The label collection agency is frequently applied to third-party agencies, they are named that because they were not a party to the original contract. The creditor gives accounts directly to such an agency on a contingency-fee basis, which ordinarily at first costs nothing to the creditor or merchant, except for the cost of communications. This be that as it may is dependent on the individual service level agreement that exists between the creditor and the collection agency.
The agency will accordingly obtain a percentage of the debt that is successfully collected; frequently known in the industry as the "Pot Fee" or potential fee upon successful collection. This does not accordingly have to be upon collection of the full balance and oftentimes this fee is paid by the creditor if they scratch out collection efforts before the debt is collected. The collection agency makes money only if money is collected from the debtor. Depending on the kind of debt the fee ranges from 10% to 50%.
Certain agencies propose a flat fee, typically $10.00, "pre-collection" or "soft collection" service. The service sends a string of increasingly high priority letters, usually ten days apart, instructing debtors to pay the amount owed directly to the creditor or risk a collection action and negative credit report. Depending on the circumstances of the contract, these accounts may transition to "hard collection" status at the agency's regular rates if the debtor does not reply.
In the United States, consumer third-party agencies are governed by the Fair Debt Collection Practices Act of 1977 (FDCPA). This federal law is governed by the Federal Trade Commission or FTC. This act limits the hours during which the agency is permitted to contact the debtor and prevents communication of the debt to a third party. It also prohibits false, deceptive or misleading representations, and prohibits the agency from making threats of actions the agency cannot lawfully or does not intend to take.
In the United Kingdom third party collection agencies that pursue debts regulated by the Consumer Credit Act must themselves hold a Consumer Credit Licence; this is a requirement under the Consumer Credit Act 1974.
Licenses are distributed and regulated by the Office of Fair Trading a government body which protects consumers from immoral traders. In order to retain their license third party agencies must work within the framework outlined within the 2003 fair debt collection guidance.
Author Resource:-
Mallory Megan is employed by a collections agency that works with a debt collection lawyer. Also, she does stories on business and finance, the credit industry and collections agencies.
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