Debt collection services

Helene Mueller
eCollect support team

A debt collection service is usually provided by a private DCA (Debt Collection Agency). Such package includes various collection methods and solutions for successful debt recovery. Debt collection service as a definition is used by a recovery agency in order to retrieve bad debts or delinquent amounts owed to DCA’s clients (creditors) by consumers (debtors). A debt collection service is used when the creditor has tried to recover defaults on their own (usually using their own internal debt collection department), but without success. Typically, creditors will then turn to a professional DCA, requesting a specialised debt collection service package. If the debt recovery operation procedure provided by the agency is successful, this will generate a positive cash flow in creditor’s finance system, which will lead to monetary profit for the lender. A debt collection agency offers not only a quality debt recovery services, but also to preserve the good name of creditor’s company. The debt collection service package is usually implemented for payment from the lender, but a DCA can choose to collect its interest from the debtor instead, as it depends fully on agency’s policy and T&C.

Full debt collection service package

Almost every recovery agency provides full debt collection service package for its clients (creditors). This package is generally divided into several large sections, following a consecutive order. If a creditor decides to hire a third- party DCA to perform the collection process, the agency will first start with installing its own debt collection software, consisting of API (Application Programming Interface). This program is the so-called software-to-software debt collection service. It transfers and shares date between the agency and the creditor. This executes a transparent and less time- consuming collection process.

After the software is installed, the debt recovery agency will continue with the tracing and tracking part of the debt collection service. Using specialised systems and teams of professionals, DCAs will locate the debtor and begin the active part of the debt recovery process. Agents will start contacting the subject of debt using written and oral reminders to recall the debtor of his late payments. Written reminders consist of emails, text and fax messages, as well as letters. The first letters usually have friendly tone, as in most cases it turns out that the debtor simply forgot to clear his outstanding balance.

The next step from the debt collection service pack is to send agents performing personal in- house visits to debtor’s property. These are the so- called “doorstep” debt collectors. Some do not possess the legal right to seize property or belongings, but only to offer different payment plans and negotiate with the subject of debt (e.g. enforcement agents). They can also offer to sell some of debtor’s belongings (at auction) and settle the debt in full. If the agent is a bailiff or a legal representative, he is authorised by law to perform seizure, if needed. As debt collection service package usually refers to retrieval of unsecured debts, there is rarely property seizure in such cases. Confiscation of property is typically connected with secured debts, followed by a collateral.

When the in- house visits do not bear positive results, the recovery agency will continue with the legal and court part of the debt collection service package. These sections consist of using debt recovery solicitors, sending different law documents (letters of demand, letters before actions) and transferring the debt profile case to court.

Some debt collection agencies provide additional debt collection service- screening and monitoring. The first service evaluates a percentage rate of probability whether a subject is more or less likely to fall into debt. The monitoring serves for supervision and inspection on old debtors in case new default payments appear.

To provide a professional recovery package, a DCA has to be licensed and registered according to the country of operation. Depending on whether the debt collection service is administered for recovery of commercial or individual debts, there are different law regulations that apply for each case. In US, for example, the FDCPA (Fair Debt Collection Practices Act) applies only for collection of individual debts and provided only by third- party recovery agencies. According to this act, a first- party DCA (representing creditor’s subdivision) is not a licensed debt recovery organisation and cannot perform debt collection service process as a standard DCA. This means that if a creditor decides to retrieve his debts on behalf of his own company, he does not have the right to charge his debtor a DCA interest.

Other national and transnational acts for debt collection service regulation are: the Federal Deposit Insurance Corporation (ext. link 3) and the Consumer Financial Protection Bureau (ext. link 4) valid for US; Debt Collectors Licensing Regulations 1964 for Australia (ext. link 5), Debt Collectors Act 1998 for South Africa (ext. link 6), etc.

Used literature & external links