Consumer debt services

Helene Mueller
eCollect support team

Consumer debt services are special debt recovery proceedings, provided by debt collectors and DCAs (Debt Collection Agencies). Such services aim to recover the default amount in full from the subject of debt on behalf of the creditor. A lender can perform debt collection process within his own company, but usually creditors prefer to use professional consumer default services provided by collection agencies. Such services are carried out only for consumer debts and individual debtors, and are directly connected with the individual debt collection process. As consumer debt services are part of DCAs, they both comply with different acts and laws. Such regulations can apply for one country or internationally, depending on whether the services are implemented on local or transnational level.

General information about consumer debt services

Consumer debt services are used when a late payment case appears and the creditor prefers to use a DCA, instead of dealing with the problem internally. A late payment is considered as overdue, when the amount is not paid by the assigned date’s deadline. Usually this deadline is between 30 and 60 days, but can prolong up to 90 days, depending on the creditor’s policy. After this period the overdue payment is recognised as bad debt.

Individual debt services and collection agencies are regulated by different laws and acts, e.g. the Consumer Credit Act 1974 for UK & Wales, the Fair Debt Collection Practices Act for U.S., the Office of Fair Trading for UK & Wales, different EU directives like the EU Small Claims Court Procedure Act (SCCPA), and others.

Pre- legal actions consist not only of collection methods, but also include the so- called “pre- action protocol process“ of tracing and tracking the debtor, performance of credit check reports and credit analysis. When these steps are completed, the actual pre- legal consumer debt services begin.

After the collection agent has tracked the subject of debt, he will try to contact him using various tools, such as telephone calls, friendly reminder letters, emails, even fax and Skype messages, which represent the so- called multichannel communication methods. The debt collection agency, hired by the original creditor, will inform the debtor in writing and over the phone that there is an overdue past payment to be settled. The letter will consist of general information about the amount of debt and an expected time frame, within which the debt has to be cleared. This is considered as an official reminder, notifying the debtor that he is in default with a delinquent payment.

Debt collection agents can also perform consumer debt services by visiting the subject of debt and his premises and offering different payment plans to achieve settling of the default amount. An individual debt services’ agent can advise selling part of debtor’s belongings equal to the debt amount, but he can do this only with the written agreement of the second party (debtor). If these methods turn to be unsuccessful, the debt collection agent will proceed with the debt recovery process, using legal actions.

Legal actions contain involvement of debt collection solicitors and legal attorneys. They can perform in- house visits as well, but apart from the standard debt collector, these agents are authorised to seize debtor’s personal belongings in order to settle the debt, even without the agreement of the consumer (debtor).

Legal proceedings also include drawing up of the so- called “statutory demand”, known as “letters of demand”; and letters before action, as well. These are official written documents, informing the debtor that if the default amount is not settled until a specific date, court actions will take place. Generally, this is the last reminder before the conclusive litigation process and also debtor’s last chance to solve the problem without being involved into court proceedings.

Debt litigation services are the last resort of the consumer debt services process. The case is transferred to legal court and the consumer will be contacted by legal court representatives. He will receive formal subpoena to appear before the law court at a specific date, where he can file his defence. Usually litigation consumer default services are connected with small claims court procedures and court initiated claims.

The debt collection agency is authorised to enforce judgement as well, which can lead to wage garnishment (and in South Africa the agency can also impose an Emolument Attachment order upon subject of debt’s monthly wage), writ for levy of property (confiscating and selling debtor’s property), bankruptcy, etc. According to state and national laws, there are different acts protecting parts of subject of debt’s property, which cannot be seized. Generally, such personal belongings are necessary, needful items with very high importance like clothes, books, wedding rings, food, refrigerator, etc. In Australia, for example, the aforesaid objects are protected under the Bankruptcy Act.

Court settlement consumer debt services can be either free or paid for the creditor. The collection agency can inquire payment from the lender or from the subject of debt. There are some cases, where the litigation actions in individual debt services can be free of charge for the creditor under certain conditions. If the internal scoring, provided by the DCA, indicates that the case cannot be won on behalf of the creditor, but the lender insists on proceeding with court actions, such actions will be performed. If the debtor wins the case, the original lender has to cover the litigation services’ expenses for the debt collection agency.

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