Legal Credit Collection Services
Despite the negative connotation that is often associated with the word debt, there are good things that can come with debt in addition to the bad. Owning a home is a positive thing that comes with debt because in theory it is a long term investment that can pay dividends for an individual in the future. Owning a car is often considered good debt as well. However, even good debt can quickly become bad debt if individuals lose their ability to pay for the item they went into debt to acquire. When their debt becomes past due and the creditor has had enough, individuals are often faced with credit collection services contacting them in search of money.
Credit collection services have long been criticized for questionable tactics and borderline abusive efforts to resolve debt problems. As a result the federal government enacted the Fair Debt Collection Practices Act in 1978 to govern the manner in which debt collectors operate. Additionally, each state in the U.S. has enacted their own laws to further define the manner in which debt collectors operate.
Credit collection services operate in three major ways. These include:
- First party credit collection services
- Third party credit collection services
- Debt purchasers
First party credit collection services are usually a subsidiary of the company that issued the credit initially. While not illegal in nature, first party credit collection services are not held to the same standards as third party groups and are not necessarily required to follow the same laws. Despite the fact that they do not need to adhere to all the same laws as third party groups, first party collection services have a greater incentive to go about the debt collection process in a constructive manner because they are directly linked to the creditor.
A first party collection service is usually the first group to work with the debtor to resolve their credit situation. If, however, after several months of work they are unable to resolve the situation the creditor is likely to move the case on to either a third party group or conduct a debt sale.
Third party credit collection services take on a debt case for a fee and will pursue the resolution of debt on behalf of the creditor. These groups take over all efforts to recover debt from debtors by communicating with the debtor and attempting to work out a repayment plan. In the event a third party credit collection service is unsuccessful in resolving the dispute, they can recommend the creditor move the case toward litigation.
If a first party credit collection service is initially unsuccessful in their attempts to recover debt, they can also sell off the debt to debt purchasers and wash their hands of the problem all together. Debt purchasers offer the creditor a chance at immediate, although reduced, revenue by purchasing the debt from the creditor and then pursuing payment from the debtor. Agents working for these groups will pursue full payment, often plus interest, from the debtor. These credit collection services are often the most likely to flirt with illegal practices because many of their agents work on commission and are highly motivated to get the debt recovered quickly.
Regardless of the type of credit collection service there guidelines that every credit collector must follow in pursuing debt owed to a creditor. They include but are not limited to the following:
- No harassment: abusive or profane language and threats of physical harm are off limits
- No false statements: collectors must clearly identify who they are and what their purpose is
- They may not make public disparaging remarks about debtor’s finances
- They may not seize any property or garnish wages of debtors without successful legal action first
Credit collection services are a necessary part of any economy. Creditors with large outstanding debt belonging to clients will see their cash flow pinched by outstanding debts owed to them, dampening their ability to continue conducting business.