The debt collecting world is a vicious one. It is a world that preys on the fear and lack of knowledge of the consumer. If there is one thing that people don’t want to lose, it is their money, and when someone comes along and threatens to take it, people tend to panic and start to make deals to soften the blow.
However, when a collection agency phones you, don’t think for one second that they are doing it for all the right reasons. For the most part, debt collection agencies are in it for themselves. They are companies who exist to line their own pockets. The question is how they make their money?
To understand how these companies work, it is important to know that there are two main groups of collection agencies, the ones who collect on behalf of a creditor and the ones who buy your debt.
Debt collectors on behalf of the creditor
In most cases, these debt collectors are the lessor of the two evils. These are third-party agencies that collect outstanding debts on behalf of creditors. However, they only get paid if the debt is recovered.
Seeing that the collectors do most of the heavy lifting, they also get a decent percentage of the debt. In some cases, the debt collecting agency can receive as much as fifty percent of the debt that was recovered.
These agencies don’t buy the debt over, so the debt is still owned by the creditor. Therefore, the creditors have the final say as to when a debt is considered paid. The creditors are already at a loss, so there are instances where they give the collection agency the power to negotiate repayment terms.
The agencies can also negotiate with the debtor to pay less than what is owed, but seeing that they rely on the debtor’s money, they will only use this strategy as a last resort.
It becomes an ugly business when the collection agency tacks on extra fees and penalties for outstanding debt and this is where the debtor often gets screwed. The agencies sometimes add excessive fees which is not legal.
Registered debt collectors have a maximum fee that they can add to the debt, but the fearful indebted often don’t know about these limits.
Debt collectors who buy outstanding debt
These are the debt collectors that people are warned about. It is a cutthroat business, and unlike the previous group, they are more exposed to loss than the however, the principle is the same.
The creditors see the debt as a loss and would rather get something from the debt rather than nothing. Thus, they sell the debt at a fraction of the cost to the collection agencies and write the rest off as a loss.
Now that the collection agencies own the debt, they have to follow up on their investments. This is where you get hounded by phone calls and emails that demand your attention. This is where certain agencies start with the scare tactics and use the fear of the debtor to get what they want.
Creditors often sell off bundles of debt that has a low likelihood of being recovered, such as debt that falls out of the statute of limitations. This makes it illegal to collect on the debt.
However, these companies only need an admission of guilt for the debt to be made active again. This is where they have swindled many a debtor out of money that they were not even allowed to collect on.
Seeing that the collection agency bought the debt over, they can do with it as they please. They can negotiate new repayment terms and even lower the total amount owed, but that is hardly ever the case.