Commercial collection agencies?

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Helene Mueller
eCollect support team

A commercial collection agency executes the process of recovering commercial outstanding amounts or past-due payments on behalf of a first-party, i.e. a creditor. Commercial debt collection is also known as business-to-business debt recovery, where the debtors are companies like the lenders, from which derives the name of such agencies. A commercial debt refers to a default owed by an organisation/business to another organisation/business. A corporate collection agency recovers unsecured commercial debts, e.g. rent debts, also known as lease debts; medical and healthcare debts; student loans (education debts); phone bills; membership fee debts; purchase debts, etc. A collateral does not follow such debts and that is why they are harder to collect than the standard secured debts.


Commercial collection agencies- regulations

In different countries and states, different laws and acts regulate the corporate collection agencies. Therefore there are different conditions in order a corporate collection agency to be recognised as a qualified debt recovery institution. However, all business collection agencies’ acts and recovery methods are geared to countries’ laws and national legislations. Their methods of recovery are not only legal, but also ethical, as business relationships between two corporations are extremely important for future partnerships.

There are various regulations for corporate collection agencies in each country, but they usually consist of information about acceptable calling time (usually between 9am and 8pm), restrictions about specific letter templates and etiquette of phone contact. Such acts also consist of regulations of call frequency, pointed out harassing and law-breaking actions and methods.

U.S. and Canada- Regulations and acts

The FDCPA (Fair Debt Collection Practices Act) is executed and administered by the FTC (Federal Trade Commission), and regulates the actions of DCAs (Debt Collection Agencies) within the U.S. According to the interpretation of this protection act, the attribute for a “debt collector” applies for organisations, which regularly recover consumer debts on behalf of a person or organisation (a creditor), OR which collects its own debts but under a different trading name. This, however, does not mean that in U.S. commercial collection agencies are not legal, but that the FDCPA does not apply to commercial debt collection and commercial debt recovery. More information about acts and regulations in the U.S. can be found at
http://www.ftc.gov/
and
http://www.ftc.gov/enforcement/rules/rulemaking-regulatory-reform-proceedings/fair-debt-collection-practices-act-text
.

There are several certified collection associations in U.S., which can legalise and certify a business collection agency: the Commercial Collection Agency Association (
http://www.ccaacollect.com/
), the Commercial Law League of America (
http://www.clla.org/
), etc.

In Canada each state has its own regulations, such as: the Consumer Protection Act (valid for Manitoba), the Collection Agencies Act (Nova Scotia, Ontario, New Brunswick, etc.), the Collection Agents Act (Saskatchewan) and others. In the CAA, commercial and consumer debt collection agencies are not strictly differentiated.

UK- Regulations and acts In Great Britain debt recovery agents and debt collection agencies act under the Consumer Credit Act 1974 and the Fair Trading Act 1973 (
http://www.legislation.gov.uk/ukpga/1973/41
). Until 01 April 2014, the Office of Fair Trading was also an institution protecting and regulating consumer and debt collectors’ rights and activities. As it is now closed and not active, consumers and DCAs can address to the Financial Conduct Authority (
http://www.fca.org.uk/
) and the Competition and Markets Authority- CMA.

This, however, is valid only for consumer debts and consumer debt collection agencies. A commercial collection agency in UK acts under the Late Payment of Commercial Debts (Interest) Act (
http://www.legislation.gov.uk/ukpga/1998/20
). This regulation authorises a business (the creditor) to claim interest and legally collect its debt from another business (a debtor). Since 1998, small businesses have the statutory right to demand payment even from large businesses, as long as these large institutions are subjects of debt.

The same act applies for Northern Ireland and Wales as well. It is also accepted in Scotland, although the Scottish Parliament can change or correct the act.

EU and GSA area- Regulations and acts

The EU Directive 2011/7/EU, also known as Directive on Late Payments 2011/7/EU, is valid for the whole European Union. It regulates only transactions with businesses, commercial late payments and business-to-business debts. According to this EU act, a commercial overdue payment is considered as a debt 30 calendar days after the commercial transaction. The interest rate of a company collection agency is also strictly regulated by the EU Directive and it is 8.5% from the total commercial debt amount.

For the GSA area (Germany, Switzerland, Austria) the Directive on Late Payments 2011/7/EU is again a valid regulation. The commission fee of a business collection agency is strictly fixed according to the EU Directive. The legal costs are fixed in a specific fee scale and are not calculated on the base of a debt’s percentage.


Used literature & external links

http://www.investopedia.com/terms/c/commercial-loan.asp
 

http://www.ehow.com/info_8088276_commercial-debt.html
 

http://www.wisegeek.com/what-is-commercial-debt-collection.htm
 

http://www.federalreserve.gov/boarddocs/supmanual/cch/fairdebt.pdf
 

http://www.legislation.gov.uk/ukpga/1974/39/contents
 

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/138129/bis-13-705-a-users-guide-to-the-recast-late-payment-directive.pdf
 

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2011:048:0001:0010:en:PDF