How Do Debt Collection Agencies Work
Debt collection agencies typically fall into two categories, either independent or in-house.
An in-house debt collection agency is simply a different department of a lender that deals with delinquent accounts – accounts that have stopped paying their repayments under the agreement – and may have a different name than the lender to give the customer the feeling that they are dealing with an external organisation. In some cases, the in-house debt collection agency will be in the same building as the lender, so very much in close contact with the lender having up-to-date information on the account.
An independent debt collection agency is an external firm that either buys the bad debt from the lender for a percentage of it’s face value. This can be as low as 7% as I wrote about in What Is The Value Of Your Debts To A Debt Collection Agency?, although sometimes they work on commission, receiving a bounty which will be based on the amount of the debt they are able to recover.
In either case, debt collection agencies will typically attempt to force customers to pay back debts that they may not be able to afford, and in some cases using tactics that are neither ethical or legal.
The important thing to remember is that for debt collection agencies they are simply performing a business function, and so they will not be emotionally involved with your situation so don’t expect any sympathy when dealing with them. The way to deal with them is to maintain a certain amount of professionalism and pragmatism, ensuring that you state your case clearly for what you can afford and trust that they will be reasonable in their approach too.
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