Debt collectors

Helene Mueller
eCollect support team

In financial spheres there are different interpretations defining what a debt collector is. Generally a debt collector is an entity, which is authorised by law to recover debt amounts on behalf of an original creditor. Such agent is also called bill collector and is typically part of a private and licensed DRA (Debt Recovery Agency). A debt collector can also act under creditor’s company trading name, where he is an employee in the same organisation. Recovery agents are usually involved in the collection process, when an invoice or a payment becomes past-due, or the so-called late payment (usually 30-60 days from the consumer’s invoice/purchase). According to some laws (FDCPA- Fair Debt Collection Practices Act, in U.S.; the OFT- Office of Fair Trading, in UK) there are some exceptions, when giving a definition for a debt collector. A debt recovery agent is not considered as such when he is collecting default amounts in the name of the creditor, employed by the same lender, representing the same organisation the debt collector works for (i.e. a first-party DCA). These laws implicate that a first-party recovery agent can legally collect debts on behalf of his employer but cannot tax the subjects of debt a debt collection agency’s fee. The creditor or the first-party DCA can, however, charge the debtors a fee for late payments.

What is a debt collector and when is one employed?

A debt collector can be employed for the purpose of recovering bad debts (unpaid bills, late payments and default accounts) in three different manners. First, a debt collection agent can be hired by creditor’s company, and will act as a private organisation, referring to “what is a debt collector” as a third party DCA (Debt Collection Agency). In this case the debt collector will not be connected in any way with the binding contract of loan between the first party- lender, and the second party- consumer/debtor. A third-party debt collector offers debt recovery services in exchange of an interest rate and collects debts as part of its business.

A debt collection agent can act within the creditor’s organisation itself, where the debt collector is part of the same company and acts under the name of first party debt collection agency. A first-party DCA does not require an additional commission fee to be paid neither from the creditor, nor from the debtor. Depending on local and country laws, there are different regulations, which define debt recovery agents, acting as a first-party organisation. The FDCPA in the United States regulates only third-party collection agencies and agents and does not apply to organisations, which attempt to recover their own defaults. Typically a first-party DCA will try to recover its debts for some months before transferring the cases to an external third-party agency.

A debt purchaser can engage a debt collector in the recovery process as well. In this case the debt buyer has purchased debtor’s portfolios from the original creditor, has paid him a fraction of the same debt profiles and now owns the asset of defaults. After the purchase process a debt buyer either collects the delinquent payments on his own, or hires a third-party debt collector to carry out the full debt recovery process.

Recovery attempts and strategies of debt collectors

If an original creditor has failed in procuring voluntary payment from the subject of debt, the lender will usually hire a private agency, or in this case- a third-party debt recovery agent. This means that creditor’s standard reminders and collection procedures were not successful. From the moment of involving the third-party DCA, the same will start with the collection process, which includes different specialised recovery strategies. The types of debt collectors- first-party, third-party, etc., are not relevant, when it comes to recovery methods. No matter what is the recovery agency, the collection tools and procedures are generally the same.

First, the debt collector will attempt to recover the delinquent amounts by using friendly written reminders and general recall phone conversations, known as pre-legal actions and attempts. Series of letters are sent in the role of encouraging the debtor to clear the debt in full as soon as possible to avoid legal actions and additional fees. Some DCAs in different countries (e.g. Germany, Switzerland and Austria) have the practice of collecting their interest rate from the subject of debt instead from the creditor. If the debtor settles the debt within the scheduled time frame, he will pay less than if prolonging the issue until legal or court actions take place.

If these methods are not successful, the debt recovery agency will send a debt collector for an in-house visit with the debtor. During these visits negotiations are to be made with the subject of debt. If the debtor agrees to a debt settlement or a debt management plan, the collection process stops. If there are more issues to be solved, the debt collector will turn to a debt recovery solicitor or even transfer the matter to court.

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