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Five Collection Agency Myths and the Reality Behind Them

  • Written by Steel Rose

Here are five of the most commonly held myths about collection agencies, along with the reality behind each of them:

Myth 1: Collection agencies mistreat customers and drive away business.

 Reality: One of the most important things good collection agencies do in their training of agents is to instill an understanding of the Fair Debt Collection Practices Act and the appropriate means of helping people owing a debt to pay it. The Act itself was created to protect consumers from unfair practices and sets many standards that must be followed by debt collectors, including collection agencies as well as collection lawyers and any business facing overdue debt.
 Myth 2: Collection agencies are scams and not real businesses.

Reality: While a handful of agencies may continue to operate in grey areas with questionable practices, most work extremely hard on compliance and governance. Collection agencies partner with each other through organizations such as ACA International and with other organizations, including Chambers of Commerce and regional Better Business Bureaus. Most also possess industry-specific compliance certifications, such as the HIPAA Seal of Compliance, and follow federally mandated and regulated standards. When a collection agency embraces protocols such as these, it can take a place among the most ethical and compliance-focused businesses in the country.

Myth 3: Collection agencies have no more power to collect than any other business.

Reality: When a collection agency calls a debtor business or individual on a client’s behalf, that alone can be a powerful motivator to pay. But there is more to it than third-party psychology. Collection agencies are empowered to report unpaid debt to credit bureaus such as Equifax, Experian, Transunion and Innovis for consumers and Dun & Bradstreet for businesses. Not all collection agencies report to all credit bureaus (because doing so takes time and is costly), but a majority report to one or more. Credit bureau reporting can give collection agencies an advantage over lawyers and other means of collection because when a debtor fails to pay, it shows up on his or her credit score and credit report until the debt is updated as paid in full. This can make it impossible to get a mortgage, finance a car, get a credit card or even be hired for a job where a clear credit report is required.

Myth 4: Collection agencies can’t take a debtor to court — and you still need a court judgment.

Reality: While only a small percentage of most collection agencies’ accounts proceed to litigation, it is sometimes necessary. Some collection agencies work with lawyers in such cases, and larger agencies have in-house legal departments that handle lawsuits and all the related processes. And while in the vast majority of cases collection agencies do not need a judgment to collect, they often help people who have been awarded one by the courts but have been unable to collect on it.

Myth 5: Collection agencies are risky and cost too much.

Reality: Collection agencies usually charge a percentage of the amount being collected, which can range from 20% to 50%, depending on the age and type of debt. And while this compares quite favorably to legal fees, most lawyers charge upfront for costs and their fees usually need to be paid regardless of success or failure. In contrast, the risk to a collection agency's client can be very low because most agencies cover all out-of-pocket costs and work on a no-collection-no-fee basis. That means if the collection agency is unsuccessful, you pay nothing at all and the agency loses money. Good collection agencies are highly incentivized to collect quickly and efficiently, which works out well for the client. It offers freedom from throwing good money after bad and enables clients to test a collection agency with minimal risk. To read more click here.