Credit collection agency

Helene Mueller
eCollect support team

A credit collection agency, also known as “debt collection agency” operates according to different state and international laws. Such organisations supply creditors with ethical and compliant debt recovery services in return of a percentage payment, called “interest”. This commission fee sum can also be collected from the debtor. A debt collection agency interferes with the recovery process, when default profiles and late payments appear. Recovery agents use different methods and techniques to contact the debtor and restore the total debt amount. Debt collection agencies (DCAs) operate with effective collection systems including various communication methods, different pre-legal actions, usage of debt recovery solicitors, attorneys, enforcement agents and bailiffs; and when needed they can proceed with litigation and court actions. A credit recovery agency not only recovers bad debt amounts, but also offer continual monitoring and scoring for the creditor, as well as preservation and protection of lender’s good name and reputation.

Credit collection agency- groups

A credit collection agency does not only recover credit card debts, but also student loans, unpaid parking fees, bank account debts, personal debts, etc. Here the term “credit” does not refer to a credit card default, but to the finance definition for monetary trust or financial loan. This process allows a first party (creditor) to lend a specific amount to a second party (consumer), both signing a legal contract for the credit granted, specifying deadline for reimbursement of the same loan. This credit may consist of goods or a monetary sum.

Depending on the type of debt recovered, a DCA is subdivided into two main branches. If the credit is borrowed to an individual, the debt is also an individual and the debt recovery company is called consumer debt collection agency. If the amount is granted to another organisation (creditor and debtor are both businesses), the DCA is operating under the term business or commercial debt collection company.

Depending on DCA’s and creditor’s trading name, the recovery institution is also split up into two sectors. If the DCA operates under the same company name as the creditor (i.e. the agency is part of creditor’s organisation), then it is known as first-party default collection agency. If the recovery agents are not part of lender’s corporation and act separately, representing a private debt recovery organisation, they are part of a third-party debt collection agency.

According to DCA’s field of operation practice, a recovery institution can be recognised either as local or as international credit collection organisation. A national debt recovery organisation carries out the collection process within only one country, while the transnational DCA can operate on nationwide, even worldwide level, providing debt collection services all over the world. An international defaults collection agency has to be in compliance with local, international and EU laws and regulations.

Credit collection agency- statute barred debt

There is a close bond between time-barred debts, statute of limitations and a debt collection agency. The statute of limitations (statutory debt limit) is generally the time frame, within which a lender, or a DCA, has the legal right to perform collection process. After the expiry of the statutory debt limit, the creditor or the credit collection agency will be unable to procure a judgement against the subject of debt or pursue payments from the debtor. However, litigation or court actions can be carried out against the debtor.

Sometimes a credit collection agency is hired to recover too old, time-barred debts, which are legally prohibited from collection after their time frame of recovery has passed. This period is called “debt expiration date” and almost every debt possesses such date. The debt expiration period is different for each country. It depends on the type of debt and on the credit contract- whether it is an oral contract, written one or a promissory note. The limitation period for Australia for written debt contracts is between 3-6 years; in US there are different statute limitations for different states, but mainly the written debts have an expiration date between 3-15 years.

In United Kingdom there are statute of limitations for mortgages (12 years), student/education loans (up to 6-years period), unsecured debts (six years), which are defined by special regulator, called The Limitation Act 1980 (ext. link 7). If the debtor is not a UK citizen, but he owes a default amount to a UK creditor, then the subject of debt along with the delinquent payment will fall under the Foreign Limitation Periods Act 1984 (ext. link 8).

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