What is a collection agency?
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A collection agency is a business specialised in acquiring payments and debts from individuals as well as companies. It provides for customers’ interests by recovering fully or partially the due amounts. Their commission fee is based on the total collected amount. If the pre-legal actions are not successful, the debt recovery agency forces the debt amount recovery by using debt compliance actions leading to trial process.
Benefits of hiring a collection agency
The usage of a collection agency allows a company to focus on other important aspects of their business. A recovery agency provides professional help specialised in collecting default amounts from debtors (a subject/company that owes a debt to another party). The debt itself is an obligation referring to an outstanding unpaid invoice or a late payment. A debt collections agency uses various successful reminder methods also known as “Action-Mix”, e.g. phone calls, text messages, email reminders, etc.
Some debt recovery agencies charge the first party, therefore the client, a commission fee (the fee paid to the debt collection agency for successfully collecting the amount due from the debtors) or collect the commission percentage from the debtors directly. In some countries such as Switzerland, Germany and Austria this action is legal and the commission percentage is strictly regulated by law. When a company decides to use professional collection help, the debtor is obliged to pay the commission fee of the DCA as well. Some agencies can afford to offer their potential clients partially or fully free services. They can offer free pre-legal actions and even free legal actions.
More and more debt recovery companies start orientating their services to online businesses which is very suitable for internet-based companies, which have defaults and outstanding receivables.
Law regulations for collection agencies
The legal debt collection process is also known as fair debt collection, which is strictly regulated by law. This term is used in many states in USA, where the process is regulated at a federal and also state level. There the main law regulation is under the name Fair Debt Collection Procedures Act of 1990. Although there are other regulatory powers in the USA, the FDCPA is to be the primary one.
In Canada it is known as Collection Agencies Act where the debt collection and the recovery agency’s authority depends on the province in which the agency operates. According to the different territories in Canada, the following statutes are available: Consumer Protection Act also known as Manitobia Consumer Protection Act- Manitobia, Collection Practices Act- Alberta province, Collection Agencies Act- Nova Scotia and Prince Edward Island as well as New Brunswick, Collection Agencies Act and Debt Collectors Act- Ontario, Collection Agents Act-Saskatchewan, Act Respecting the Collection of Certain Debts- Quebec, Business Practices and Consumer Protection Act- British Columbia). According to this law the debtor is legally prohibited from demanding payment before sending an official email or letter by post to the debtor. Furthermore if the debtor decides to dispute the matter of the debt and requests court actions, the debt collection agency is strictly forbidden to contact or attempt to contact the debtor unless the subject in debt requests so.
The Office of Fair Trading operates for the UK and acts as an economic regulator, protecting and enforcing both the collections agency and the debtor, and providing debtor protection as well. It points out fair and unfair debt collection practices. It does not represent the law in UK but serves as guidelines to whether a recovery agency is allowed and fit to possess an official credit licence for maintaining its business.
In the European Union the EU General Data Protection Regulation along with the OFT stand and are valid, and determine the authorities of a collection agency. New rules voted by the European Commission aim to make the collection process lighter and to recover bad debts easier.
Origins of debt collection
History of debt collection begins with the bankruptcy law, loans and barters. According to the anthropologist David Graeber the debt existed even before coins (Debt: The First 5000 years). There are evidences of debt collection process in the Babylonian Law, the Roman Empire, Medieval England, Ancient Athens, Early America (Maryland, 1639), the Great Depression in USA (1930s) where these territories were served by debt recovery agencies, then known as “tax collectors”, “bailiffs” and also “catchpoles”; debt collection is even mentioned in different religion books, such as Qur’an, the Bible and others.
Along with debt collection’s history the definition debt forgiveness is mentioned, which is also wide-known as debt relief. It is presented again in many cultures, historical and religious books such as the Hittite-Hurrian, Qur’an, the Bible, the Book of Leviticus, many Muslim scripts, etc. Cancelled and forgiven debts have references proving that even Solon (Ancient Athens, 6th century BCE) set a law “seisachtheia” remitting all bad debts under explicit circumstances.
Today the process has become well monitored where debt collection agencies aim to investigate more lawful methods and less forceful when collecting an amount due.
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