Collection Agency FAQ's:
Answers To Often-asked Questions
about Collection Agencies

Thanks for visiting our Collection Agency FAQ page. Here you will find answers to the most common questions we get asked about debt collections, debt collection agencies and the debt recovery industry.

While this collection agency FAQ page doesn't answer every possible question about the subject, we feel by that visiting this page, and especially spending time researching the pages of DebtCollectionSteps.com, you will have access to quite a body of knowledge about the debt collections industry.

We invite you to visit the Collection Agency FAQ page often, as well as the rest of the website. If you have a question that you don't find listed here, or the answers aren't contained elsewhere, feel free to post your questions below in the "Ask Your Collection Agency Questions" section below. We will get the answer to your question(s), and post them here for others as well.

Be sure to visit to read submissions from other business owners who either wrote to share their debt collection success stories. Others have written about their internal debt collection problems and concerns.

1. Explain the different types of collection agencies
and how they function?
A collection agency is a third party entity, separate from the original creditor, who collects unpaid debt on behalf of the creditor. There are two types of collection agencies: the first is hired and "works" on behalf of the creditor to collect their unpaid debts. The collection agency doesn't own these debts, as they're still the original creditors'. Any money collected goes back to the creditor, minus the percentage fees charged by the collection agency.

In the second example, the collection agency, or "debt buyer", actually negotiates and purchases the debt portfolio from the creditor for an agreed upon amount. Since they now own the debt, they keep all the money they collect.

2. How do collection agencies get paid?
Most agencies work on a percentage and keep a portion of any money collected. Some agencies work on a flat fee arrangement. Still other agencies purchase blocks of bad debt from creditors. Because recovery rates decrease rapidly over time, these agencies usually negotiate buying these aged, bad debts for pennies on the dollar. They then attempt to collect the full past due amounts from the debtors. The agencies profit from the difference between the amount they successfully collect, against the amount they originally purchased the debt for.

Once a debt is purchased and owned by a collection agency, the debtor will no longer be able make negotiations with the original creditor.

3. What tools do they use?
Collection agencies primarily use letters, called demand letters, as well as the telephone as contact tools. Although they're not attorneys, some may have access to outside legal representation for cases that might go into litigation.

4. Who regulates collection agencies?
They are regulated by the Fair Debt Collection Practices Act(FDCPA), which prohibits and restricts collectors from using threatening, abusive language and other unlawful tactics. While original creditors aren't necessarily bound by these laws, its a good idea to operate within these guidelines to avoid any possible legal actions against them.

5. Do I have to pay extra fees, in addition to the debt, to a collections agency?
Collection agencies are forbidden to charge more than the amount of the original debt. However, if the contract or written agreement with the original creditor states the customer will pay additional collection charges, late fees, interest, attorney fees for an unpaid debt, then those costs can be added to the debt. Review the agreement you have with the creditor.

6. Why can't I just collect the money myself?
You certainly can, but you need to factor in the amount of extra time, staffing, money and work goes that into collecting just one past due account....multiply that by several accounts! In addition to all the added work: sending statements and letters, phone calls, etc., the more important fact is the time taken away from the money-making aspects of your business going after money you've already earned.

7. Aren't collection agencies too aggressive?
While some agencies in the collections industry have a bad reputation, most are professional and adhere to federal and state guidelines that regulate the industry. Violations could result in charges, as well as the suspension and/or revocation of their license. However, they are necessarily firm and direct in order to get a past debt paid. This doesn't mean they have to operate unethically.

8. What are statutes of limitations?
This has to do with the time window that a debt collector can legally sue you to collect and the credit reporting time limit. It can range from 3 to 10 years, depending on your state, with 7 years for credit reporting to the bureaus.

However, this doesn't exempt collection agencies from still contacting you to collect a debt. Debts can be sold and resold, and they often are. Collection agencies can still call and send letters to try to collect old debts. In fact, even after a statute of limitation has expired, many agencies may try to take advantage of the fact that the debtor may not know the laws, or that the time limit has expired. The clock starts over if they're successful in getting the debtor to either pay the debt, or enter into payment arrangements.

9. Can collection agencies report to the credit bureaus?
Even though some collection agencies choose not report to credit bureaus, they can report to one, or all three credit bureaus (Experian, Equifax and TransUnion). Because the general public perception is that collection agencies, as a rule, report to the credit bureaus, this alone is often a very powerful incentive to get customers to pay their debts. As part of their skp tracing abilities, they can request the debtor's credit report to get current contact information, such as an address and telephone number.

10. Can collection agencies be sued?
Yes, they can. If they've been found guilty of violating the Fair Debt Collection Practices Act, they can be sued in state or federal court within 1 year of the violation. They can be held liable for damages suffered, court costs, attorney's fees and up to $1000.

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