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Best Debt Collection Agencies

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Use our guide to learn about and choose the best debt collection agency for you. Debt collection companies vary on the type of debt they collect, how they collect it and fees charged for their services. Under guidance and regulations put in place by the government to help protect consumers, debt collection companies assist creditors such as banks, medical and health care facilities, telecommunications companies and student loan lenders with collecting debts.

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Common questions about debt collection agencies

What are the regulations for debt collectors?

It is important for debt collection companies to avoid legal action by staying compliant with ever-changing industry regulations. These regulations protect consumers by creating business operation guidelines, defining the rights of consumers involved with debt collectors and outlining penalties. Four of the major regulations debt collectors should be in compliance with are:

  • HIPPA/HITECH: For debt collection companies dealing with medical bill collection, the Health Information Technology for Economic and Clinical Health Act (HITECH) makes sure companies are compliant with the Health Insurance Portability and Accountability Act (HIPPA).
  • FDCPA: The Fair Debt Collection Practices Act (FDCPA) limits third party debt collector behavior by prohibiting certain conduct. Examples include regulating hours for phone contact, threatening arrest of legal action and failing to cease communication upon request.
  • FCRA: The Fair Credit Reporting Act (FCRA) is a law that protects consumer's personal financial information and the misuse of credit information. Some common violations of this law by debt collectors have been furnishing and reporting old information and reporting inaccurate information.
  • TCPA: The Telephone Consumer Protection Act (TCPA) restricts phone solicitors and regulates the use of automated equipment. This law applies to debt collectors as well as telemarketers. A common issue with the TCPA and debt collection is the act of calling an individual's cell phone. Debt collectors are required to get written or oral consent to call a personal cell phone.

What methods do debt collectors use?

Debt collection companies use different ways to reach out to consumers when attempting to collect payments. Along with various calling strategies, companies have many options that allow them to get in touch with consumers.

  • Skip tracing: Skip tracing, relating to debt collection, is the process of locating people in debt whose contact information is no longer accurate. Companies use various skip tracing software to obtain someone's updated information. The most common resource is often a large online database, such as internal county databases like the DMV.
  • Account segmentation: Debt collectors prioritize and segment accounts to help build strategies to collect more debt. One example of account segmentation is using critical data such as bankruptcy or deceased records to determine high-risk accounts for early collection efforts.
  • Debt discounting and reduced payments: One strategy debt collection companies use is creating a situation where debt is more affordable. Depending on the type of debt owed and a consumer’s current financial situation, a debt collector might offer to discount the debt. This is always used on a case-by-case basis and depends on each person’s unique circumstances. Monthly payments are another option typically offered by debt collection companies.
  • Technology: Technology tools and software allow debt collection companies to view credit reports in real time, helping them determine collection scores. Collection scores show how collectible a person is. For example, someone who is current on their mortgage and makes car payments on time is more collectible than someone with accounts that have not been paid on for some time. This helps with prioritizing accounts.

What types of debt can be collected?

There are many types of personal debt that can be incurred, and most debt companies specialize in collecting one to three types. It is important for companies to look into which type of debt a debt collection company specializes in. Types of debt include personal loans, cell phone bills, utility bills, bank overdraft charges and auto loans. The most common include:

  • Credit card debt: Since credit cards are unsecured debts, meaning there is no collateral involved, this is one of the most sought after forms of debt. Any unpaid balance will continually accrue debt until full payment is made. This is why collectors pursue a lot more money than what is shown as the final balance.
  • Medical debt: Unpaid medical bills are often viewed as contractual since the patient usually signs agreements stating they will pay for any expenses that come from treatment. Many times people do not have insurance or their insurance doesn’t cover all of the bills. Debt collectors will use many campaigns to collect a medical bill with a final effort resulting in a lawsuit.
  • Student loans: Student loan debt is the largest type of debt in the United States. Some student loans are private, but most are federally subsidized, meaning the government is ultimately responsible for the debt. Private creditors can not forcibly collect money, however, there is no statute of limitations on student loans, which means the government has an unlimited amount of time to collect on them. Almost all unpaid student loans go through a collection process with a third party company. Often this will lead to wage garnishment until the debt is fully paid.

What kinds of fees do debt collection companies charge?

When looking into using a debt collection company it is important to consider their fees and contingency costs. Each company charges for their services in different ways, so businesses should make sure they choose a company that works best for them. A couple of common payment structures include:

  • Flat fee: A flat fee is a predetermined price for each file that is usually offered at the beginning of the debt collection process. Collectors who charge flat fees are typically ideal for companies needing to collect a low number of smaller debt.
  • Contingency: This is the most common payment arrangement used by debt collection companies. Depending on each account's details, such as how old it is or how many contacts have been made, a debt collection company will charge somewhere between 25 percent and 45 percent of the total amount collected. Contingency fees should include all services that will be needed, such as research, credit reporting and legal fees.

What payment options do debt collectors offer consumers?

Debt collection companies offer a few ways for consumers to pay off their debt. Since their goal is collecting debt owed to various companies, they will continuously analyze their clients’ portfolios and try to set up the best payment options based on individual needs.

  • Online payment: Most debt collection companies have a secure online account system where people can create an account to make online payments. As another online payment option, people can choose to have their payments auto-drafted.
  • Phone payment: A lot of debt collection companies let people make payments over the phone. Typically, people can reference letters received in the mail to locate the appropriate office to call or call a general customer service line. Another option debt collectors offer is a toll-free, 24/7, automated payment number. Consumers will need their account number and a valid checking or savings account. Automated phone payments usually come with a convenience fee.
  • Pay by mail: Consumers can mail in their payment to the address located on their notification letter. If an address is not provided in the letter, people can call the customer service number to find the correct location to mail their payment.
  • Wire transfer: Some companies provide consumers with the ability to pay with a wire transfer. There will be a specific phone number on the notification letter or a toll-free phone number to call to utilize this payment method.

What are different types of debt collectors?

Internal debt collectors

Sometimes called first-party collectors, internal debt collectors work for the same company to which money is owed. This is usually the first step in the debt collection process because it is more profitable than contracting the debt to a third-party collector. They are not regulated by the FDCPA and will sometimes send premature collection letters prompting a sense of urgency to pay off debt.

Third-party debt collectors

Third-party debt collectors are hired by companies or original creditors to collect debt on their behalf. They generally work off of a fee structure and do not purchase debt outright but make a percentage of how much they collect. Third-party debt collectors are regulated by the FDCPA.

Debt buyers

After an account has been in debt for an extended period of time, creditors might sell it to a debt buyer at a fraction of the cost. Debt buyers will then attempt to collect on the full amount of the debt owed.

Who hires debt collection companies?

Private loan creditors

Now the largest form of debt in the United States, student loans have become one of the most sought after types of debt. Debt collection companies can work for the creditor by sending collection letters, making calls and using other forms of collection to obtain payments from debtors.

The government

Even though the federal government can issue wage garnishment in an attempt to collect on student loan debts, they will contract with third-party debt collectors to be more aggressive in obtaining payments from debtors.

Hospitals and health care facilities

Hospitals and health care facilities can use debt collection companies to work with debtors to pay off medical bills. They can analyze each account to determine the best route to take to collect payments. From following up with insurance agencies, working out a payment plan, discounting payments or calling on customers, debt collection companies can be a beneficial form of medical debt collection.

Credit card companies

Credit card companies can utilize a debt collection company to send demand letters and make phone calls to try to collect debt. They can help prioritize and segment accounts to determine high-risk debtors.

Not sure how to choose?

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