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Learn About The Debt Collection Agency

Learn About The Debt Collection AgencyWhat is a Debt Collection Agency?

A debt collection agency is a business that pursues payments of debts owed by individual borrowers or businesses who take out loans to finance their operating model. The majority of collection agencies will operate as agents of creditors; a lender will hire a debt collection agency to expedite the debt collection process. A debt collection agency will attempt to collect debts of a borrower for a fee or percentage of the total amount owed.

There are numerous types of debt collection agencies; first-party agencies are often subsidiaries of the original company the debt is owed to, whereas third-party agencies are separate companies are contracted by a company to collect debts on their behalf without charge. Furthermore, debt buyers will purchase debts at a small fraction of its value, then attempt to collect it. The practices of a debt collection agency can be very aggressive and each country, as well as jurisdiction, will place its own rules and regulations regarding them.

Types of Debt Collection Agencies:

First-Party Agencies: This type of debt collection agency is an actual department or subsidiary of the company that owns the original debt. A first-party debt collection agency will typically get involved earlier in the debt collection process and have a greater incentive to maintain a constructive customer relationship. Because the first-party agency is a part of the original creditor, this particular type of debt collection agency may not be subject to legislation which governs third-party collection agencies.

The name “first-party” stems from the fact that they are part of the first party to the contract. In contrast, the second part is the consumer or debtor. In most cases, a first-party agency will try to collect debts for several months before passing it to a third-party agency or sell the debt and write-off most of its value.

Third-Party Agencies: The generic terms collection agency is typically applied to third-party agencies; the average collection agency takes this form because they were not a party to the original contract. In this format, the creditor assigns accounts directly to such an agency on a contingency-fee basis, which will typically cost nothing to the creditor or merchant, except for the cost of communications.

This relationship however is dependent on the individual service level agreement that exists between the creditor and the collection agency. The agency will take a percentage of debts successfully collected; the collection agency will only make money if the debt is collected. Furthermore, the relationship and the fees associated are dependent on the type of debt, the age of the account and how many attempts have already been made to collect the date. The typical fees associated with a debt collection agency could range from 10% to 50%.