Debt recovery agency

Helene Mueller
eCollect support team

A debt recovery agency refers to a private organisation, specialising in collecting bad debts and delinquent amounts from debtors on behalf of a first party- a creditor. A DCA (Debt Collection Agency) usually recovers unsecured debts, which are not followed by a collateral. They can be either B2B debts (“business-to-business”, also known as “commercial” debts) or consumer (individual) debts. A debt recovery agency can provide recovery services within one country, or on an international level. Depending on agency’s policy and terms & conditions, it can either request interest payment from the debtor, or from the original creditor. The debt collection services can be completely free for the original lender, or partly-paid (usually the legal services require payment). Most debt recovery agencies will not charge their clients until the collection of debts is successful.

Debt recovery agency- target debtors & potential debts

A debt collection agency focuses mainly on unsecured commercial and consumer debts, generally known as “late payments”. A late payment is considered as such when not made in time and the deadline has already passed. In this case, the invoices become overdue and the subject- a debtor. When a late payment appears, a default recovery agency is usually hired to solve the bad debt issues and default payment problems. Commercial and consumer debts can be medical loans, health insurance late payments, education debts, goods and services purchase debts, car loans, debts deriving from unpaid bills, etc. If the recovery agency aims for commercial clients, the process is called business or “B2B” debt collection, where the debtor is a business organisation as well as the creditor. If the debt collections agency goes after consumer default recovery, the debtors will be individuals owing personal debts.

Some DCAs might target not only collection but also debt purchase. Such default recovery agency is called a “debt buyer”, which represents a financial organisation or is a debt recovery agency as well. A debt buyer purchases delinquent profiles from the original creditor in return for a specific amount paid from the full debt sum. After the purchase, the recovery agency can start collecting the past-due debts or hire another third-party DCA to continue with the recovery process.

A collection agency will be hardly interested in secured debts, as they are followed by a collateral. I.e. when a subject has a secured debt, the creditor has the right to take debtor’s personal belongings (e.g. house, car, etc.) in order to cover the full debt amount. This is the so-called “foreclosure” process, where the original lender seizes property equal to the debt amount and then sells it at auction to recover his money.

Debt recovery agency- jurisdictions and permitted actions

Depending on the collection agency’s country of operation, different laws and acts apply in order to regulate the DCA’s actions and rights. In the UK their actions are described in the FCA (Financial Conduct Authority), the FTA (Fair Trading Act), the OFT (Office of Fair Trading), the Administration of Justice Act 1979, etc. In the United States of America, the main regulator is the FDCPA (Fair Debt Collection Practices Act), the FTC (Federal Trade Commission), the CFPB (Consumer Financial Protection Bureau), etc. In Canada, there are different regulations for the different states: the Collection Practices Act (for Alberta), the Collection Agencies Act (for New Brunswick and Nova Scotia), etc.

The European Union has some international regulations as well, such as the EOP (European Order for Payment), the EEO (European Enforcement Order), ESCP (European Small Claims Procedure), etc. There are also some international organisations, which regulate debt collection agency’s activities: FENCA (Federation of European National Collection Associations), BDIU (translated as “Federal Association of German Debt Collection Companies”), ACDBA (Australian Collectors and Debt Buyers Association), etc.

The standard DCAs’ permitted actions are generally the same for most of the countries. Collection agencies can collect delinquent amounts on behalf of the original creditor. A debt recovery agency also has the legal right to charge either its client or the subject of debt a commission fee, strictly regulated by law. They are allowed to use different pre-legal and legal methods of debt recovery, including phone calls, sending letters of demand, in-house visits and can even hire legal debt collection solicitors, as long as these methods are not in breach with debtor’s rights as a consumer. If they cannot contact the debtor, they are authorised to call relatives or employers, but only if they keep the matter of the call confidential. All their recovery tools and techniques are ethical and in compliance with different laws. A debt recovery agency does not only aim to collect the debt amount in full but also to preserve the business relationships between creditor and debtor.

Used literature & external links

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