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How to Deal with Collection Agencies

It's hard to find anybody who likes being contacted by collection agencies. But in case you have to there are some steps on how to make this communication easier for both of you.

Types of Debt Collection

Not all collection agencies serve the same purpose, nor do they go about collecting the debts assigned to them in the same ways. Knowing the difference between the different types of debt collection can help you better understand how best to interact with collectors.

  • First party or “internal” debt collectors work for the same company you owe money to. They are often the first ones to attempt to collect a debt, and therefore usually the most amenable to negotiation.
  • Third party debt collectors have agreed to attempt to collect your debt on behalf of the original creditor and are being paid for that service - usually in the form of a commission based on how much you owe. Third party collectors tend to be more aggressive, but they also want to close the matter quickly, since they will be paid the same amount regardless of how long collection efforts take. Use this to your advantage in negotiations.
  • Debt buyers are the last (and typically the most aggressive) kind of collectors that will contact you. When the original creditor finally gives up and writes off your account as a loss, it will be bundled into a package with many other delinquent accounts and sold to debt buyers for less than its original value. Debt buyers want to collect some portion of the amount as quickly as possible, but if they can’t, don’t assume it will stop there. They may sell your debt again, to another debt buyer, and the cycle could continue for a very long time.

Regardless of what type of debt collector contacts you, remember that they too are a human being, and they have a job to do. Treat them with respect and courtesy, and you will be more likely to be treated well in return.

What To Do if a Collection Agency Calls You

Being contacted by a fast-talking debt collector can be an intimidating and uncomfortable experience. If you ever receive such a phone call, don’t panic. The process of debt collection can be painful and miserable, but it doesn’t have to be. With little research, patience, and charisma, you can handle this situation gracefully.

How to Determine if the Debt is Legitimate

The first thing to do is to ascertain whether or not you actually owe money to someone. You may think that you would immediately know if you were so past due on a debt that it would be sent to collections, but this is not always the case. There are some fairly common situations in which you may be unaware of a legitimate debt. It may be a(n):

  • Old account that you simply forgot about;
  • Technical error or change in banking information that has caused a problem;
  • Deferred student loan that has come due.

In any of the above cases, perhaps you moved and changed your phone number, resulting in the creditor being unable to contact you.

If you don’t recognize the debt in question, inform the agent politely but firmly that you will not discuss the matter until you have conducted your own research; agree on a time for them to call you back, or call them back. Take the following steps:

  • Check your credit reports and attempt to verify the amount owed.
  • Request proof of the debt in writing, such as a signed loan agreement or delinquent account statement from the creditor.
  • Research the collection agency. Unfortunately, a great many calls from self-proclaimed collection agencies are in fact scams. If you were contacted by a computer or auto-dialer, it is extremely likely that the call is not legitimate; do not respond to any such calls, simply hang up and block the number.

Compare the best collection agencies using consumer reviews and ratings; look for behaviors and practices that they have in common. If a great many people report suspicious or unethical behavior on the part of the company that has contacted you, or if you can find no evidence of the company’s existence, odds are high that it is fake.

But take caution when reading collection agency reviews. Because of the kind of business, they are engaged in, many collection agencies have negative reviews in spite of generally conducting themselves appropriately, simply due to the fact that most people don’t like creditors coming after them. You may need to do more (and more objective) research than you would have to do on companies in other industries. If negative consumer reviews are vindictive and highly emotional, rather than factual, take them with a grain of salt.

What to Do if the Debt is Legitimate

If you’ve checked your credit report, researched the collection agency, and determined that you do in fact owe a debt, the next step is to inform yourself about how the process of debt collection works.

Know the Law, Your Rights, and Your Responsibilities

Finance is the most heavily regulated industry in the world by a huge margin. No matter where you live, there are thousands upon thousands of laws governing credit, debt and financial transactions - and many of them contradict one another. You can’t possibly know them all, so stick to the most basic and important ones.

When you borrow money, you have the following legal rights:

  • The right to access your own credit report;
  • The right to dispute information in your credit report; 
  • The right to have incorrect information removed or corrected;
  • The right to limit who can access your credit report (doing this may make it more difficult to obtain new credit).

Lenders and creditors are not the only ones with rules to follow; when you borrow money, you agree to be bound by certain laws and provisions. In addition to whatever specific clauses are contained in the contract you sign, you have to honor the following responsibilities as a debtor:

  • Fully understand the terms of the agreement; claiming you didn’t know what you were signing is not a legal defense;
  • Repay the debt in full;
  • Repay the debt on time;
  • Pay any additional interest or fees associated with late or missed payments;
  • Keep the lender updated with your current contact information;
  • Notify the lender as soon as possible if you suspect fraud or errors on your account.

Just as you have certain legal responsibilities with regard to debt collection, so do the collectors. Legitimate and reputable collection agencies will never employ illegal tactics when attempting to collect a debt.

Debt collectors legally may not:

  • Harass you with endless phone calls, or contact you at “unreasonable” times (defined as before 8:00 AM or after 9:00 PM);
  • Speak to third parties about your debt, with the exception of your attorney (if you have retained one) or businesses or individuals who have some verifiable interest in the debt;
  • Make false statements for any reason;
  • Threaten you with arrest;

Garnish your wages or seize your property, unless the case proceeds to court and is ruled in the collector’s favor (you will know if this happens)

There are many other laws governing what may and may not be done in the course of debt collection. If you are ever unsure about the law or need more information, consult an attorney who specializes in debt collection.

Ask Several Important Questions

Once you’re sure that the collection agency you’re dealing with is a legitimate business, ask them several questions before you agree to discuss the details of the account in question.

  • Where did this debt come from/who placed this account with you for debt collection? The collection agency should readily volunteer this information.
  • How did you arrive at this amount? The collection agent should be able to explain to you how the total amount owed was calculated, including interest and fees. If you do not understand where each and every dollar came from, or if they are unwilling to give you these details, refuse to discuss the matter further until someone clearly explains the charges.
  • What repayment options are available? The collection agent may initially demand an amount you can’t comfortably pay. You always have some power to negotiate; they would much rather you make some kind of payment than none at all. 25 cents per month on a $10,000 debt is obviously not reasonable, but if you negotiate in good faith, you are likely to reach an agreement satisfactory to both parties.

What to Do if the Collection Agency Is Legitimate, but You Are Not the Debtor

Mistakes happen. You may have a similar name to someone who owes money, or you may have been misidentified as the debtor for a number of other reasons. Before you report a debt collector, take a few simpler steps to resolve the misunderstanding:

  • Be polite but firm with the caller. Explain who you are and that you have never done business with the company in question (or if you have, that it is not your account).
  • Ask them to remove your number from their file and not to call again.
  • Add your number to the National Do Not Call registry.

If these steps don’t work and you decide it’s necessary to report a debt collector, consider filing a complaint with the Consumer Financial Protection Board or the Federal Communications Commission (or their equivalents, outside the United States).

What to Do If You Suspect a Scam

If you determine with a high degree of confidence that someone is trying to scam you:

  • Do not volunteer your full name, birthdate, social security number, or any other type of personal information.
  • Hang up and block the caller’s number. Smartphones have the ability to block numbers built natively into their operating systems; for older cell phones and landlines, call your service provider to have them block the number.
  • Report the call to the appropriate fraud or consumer protection agencies.

What Consumers Like and Dislike About Collection Agencies

Consumers are most likely to complain against collection agencies when they are subjected to:

  • Constant harassment/excessive phone calls;
  • Overly aggressive collection attempts;
  • Unreasonable demands for payment.

Consumers give the best collection agency reviews when they are:

  • Treated cordially and spoken to with compassion and understanding;
  • Given clear and easily understandable information about what they owe;
  • Offered reasonable and flexible repayment options.

Communication with debt collectors can be difficult and painful. But if you follow these simple rules and treat each other with courtesy this interaction can become more pleasant.