Dealing with a debt collection agency can be painful. The phone never stops ringing, and they won’t stop asking for money. Agencies have a reputation for pushing the boundaries of the law, using aggressive (and sometimes illegal) tactics, and bending the law to pressure people into making payments.
In fact, at the Consumer Finance Protection Bureau (a government agency that gathers financial services complaints), collection agencies are the fastest growing complaint category. And the main reason people complain: they don’t recognize the debt that is being collected. That complaint is often valid. There is no central registrar of debt, and sometimes the only “proof” that a collection agency has of your debt is that your name is on a spreadsheet. The debt collection market has a high risk of fraud, abuse and simple human error.
In this post, we wanted to make it clear:
- How a debt can end up with a collection agency
- The impact of a debt collection item on your credit score
- Seven things you need to know about a collection agency, and your rights
Why are they calling me?
A collection agency will take control of your account when: they buy the debt, or they are hired by the bank/entity who owns the debt to collect on their behalf.
Banks and credit card companies usually make the collection calls themselves during the first 180 days. However, after 180 days of collection activity, the bank “writes off” the debt. At this point, most major banks will hire a collection agency to collect the debt. And after a few more months, the banks will typically sell the debt to a collection agency. When banks sells the debt, they wipe their hands of the relationship.
The business model of an agency is to collect more from you than they pay for the debt. So, if they pay one cent for every $100 of debt, they will want to collect two cents. That is why they are begging, proddi