participants in a transaction directly exchange goods or services for other goods or services without using a medium of exchange, such as money. Economists distingu ...
ing. Debt collection goes back to the
ancient civilization
A civilization (or civilisation) is any complex society characterized by the development of a state, social stratification, urbanization, and symbolic systems of communication beyond natural spoken language (namely, a writing system).
Civ ...
s, starting in
Sumer
Sumer () is the earliest known civilization in the historical region of southern Mesopotamia (south-central Iraq), emerging during the Chalcolithic and early Bronze Ages between the sixth and fifth millennium BC. It is one of the cradles of c ...
in 3000 BC. In these civilizations if a debt was owed that could not be paid back, the debtor and the debtor's spouse, children or servants were forced into "
debt slavery
Debt bondage, also known as debt slavery, bonded labour, or peonage, is the pledge of a person's services as security for the repayment for a debt or other obligation. Where the terms of the repayment are not clearly or reasonably stated, the pe ...
" until the creditor recouped losses via their physical labor. Under
Babylonian Law
Babylonian law is a subset of cuneiform law that has received particular study due to the large amount of archaeological material that has been found for it. So-called "contracts" exist in the thousands, including a great variety of deeds, con ...
, strict guidelines governed the repayment of debts, including several basic debtor protections.
In some societies debts would be carried over into subsequent generations and debt slavery would continue, but some early societies provided for periodic
debt forgiveness Debt relief or debt cancellation is the partial or total forgiveness of debt, or the slowing or stopping of debt growth, owed by individuals, corporations, or nations.
From antiquity through the 19th century, it refers to domestic debts, in particu ...
such as a
jubilee
A jubilee is a particular anniversary of an event, usually denoting the 25th, 40th, 50th, 60th, and the 70th anniversary. The term is often now used to denote the celebrations associated with the reign of a monarch after a milestone number of y ...
s or would set a time limit on a debt.
The
Bible
The Bible (from Koine Greek , , 'the books') is a collection of religious texts or scriptures that are held to be sacred in Christianity, Judaism, Samaritanism, and many other religions. The Bible is an anthologya compilation of texts of a ...
issues stern restrictions regarding how much interest to charge on a loan. The
Quran
The Quran (, ; Standard Arabic: , Classical Arabic, Quranic Arabic: , , 'the recitation'), also romanized Qur'an or Koran, is the central religious text of Islam, believed by Muslims to be a revelation in Islam, revelation from God in Islam, ...
prohibits any amount of interest on loans given and encourages direct transactions. The
Abrahamic religions
The Abrahamic religions are a group of religions centered around worship of the God of Abraham. Abraham, a Hebrew patriarch, is extensively mentioned throughout Abrahamic religious scriptures such as the Bible and the Quran.
Jewish tradition ...
discouraged lending and prohibited creditors from collecting interest on debts owed. By the
Middle Ages
In the history of Europe, the Middle Ages or medieval period lasted approximately from the late 5th to the late 15th centuries, similar to the post-classical period of global history. It began with the fall of the Western Roman Empire a ...
, laws came into being to deal specifically with debtors. If creditors were unable to collect a debt they could take the debtor to court and obtain a judgment against the debtor. This resulted in either the
bailiff
A bailiff (from Middle English baillif, Old French ''baillis'', ''bail'' "custody") is a manager, overseer or custodian – a legal officer to whom some degree of authority or jurisdiction is given. Bailiffs are of various kinds and their offi ...
of the court going to the house of debtor and collecting goods in lieu of the debt, or the debtor being remitted to
debtor’s prison
A debtors' prison is a prison for people who are unable to pay debt. Until the mid-19th century, debtors' prisons (usually similar in form to locked workhouses) were a common way to deal with unpaid debt in Western Europe.Cory, Lucinda"A Historic ...
until the debtor's family could pay off the debt or until the creditor forgave it.
In occupied territories of the
Roman Empire
The Roman Empire ( la, Imperium Romanum ; grc-gre, Βασιλεία τῶν Ῥωμαίων, Basileía tôn Rhōmaíōn) was the post-Republican period of ancient Rome. As a polity, it included large territorial holdings around the Mediterr ...
, tax collectors were frequently associated with extortion, greed, and abuse of power.
In medieval England, a
catchpole
Catchpole is an uncommon surname, being a type of tax collector in medieval England. The name is a combination of Old English (cace-, catch) and medieval Latin (pullus, a chick). It derives from the image that people who owed tax were as difficult ...
, formerly a freelance tax collector, was a legal official, working for the
bailiff
A bailiff (from Middle English baillif, Old French ''baillis'', ''bail'' "custody") is a manager, overseer or custodian – a legal officer to whom some degree of authority or jurisdiction is given. Bailiffs are of various kinds and their offi ...
, responsible for collecting debts, using often coercive methods.
[World Wide Words]
Issue 825: 30 March 2013, 'Catchpole'
During the
Great Depression
The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...
of the 1930s in the
United States
The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...
, large financial institutions relied heavily upon
foreclosure
Foreclosure is a legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan.
Formally, a mortg ...
to collect outstanding mortgage debts, which gained an overwhelmingly negative public perception.
Debtors
The person who owes the bill or debt is the debtor. Debtors may fail to pay (default) for various reasons: because of a lack of financial planning or overcommitment on their part; due to an unforeseen eventuality such as the
loss of a job or health problems; dispute or disagreement over the debt or what is being billed for; or
dishonesty
Dishonesty is to act without honesty. It is used to describe a lack of probity, cheating, lying, or deliberately withholding information, or being deliberately deceptive or a lack in integrity, knavishness, perfidiosity, corruption or treacherousne ...
on the part of either the creditor or the debtor. The debtor may be either a person or an entity, such as a company. Collection of consumer debt is subject to greater regulation than the collection of business debt.
Development of debt collecting agencies
![Foreclosedhome](https://upload.wikimedia.org/wikipedia/commons/8/8f/Foreclosedhome.JPG)
Once debtors prisons were abolished during the early 1800s, creditors had no solid recourse against delinquent debtors.
If collateral was involved in the debt, such as with a
mortgage
A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any pu ...
, the creditor could take the property in order to indemnify themselves. However, for
unsecured debt
In finance, unsecured debt refers to any type of debt or general obligation that is not protected by a guarantor, or collateralized by a lien on specific assets of the borrower in the case of a bankruptcy or liquidation or failure to meet the t ...
, creditors could not collect on their investments if the debtors had no money. Even if a creditor obtains a judgment against the debtor in court, collection remains dependent on the debtor's being able to repay the judgment. In a transaction involving the sale of goods, the court could potentially order the goods to be seized and returned to the seller, but many lenders and creditors had limited recourse beyond trying to verify a borrower or customer's creditworthiness before entering into a loan or transaction.
Types of debt collector
There are many types of collection agencies. First-party agencies are often subsidiaries of the original company the debt is owed to. Third-party agencies are separate companies contracted by a company to collect debts on their behalf for a fee.
Debt buyer
Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The de ...
s purchase the debt at a percentage of its value, then attempt to collect it. Each country has its own rules and regulations regarding them.
First-party agencies
Some collection agencies are departments or subsidiaries of the company that owns the original debt. First-party agencies typically get involved earlier in the debt collection process and have a greater incentive to try to maintain a constructive customer relationship.
Because they are a part of the original creditor, first-party agencies may not be subject to legislation that governs third-party collection agencies.
These agencies are called "first-party" because they are part of the first party to the contract (i.e. the creditor). The second party is the consumer (or debtor). Typically, first-party agencies try to collect debts for several months before passing it to a third-party agency or selling the debt and writing off most of its value.
Third-party agencies
A collection agency is a third-party agency, called such because such agencies were not a party to the original contract. The creditor assigns accounts directly to such an agency on a contingency-fee basis, which usually initially costs nothing to the creditor or merchant, except for the cost of communications. This however is dependent on the individual
service level agreement
A service-level agreement (SLA) is a commitment between a service provider and a customer. Particular aspects of the service – quality, availability, responsibilities – are agreed between the service provider and the service user.
T ...
(SLA) that exists between the creditor and the collection agency. The agency takes a percentage of debts successfully collected; sometimes known in the industry as the "Pot Fee" or potential fee upon successful collection. This does not necessarily have to be upon collection of the full balance; very often this fee must be paid by the creditor if they cancel collection efforts before the debt is collected. The collection agency makes money only if money is collected from the debtor (often known as a "No Collection - No Fee" basis). Depending on the type of debt, the age of the account and how many attempts have already been made to collect on it, the fee could range from 10% to 50% (though more typically the fee is 25% to 40%).
Some debt purchasers who purchase sizable portfolios use a Master Servicer to assist in managing their portfolios (often ranging in thousands of files) across multiple 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 the debt purchaser more control and flexibility to maximize collections. Master Servicing fees may range from 4% to 6% of gross collections in addition to collection agency fees.
Some agencies offer a flat fee "pre-collection" or "soft collection" service. The service sends a series of increasingly urgent letters, usually ten days apart, instructing debtors to pay the amount owed directly to the creditor or risk a collection action and subsequent negative credit report. Depending on the terms of the SLA, these accounts may revert to "hard collection" status at the agency's regular rates if the debtor does not respond.
In many countries there is legislation to limit harassment and practices deemed unfair, for example limiting the hours during which the agency may telephone the debtor, prohibiting communication of the debt to a third party, prohibiting false, deceptive or misleading representations, and prohibiting threats, as distinct from notice of planned and not illegal steps.
In the
United States
The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...
, consumer third-party agencies are subject to the federal
Fair Debt Collection Practices Act
The Fair Debt Collection Practices Act (FDCPA), Pub. L. 95-109; 91 Stat. 874, codified as –1692p, approved on September 20, 1977 (and as subsequently amended) is a consumer protection amendment, establishing legal protection from abusive deb ...
of 1977 (FDCPA), which is administered by the
Federal Trade Commission
The Federal Trade Commission (FTC) is an independent agency of the United States government whose principal mission is the enforcement of civil (non-criminal) antitrust law and the promotion of consumer protection. The FTC shares jurisdiction ov ...
(FTC).
In the United Kingdom third-party collection agencies that pursue debts regulated by the
Consumer Credit Act must be approved and regulated by the
Financial Conduct Authority
The Financial Conduct Authority (FCA) is a financial regulation, financial regulatory body in the United Kingdom, but operates independently of the UK Government, and is financed by charging fees to members of the financial services industry. The ...
.
Sale of debts
Debt collection may involve the sale of a debt to a third party company, sometimes referred to as a "
factor
Factor, a Latin word meaning "who/which acts", may refer to:
Commerce
* Factor (agent), a person who acts for, notably a mercantile and colonial agent
* Factor (Scotland), a person or firm managing a Scottish estate
* Factors of production, suc ...
" or "
debt buyer
Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The de ...
". The debt buyer purchases accounts and debts from creditors for a percentage of the value of the debt and may subsequently pursue the
debtor
A debtor or debitor is a legal entity (legal person) that owes a debt to another entity. The entity may be an individual, a firm, a government, a company or other legal person. The counterparty is called a creditor. When the counterpart of this ...
for the full balance due, including any interest that accrues under the terms of the original loan or credit agreement. The sale of debts and accounts provides a creditor with immediate revenue, albeit reduced from the face value of the debt, while shifting the work and risk of debt collection to the debt buyer.
In the United States during the
savings and loan crisis of the 1980s, there was a huge resurgence of
foreclosure
Foreclosure is a legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan.
Formally, a mortg ...
s and written-off accounts, similar, although on a much smaller scale, to that of the
Great Depression
The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...
. Some financial innovators decided that there may be some profit in buying up delinquent accounts and attempting to collect a small portion of the amount due. They purchased these accounts from the original lenders at pennies on the dollar, and turned profit by collecting a fraction of what was owed by the debtor.
Some states have specific laws regarding debt buying. Massachusetts requires companies that buy debt to be licensed while California does not.
Collection practices
Debt collectors who work on
commission may be highly motivated to convince debtors to pay the debt. These practices may be regulated by the nation in which the collection activity occurs. Collection agencies are sometimes allowed to contact individuals other than the debtor, usually in an attempt to locate the debtor but without mentioning the debt.
At times a person with no connection to the debt or the debtor may be contacted by a collector by error. Examples include victims of
identity theft
Identity theft occurs when someone uses another person's personal identifying information, like their name, identifying number, or credit card number, without their permission, to commit fraud or other crimes. The term ''identity theft'' was co ...
and people erroneously targeted due to a similar name. Alternatively, the alleged debtor may dispute that the debt is payable. In such cases the alleged debtor can require that the collector or creditor prove that the debt is payable—in no jurisdiction does a debt exist merely because a collector says so.
Relatives of deceased people do not necessarily themselves have to pay the debts of the deceased, but debts must be paid by the deceased person's
estate. However, where a deceased person is the co-owner of property that is secured by their debt, it may be possible for the creditor to force the sale of the property to satisfy the debt.
International debt collection is a specialised field. Not many companies specialize in this sort of collection as collection may require that their employees communicate in multiple languages and have a knowledge of the legal systems, laws and regulations of all nations in which they operate. Communication with a foreign debtor may occur in a language different from that used in the creditor's nation. Some debt collectors will partner with foreign debt collection agencies, with each agency involved in the collection process being familiar with the laws and languages of the nation in which it operates, allowing debt collection to occur through a local agency even when the debtor is in a different nation.
Collection account
A collection account is a person's
loan
In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that d ...
or
debt
Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The ...
that has been submitted to a collection agency through a creditor.
Credit record
A credit record is a record of the credit history of a person or business entity, potentially including payment history, default and bankruptcy. Information about debts, late payments and default may be placed by a borrower's
credit record
:''This article deals with the general concept of the term credit history. For detailed information about the same topic in the United States, see Credit score in the United States.''
A credit history is a record of a borrower's responsible repay ...
, and usually remain for several years. Reports to credit reporting agencies may not necessarily be properly authenticated or checked for accuracy.
Re-aging of debt
In some instances, a debt collector will attempt to revive a debt that has expired due to the
statute of limitations
A statute of limitations, known in civil law systems as a prescriptive period, is a law passed by a legislative body to set the maximum time after an event within which legal proceedings may be initiated. ("Time for commencing proceedings") In m ...
by themselves making a payment on the debt, "to re-age the account in order to have more time to collect". Such a payment, usually in a relatively small amount, may appear on a credit card statement as an "agency payment" or "transactional payment", and may also be referred to as a "phantom payment" since it is made by the collection agency, without the knowledge or permission of the debtor.
Because this payment is not made by the debtor, an agency payment does not extend the statute of limitations beyond the last date when the debtor personally made a payment on the debt,
and will likely be disregarded by a court when a debtor claims that the debt is expired under an applicable statute of limitations.
Regulation of debt collection
Canada
In
Canada
Canada is a country in North America. Its ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world's second-largest country by tot ...
, regulation is provided by the province or territory in which they operate.
The law is typically called the Collection Agencies Act and usually affords a government ministry power to make regulations as needed. Regulations include calling times, frequency of calls and requirements for mailing correspondence prior to making telephone contact. Most debts in Ontario and Alberta are subject to a
limitation period
A statute of limitations, known in civil law systems as a prescriptive period, is a law passed by a legislative body to set the maximum time after an event within which legal proceedings may be initiated. ("Time for commencing proceedings") In m ...
of two years. In most other provinces the limitation period is six years. After the corresponding (two or six, depending on province) anniversary of the last formal intention to pay the debt, neither the collection agency nor anyone else has legal authority to collect it.
Credit bureau
A credit bureau is a data collection agency that gathers account information from various creditors and provides that information to a consumer reporting agency in the United States, a credit reference agency in the United Kingdom, a credit repor ...
s will retain both the debt and collection history on the debtor's credit file for 6–7 years, depending on province. Although the collection agency can continue to collect or attempt to collect the debt, they cannot garnish or place a lien on the debtor past the limitation period unless the court upholds a new date of last activity on the account based on other factors. Further information may be found in the regulations for the Province of Ontario relating to on prohibited debt collection practices.
In
Manitoba
Manitoba ( ) is a Provinces and territories of Canada, province of Canada at the Centre of Canada, longitudinal centre of the country. It is Canada's Population of Canada by province and territory, fifth-most populous province, with a population o ...
, the governing document is the Manitoba Consumer Protection Act. Complaints regarding violations of the Act should be directed to the Manitoba Consumer Protection Board who will either mediate or enforce the act when it is broken.
Province-specific statutes:
*
Alberta
Alberta ( ) is one of the thirteen provinces and territories of Canada. It is part of Western Canada and is one of the three prairie provinces. Alberta is bordered by British Columbia to the west, Saskatchewan to the east, the Northwest Ter ...
– Collection Practices Act
*
British Columbia
British Columbia (commonly abbreviated as BC) is the westernmost province of Canada, situated between the Pacific Ocean and the Rocky Mountains. It has a diverse geography, with rugged landscapes that include rocky coastlines, sandy beaches, ...
– Business Practices and Consumer Protection Act
*
Manitoba
Manitoba ( ) is a Provinces and territories of Canada, province of Canada at the Centre of Canada, longitudinal centre of the country. It is Canada's Population of Canada by province and territory, fifth-most populous province, with a population o ...
– Consumer Protection Act
*
New Brunswick
New Brunswick (french: Nouveau-Brunswick, , locally ) is one of the thirteen provinces and territories of Canada. It is one of the three Maritime provinces and one of the four Atlantic provinces. It is the only province with both English and ...
– Collection Agencies Act
*
Newfoundland and Labrador
Newfoundland and Labrador (; french: Terre-Neuve-et-Labrador; frequently abbreviated as NL) is the easternmost province of Canada, in the country's Atlantic region. The province comprises the island of Newfoundland and the continental region ...
– Collections Act
*
Nova Scotia
Nova Scotia ( ; ; ) is one of the thirteen provinces and territories of Canada. It is one of the three Maritime provinces and one of the four Atlantic provinces. Nova Scotia is Latin for "New Scotland".
Most of the population are native Eng ...
– Collection Agencies Act
*
Ontario
Ontario ( ; ) is one of the thirteen provinces and territories of Canada.Ontario is located in the geographic eastern half of Canada, but it has historically and politically been considered to be part of Central Canada. Located in Central Ca ...
– Collection Agencies Act and Debt Collectors Act
*
Prince Edward Island
Prince Edward Island (PEI; ) is one of the thirteen Provinces and territories of Canada, provinces and territories of Canada. It is the smallest province in terms of land area and population, but the most densely populated. The island has seve ...
– Collection Agencies Act
*
Quebec
Quebec ( ; )According to the Canadian government, ''Québec'' (with the acute accent) is the official name in Canadian French and ''Quebec'' (without the accent) is the province's official name in Canadian English is one of the thirtee ...
– Act Respecting the Collection of Certain Debts
*
Saskatchewan
Saskatchewan ( ; ) is a Provinces and territories of Canada, province in Western Canada, western Canada, bordered on the west by Alberta, on the north by the Northwest Territories, on the east by Manitoba, to the northeast by Nunavut, and on t ...
– Collection Agents Act
Spain
If talking to the debtor is unfruitful, a creditor can write a letter to the debtor outlining the following details:
* the holder of the debt
* the amount of the debt
* the purpose of the debt
* previous steps taken to recover the debt
* steps that will be taken to recover the debt
* a date by which payment of the debt is expected (a minimum of seven days)
* a request for any disputed issues to be put in writing
The assignment of the claim against the debt shall not be effective if the assigned debt is not real, legitimate, receivable arises from a crime or the debtor is a public institution, political party or homeless individual.
A collection agency is usually better and faster. Some dress in costumes just to underline the message.
United Arab Emirates
Pursuant to the
UAE
The United Arab Emirates (UAE; ar, اَلْإِمَارَات الْعَرَبِيَة الْمُتَحِدَة ), or simply the Emirates ( ar, الِْإمَارَات ), is a country in Western Asia (The Middle East). It is located at th ...
laws for financial debt collection, an extrinsic value asset needs to be shown to the creditor or the bank. That makes sure that if the debtor does not pay the unpaid invoices, his extrinsic asset can be taken by the creditor. If the debtor does not provide an extrinsic asset or pay back the financial amount, he is accountable to the civil and criminal liabilities.
According to the UAE financial laws, it is stated under the Article 401 of the Penal Code that if the person provides a
bounced cheque, he shall be fined for this criminal activity or given the punishment of imprisonment.
As a creditor, you should communicate with the bank to know if the defaulter lacked funds before the provision of the cheque. If that is true, then a case is filed in the police station against the defaulter, after which they will investigate the matter and referred to the Public Prosecutor office. Also, you should know that the report cannot be filed after six months of the cheque issuance.
The public prosecutor takes the case in its hand and investigates from both sides (creditor and debtor) for clarity of the case of bounced cheque. Upon the investigation, it is then decided if the defaulter has to pay the bail "Kafala" as to pay the amount of the asset of that worth the amount or deposit his passport. If the bail does not happen, then the defaulter is put behind the bars.
United Kingdom
In the
UK, debt collection agencies are licensed and regulated by the
Financial Conduct Authority
The Financial Conduct Authority (FCA) is a financial regulation, financial regulatory body in the United Kingdom, but operates independently of the UK Government, and is financed by charging fees to members of the financial services industry. The ...
(FCA). The FCA sets guidelines on how debt collection agencies can operate and lists examples of unfair practices. These guidelines are not law but they represent a summary and interpretation of various legal areas. Compliance with these guidelines are also used as a test of whether the agency is considered fit to hold a credit licence.
Examples of unfair practices include misrepresenting enforcement powers (e.g., claiming that property may be seized), falsely claiming to be acting in an official capacity, harassment, claiming unenforceable or excessive charges, misrepresenting the legal position to a debtor, and falsely claiming that a court judgement has been obtained when it has not. The legal basis for these practices comes from section 40 of the
Administration of Justice Act 1970
The Administration of Justice Act 1970 (c. 31) is a UK Act of Parliament. Section 11 reforms the Debtors Act 1869 by further restricting the circumstances in which debtors may be sent to prison. Section 40 includes a number of provisions forbiddin ...
.
Collection agencies and their debt collectors in the UK are not the same as court-appointed
bailiff
A bailiff (from Middle English baillif, Old French ''baillis'', ''bail'' "custody") is a manager, overseer or custodian – a legal officer to whom some degree of authority or jurisdiction is given. Bailiffs are of various kinds and their offi ...
s.
Scotland
Collection agencies and debt collectors based in the UK are permitted to invite debtors to attempt to repay debts but have no statutory authority in law to enforce debts unless they obtain a Decree (Scottish term for Judgement) against the debtor, although enforcement of the Decree is carried out, usually under instruction of a creditor or their appointed agent, by a
sheriff officer or a
messenger-at-arms. Likewise the creditor may move to inhibit, Attach or arrest in the hands of a third party with the assistance of an Officer of the Court. Scotland does not have a pre-action protocol and creditor agents need only be licensed if pursuing a consumer debt that is protected under the
Consumer Credit Act.
United States
Within the United States, debt collection and debt collectors are subject to both state and federal regulation. Within the federal government, the
Federal Trade Commission
The Federal Trade Commission (FTC) is an independent agency of the United States government whose principal mission is the enforcement of civil (non-criminal) antitrust law and the promotion of consumer protection. The FTC shares jurisdiction ov ...
is the primary federal regulator of collection agencies. The Bureau of Consumer Financial Protection, housed within the
U.S. Federal Reserve
The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a ...
, also has regulatory power over collection agencies. The CFPB announced on 24 October 2012, that it had finalized the rule for supervising debt collection agencies and debt buyers under a definition that would include about 175 U.S. companies.
Many
U.S. states
In the United States, a state is a constituent political entity, of which there are 50. Bound together in a political union, each state holds governmental jurisdiction over a separate and defined geographic territory where it shares its sove ...
and a few cities require collection agencies be
licensed
A license (or licence) is an official permission or permit to do, use, or own something (as well as the document of that permission or permit).
A license is granted by a party (licensor) to another party (licensee) as an element of an agreeme ...
and/or
bonded. In addition, many states have laws regulating debt collection, to which agencies must adhere (see
fair debt collection Fair debt collection broadly refers to regulation of the United States debt collection industry at both the federal and state level. At the Federal level, it is primarily governed by the Fair Debt Collection Practices Act (FDCPA). In addition, many ...
).
Fair Debt Collection Practices Act
The
Fair Debt Collection Practices Act
The Fair Debt Collection Practices Act (FDCPA), Pub. L. 95-109; 91 Stat. 874, codified as –1692p, approved on September 20, 1977 (and as subsequently amended) is a consumer protection amendment, establishing legal protection from abusive deb ...
(FDCPA) is the primary federal law governing debt collection practices. The FDCPA allows aggrieved consumers to file private lawsuits against a collection agency that violates the Act. Alternatively, the
Federal Trade Commission
The Federal Trade Commission (FTC) is an independent agency of the United States government whose principal mission is the enforcement of civil (non-criminal) antitrust law and the promotion of consumer protection. The FTC shares jurisdiction ov ...
or a
state attorney general
The state attorney general in each of the 50 U.S. states, of the federal district, or of any of the territories is the chief legal advisor to the state government and the state's chief law enforcement officer. In some states, the attorney genera ...
may take action against a noncompliant collection agency and, in the event a violation is found, may impose penalties including fines, damages, restriction of the debt collector's operations or closing down its operations, as occurred 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 Practices Act
The Fair Debt Collection Practices Act (FDCPA), Pub. L. 95-109; 91 Stat. 874, codified as –1692p, approved on September 20, 1977 (and as subsequently amended) is a consumer protection amendment, establishing legal protection from abusive deb ...
.
The FDCPA specifies that if a state law is more restrictive than the federal law, the state law will supersede the federal portion of the act. Thus, the more restrictive state laws will apply to any agency that is located in that state or makes calls to debtors inside such a state.
Among the protections provided by the FDCPA are the following:
* A debtor has the right to request written validation of the debt;
* A debtor may demand that the collector cease communication.
Section 809 of the Act directs that for disputed debts "the debt collector shall cease collection of the debt, or any disputed portion thereof, until the debt collector obtains verification of the debt". When consumers resort to lawsuits against collectors who fail to verify debts, the collector is liable for the complainant's legal costs if the debt is found to be bogus.
* A debt collection may not place a call to the debtor if the call will cost the debtor toll charges (in most other countries recipients of telephone calls are not charged, so this issue does not arise).
* Limits are placed on the time of day that debt collection calls can be made, to whom, and where. If a person answers, the call center may track statistics (e.g., the times and days when someone answers) in order to place calls at times when the debtor is more likely to be home; typically this is done by an automated dialing system between the times of 8 a.m. and 9 p.m. local standard time. The collector may not use illegal and deceptive practices (e.g., threatening the debtor with arrest or
impersonating law enforcement).
* The collector cannot use obscene language and must inform the debtor of the nature of the call, their name, and the name of the collection company when requested.
* Collectors must state their name and must give the name of their employer if the person specifically asks. They may only contact each person once, unless it is believed that the person gave the collector incorrect or incomplete information at the time, but now has complete or updated information.
Collectors may contact a debtor at the workplace unless the collector has been informed the employer prohibits such calls.
The FDCPA allows a collector to call a neighbor or relative for help in locating the debtor, but they may only ask for "address, home phone number, and place of work" and are "not permitted to discuss
hedebt with anyone other than
he debtor heir
Inheritance is the practice of receiving private property, titles, debts, entitlements, privileges, rights, and obligations upon the death of an individual. The rules of inheritance differ among societies and have changed over time. Officiall ...
spouse, or
heir
Inheritance is the practice of receiving private property, titles, debts, entitlements, privileges, rights, and obligations upon the death of an individual. The rules of inheritance differ among societies and have changed over time. Officiall ...
attorney". The debtor may grant a debt collector permission to the collection agency to speak to other people, but otherwise contact with an unauthorized person violates the FDCPA.
Fair Credit Reporting Act
In the United States, the
Fair Credit Reporting Act
The Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681 ''et seq'', is U.S. Federal Government legislation enacted to promote the accuracy, fairness, and privacy of consumer information contained in the files of consumer reporting agencies. It ...
(FCRA) is a federal law that regulates the manner in which consumer credit reporting agencies may maintain credit information. Among the protections the FCRA offers to consumers:
* If an error occurs in the reporting of debt, the credit reporting agencies and information suppliers have a 21-day safe harbor period to correct the error and the safe harbor period can be used as an affirmative defense in a lawsuit.
* If a debtor pays off a collection account, the item may remain on the debtor's credit report but must be marked "paid".
* If information about debt that appears on a credit report is disputed by the debtor, the credit reporting agency must investigate the dispute.
Unless the dispute is deemed frivolous, the credit reporting agency must normally complete its investigation within thirty days.
Voluntary standards
In addition to state and federal laws, many U.S. collection agencies belong to
trade association
A trade association, also known as an industry trade group, business association, sector association or industry body, is an organization founded and funded by businesses that operate in a specific Industry (economics), industry. An industry tra ...
called
ACA International
ACA International is a trade group located in the United States representing debt collection agencies, creditors, debt buyers, collection attorneys, and debt collection industry service providers. Founded in 1939 as the American Collectors Associ ...
and agree to abide by its code of ethics as a condition of membership. ACA's standards of conduct require its members to treat consumers with dignity and respect, and to appoint an officer with sufficient authority to handle consumer complaints. Consumers may attempt to resolve disputes with a collection agency who is a member of ACA through that organization's consumer complaint resolution program.
See also
*
Bankruptcy
Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor ...
*
Credit risk
A credit risk is risk of default on a debt that may arise from a borrower failing to make required payments. In the first resort, the risk is that of the lender and includes lost principal and interest, disruption to cash flows, and increased ...
*
Debt relief Debt relief or debt cancellation is the partial or total forgiveness of debt, or the slowing or stopping of debt growth, owed by individuals, corporations, or nations.
From antiquity through the 19th century, it refers to domestic debts, in particu ...
*
Forensic corporate collections
*
Distraint
Distraint or distress is "the seizure of someone’s property in order to obtain payment of rent or other money owed", especially in common law countries. Distraint is the act or process "whereby a person (the ''distrainor''), traditionally even ...
– "the seizure of someone’s property in order to obtain payment of rent or other money owed"
*
Dunning (process)
Dunning is the process of methodically communicating with customers to ensure the collection of accounts receivable. Communications progress from gentle reminders to threatening letters and phone calls and more or less intimidating location visits ...
*
Tax refund interception
A tax refund interception, also referred to as a tax refund offset, is the act of an agency responsible for sending tax refunds using all or part of a refund to fulfill an obligation of the taxpayer rather than sending the money to the taxpayer him ...
*
Predictive analytics
Predictive analytics encompasses a variety of statistical techniques from data mining, predictive modeling, and machine learning that analyze current and historical facts to make predictions about future or otherwise unknown events.
In business ...
*
Repossession
Repossession, colloquially repo, is a "self-help" type of action, mainly in the United States, in which the party having right of ownership of the property in question takes the property back from the party having right of possession without in ...
References
External links
National Association of Collection Agents (NACA)Debt Collection in UKFair Debt Collection Practices Act- Federal Trade Commission.
- U.S. Department of Labor, Bureau of Labor Statistics.
ACA International, the Association of Credit and Collection Professionals
''
The New York Times
''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid ...
''
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