Debt collection business

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Helene Mueller
eCollect support team

The term ‘debt collection business’ commonly serves as a summary for legitimated and registered DCAs (Debt Collection Agencies), which offer debt recovery services either on the local or worldwide level. Generally, under the definition of debt collection business can fall banks, DCAs or a corporation, collecting debt amounts for itself (creditor’s company). But in the sphere of default payments’ collection, the debt recovery business is connected mainly with recovery agencies. DCAs can represent an agency, which is independent of creditor’s organisation, where the DCA will be known under the term “third-party” default collection business. Or it can act under creditor’s company name; to represent a subdivision in the same organisation and is acknowledged as “first-party” default collection business. Third-party agencies are not connected in any way with the creditor and the lender, and also with the contract, signed between these two sides: first-party (lender) and a second party (consumer/ debtor). Such agencies are hired by the creditor to collect late payments and delinquent amounts from the subject of debt. As first-party DCAs are part of lender’s company, they perform the whole debt collection process within creditor’s organisation. They are authorised to carry out recovery proceedings, but not to charge the debtor a DCA interest fee.


Debt recovery and services

A debt collection business will usually go after unsecured debts, rather than secure. The unsecured debts derive from collateral loans. The definition “collateral” in the finance sphere stands for a guarantee. Such collateral gives the creditor further security, as when the debtor is bound by a secured loan contract his asset is bound as well. This can be a car, personal belongings, rent estates, different investments or collectables. When the subject of debt falls behind with his payments, the creditor has the legal right to confiscate this collateral using different court orders and sell it at auction to recover his loan amount.

Unsecured debts are most likely to be chased by a debt recovery business organisation. The contract is not binding, as with the secured debts; and the creditor has no material guarantee against possible late payments. When the consumer falls into debt, he officially becomes a debtor and the lender will start the collection process. Creditor’s first option is to proceed, using his own finance department- the first-party collection agency; or he can hire a professional debt collection business agency to carry out the whole recovery process. Unsecured debts can derive from credit card purchases (goods and services; website membership fees, home improvement credits, etc.)

A third-party DCA, hired for the collection of unsecured debts, usually offers full package debt collection business services. Unsecured debts are harder to collect, as they are not followed by a collateral, that is why a debt recovery business agency uses various recovery methods, including tracing the debtor, communication (oral and written), in-house visits, negotiation tools for settling the debt, legal proceedings, and court actions.

Necessity and interest

When a creditor owns late payments or written off debts, a default collection business agency is needed. The term “written-off” stands for debts, which are recorded in lender’s system as difficult to collect. He might have tried to collect the delinquent amounts on his own, within his company’s internal departments; or haven’t made any attempts at all to recover these defaults. When a creditor marks his debts as uncollectible, this generates a loss in his financial system. From then on a creditor is most likely to seek professional help from a third-party debt collection business.

A third-party debt collection organisation has more advantages than creditor’s company debt agents (first-party). Such recovery organisation has specialised in debt collection and has developed sophisticated strategies for recovery of past-due debts. A third-party DCA utilises different negotiating methods and collection tools to recover defaults in full. It also strives to provide not only legal but also ethical debt collection services in order to preserve creditor’s good name and his business relations.

Another advantage of the standard debt recovery business (the third-party DCAs) is that these agencies operate not only on local, but also on a transnational level; recovering not only consumer debts from individuals, but also commercial debts from corporations and creditor’s indebted business partners. Debt recovery business agencies are experienced in the recovery of different debts, deriving from unpaid medical bills, health insurance, education loans, late credit card loans, etc.

As some debtors might be more problematic than others, a debt recovery business has its own legal attorneys, enforcement agents and debt collection bailiffs. Some of these agents are authorised by law to seize belongings (either forcefully or with debtor’s agreement) and sell them to clear the debt and restore the full monetary amount to the original creditor.

A private debt collection organisation is fully licensed and registered. A legitimated and insured debt recovery agency provides fair debt recovery services, as it is well familiar with different laws regulating DCAs and protecting consumers. If the agency operates according to local or international acts and regulations, it will never attempt to violate or harass a subject in debt.


Used literature & external links

http://banking.about.com/od/businessbanking/a/collateralloans.htm
 

https://www.moneyadviceservice.org.uk/en/articles/secured-and-unsecured-borrowing-explained
 

http://www.csa-uk.com/