Debt recovery company

Helene Mueller
eCollect support team

A debt recovery company is considered as such when it is registered and licensed to carry out the debt collection process. Diverse state and national laws regulate the actions of debt recovery companies. In order to operate as such, a debt collection agency has to perform not only legal but also ethical recovery process as well. A debt collection company offers various collection services always in return for a payment (collected either from the subject of debt or from the creditor). This amount is called “interest” and its percentage is controlled by law. In the UK, for example, this rate is no more than 8% of the overall debt sum. A lot of creditors prefer to hire an experienced debt recovery agency, rather than collecting the default payments by themselves, as the whole debt recovery is a costly and time-consuming process. This is the reason why a lender usually chooses collection agencies over his own internal debt collection subdivisions. Today debt recovery companies have become a typical phase of a successful debt collection process, which has been provoked by the augmentation of debtors.

Debt recovery company- models and components

Debt recovery companies stand out with different models and can be generally divided into three common subdivisions. A debt recovery agency can collect debts and also by default profiles from creditors. In such case, it is considered as a debt buyer. A debt purchaser will go after bad debts, marked by the creditor as uncollectible. He will pay the lender a portion of the debt sum and become the new creditor.

A collection agency can act as a private and licensed debt recovery company. In this case, it operates as a third party, separately and independently from creditor’s organisation, and is not involved in the official lending contract between the creditor and the consumer (debtor). These collection agencies are known as “third-party” debt collection companies. They always charge a commission percentage, which is based on laws’ regulations. The interest sum can be collected either from their clients or from their clients’ debtors. According to law, both options are legal, it depends on the collection company’s policy. A third-party debt collection company is regulated by different acts and laws: Financial Conduct Authority (UK), the Fair Debt Collection Practices Act (US), Rules of Civil Procedure (in German: ZPO), the Office of Consumer Affairs (for Canada), etc.

A debt recovery agency is named as “first-party” when it is a section of creditor’s company. It operates under the same organisation’s name and can act under different lender’s financial subdivisions. Such debt recovery agencies have the right to collect debts but cannot charge the subject of debt an interest fee as a collection agency. However, according to some laws (in the UK, for example), a creditor has the legal right to charge his debtor a fee for unsettled late payments. According to the FDCPA (Fair Debt Collection Practices Act) a debt collection agency, registered as a U.S. collector, is considered as legal debt recovery company only if it operates under a different name than the creditor’s company. That is why the FDCPA generally applies only to third-party DCAs (Debt Collection Agencies).

Debt recovery companies- default payments and collection process

Generally, a debt recovery company will go after unsecured payments, as they have no collateral like the secured loans. Secured debts are easier to collect. Even if the debtor has no finance to settle the amount due, the creditor is legally authorised to confiscate the item, marked as a collateral in the contract. Unsecured payments, on other hands, are harder to recover, as there is no collateral following them whatsoever.

Debt recovery companies can collect consumer or commercial delayed payments. If the agency specialises in the collection of individual debts, it is called consumer DCA. If it recovery only corporate debts from corporate organisations, it is known as business debt recovery agency, also named B2B collection agency.

No matter if debt recovery agencies collect unsecured commercial or consumer debt, the collection procedure is the same. Every debt collection agency uses standardised tracing methods, along with wide multichannel contact network, consisting of phone calls, voice and fax messages, post letters, emails, etc. (commonly known as pre-legal actions). Debt recovery agencies are licensed to perform personal visits to debtor’s premises, usage of bailiffs, debt collection solicitors, and enforcement agents. They can even proceed to court actions if the pre-legal proceedings do not provide a positive effect. As a service, a debt recovery company also usually provides the creditor with continuous monitoring of past debtors. The aim of this service is to prevent commencement of new debt profiles and payment issues. If the debt collection company distributes commercial debt recovery, it can also carry out additional screening of creditor’s future business partners. This supervision provides the lender with information about such partners: their credit history, financial state, probability percentage of whether such corporate partners are likely to run into debt or not.

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