Collection letter

Helene Mueller
eCollect support team

A collection letter (also known as dunning letter) is a notification sent in writing, informing a consumer of his past due payments. Debt collection letters’ function is to remind the debtor of his delinquent payment owed to a creditor. As sometimes delayed payments can derive from the reason that the same payments have been forgotten, a debt recovery letter is an appropriate method for early debt recovery, as it is cost effective and can produce positive results of default collection. Usually recovery letters are to be issued consecutively, consisting of 2-5 serial written reminders. The number of default collection letters depend on creditor’s or DCA’s (Debt Collection Agency’s) policy of recovery procedures. A collection letter is to be sent, when debtor’s invoice has become past-due. Financially, this means that the consumer has fallen behind with his regular payments and owes a certain amount to the lender.

General characteristics of collection letters

Each collection letter has to consist of the name of the original creditor and his company, the name of the debt collection agency (if any), representing the lender; the full debt amount; additional costs and fees (if any). If the default collection document is a final one (of demand) or letter before action, it will also consist of a last deadline for payment, after which the debtor’s case will be filed to court and small claims court procedures will follow.

Debt recovery letters are usually dispatched to the debtor by the original creditor or by a private third party organisation, widely known as a debt recovery agency (DRA). Such documents can also be sent by a debt buyer after the purchase of default profiles from the lender. When the debt buying process is completed, the debt purchaser becomes the official owner of the same delinquent accounts and has the legal right to prosecute fair debt recovery, including forwarding a recovery letter by post to the subject of debt. A debt collection letter can be sent by a debt recovery solicitor, as well. Debt lawyers are either part of a debt recovery agency, or act as private entities.

As debt collection agencies (DCAs) are regulated by different laws, so are the debt collection documents & letters. There are restrictions for such letters and their content is confined to several rules, generalising what a debt agent can include in a collection letter. In U.S. the tenor of debt text documents is in compliance with the FDCPA- Fair Debt Collection Practices Act. In UK debt recovery letters’ content is controlled by the Financial Conduct Authority, the Office of Fair Trading, the Late Payment Act Legislation, the Late Payment of Commercial Debts Regulations (for corporate defaults), etc.

Types of collection letters

Debt collection letters are divided into general reminders, inquiry letters, and official collections letters. The official ones consist of demand letters (also known as appeal letters) and warning letters (before action). The standard reminders represent letters with friendly tone, notifying the consumer of his past-due payments. If the debtor settles these amounts on time, the collection process is ceased. If not, the recovery proceedings will continue, using letters of demand and letters before action. During the process of sending the written documents, the tone becomes stricter after each recovery letter.

Late payment demand letters consist of a specific date, marked as a deadline for settling the debt monetary amount. Demand letters represent a formal notice to the person in debt (consumer) and indicates debtor’s legal obligation to clear the debt amount in full. Last collection letters before action (LBA) represent another variety of debt collection documents & letters. They can apply for both commercial and consumer debts and can be addressed to both individuals and business debtors. Such letters are the last resort before proceeding to court actions. They are also known as legal threat collections letters, which warn the indebted subject about future court actions. If the debt is not settled until the date specified in the letter, another letter will follow, informing the debtor that the debt matter issue has been handed over to legal representatives and court proceedings have begun.

If requested by the subject of debt, the debt recovery agency is obliged to send the debtor a debt validation collection letter. Debt validation is a written and official verification, which confirms the size and type of debt, also proving information that such debt exists and has to be paid to a certain first-party (creditor) marked in the default collection document.

A collections letter of settlement is another kind of debt recovery letters graph. Such letters comprise all types of written negotiation sent to the debtor. Debt settlement documents offer the subject of debt more convenient payment plans. The debt can either be paid at once, using one single but smaller payment that the original debt amount; or the subject of debt can chose the option of monthly transactions to the creditor/DCA equal to the full monetary debt sum.

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