Frequently Asked Questions about Collection Agencies

Frequently Asked Questions about Collection Agencies

Q: How Do the Bill Collectors Get Access to Loans?

A: Bill collectors generally come in one of two different types. The majority of collection agencies are independent businesses which purchase consumer credit card debt from credit card companies and other lenders after they've had trouble recovering the debts. Depending upon the firm, they may take over after a loan has been delinquent for only a few months or wait to pick up the rights to a debt on the cheap after the first creditor charged off the loan to reap the corporate income tax benefits.

However, many of the larger credit card companies and financial institutions now maintain their own collection divisions dedicated to the recovery of problem loans. For the most part, these in house bill collectors will utilize a different name, location, and contact number to exploit the illusion that they exist as separate entities to try and frighten wayward borrowers into playing ball. Still, they have far more to lose than the more fly by night bill collectors and are less likely to employ harassment tactics.

Q: Where Do the Profits Come From?

A: Once again, there are a few different answers, depending upon the structure of the collection agency. Obviously, if the bill collectors are part of the same corporation that originally financed the debt, the collectors themselves will only work for their normal wages or salary. On the other hand, if the collection agency is actually a separate third party who has bought another creditor's loan, the bill collectors may well be paid as independent contractors who'll receive a healthy commission out of each dollar recovered. For the consumers, the only real difference should be seen in the degree of commitment that the bill collectors exhibit. Collection agencies who depend upon the restitution of debt values for their entire income are more likely to be zealously motivated and perhaps even bend the letter of federal law when making threats and contacting borrowers.

Q: Could the Collection Agency Garnish Wages?

A: To a degree, this also depends upon the nature of the bill collectors. In order for assets to be seized, there will have to be a successful judgment against the borrowers, and a lawsuit could only be filed if the collection agency has clear legal ownership of the debt. In other words, if a collection agency has been contracted out merely to assist the creditors in the recovery of the debt, their threats regarding the garnishment of wages or the forfeiture of assets (including, most prominently, bank accounts) should be considered essentially toothless.

Even though the agents could recommend that the creditors themselves initiate a lawsuit, a wrinkle in the bill collection industry makes this possibility extremely remote. An admission that the financial capacity for repayment exists but remains outside the boundaries of easy recovery will be seen as a clear failure on the part of the collection agency so the management of any such firm will be quite unlikely to ever suggest that the creditors of record again take charge of the debts.

In practical terms, debtors only ever need worry about formally losing a percentage of their wages if the defaulted loan has been purchased by another company. Even then, the amount of money it would cost and the length of time it would take for the collection agency to successfully see through a judgment to conclusion means that only the very largest debts unrecoverable by other methods would lead to actions through the court system.

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