Debt Collectors and Debt Collection Practices

Collection efforts can typically be lumped into two different stages.

Pre-Charge Off

The stage when the creditor gives the debtor notice that the account is in default and will be sent to collections if a payment agreement is not made by a specified date. Accounts vary with different creditors and their standard operating procedure, but accounts will remain delinquent and in the pre-charge off stage for about 6 months.

Charge Off/Post-Charge Off

In this stage the original creditor has typically exhausted their collection efforts and the account is written off as a loss for tax purposes. The creditor then considers the remaining balance to be a “Bad Debt” or “Charge Off.” This typically occurs after has gone unpaid for 6 months or 180 days (although some creditors may have accounts charge off sooner or later than this. This does not mean the client no longer owes the debt, it simply means the account will be transitioning to a 3rd party debt collector such as a collections agency, law firm or remain in house were further collection activity (but usually less aggressive) is pursued.

What are Collection Agencies?

In essence, collection agencies are 3rd party institutions that try to profit from purchasing your debt from creditors (i.e. the original owner of the debt). Since 3rd party debt collectors purchase debt from financial institutions, they are not actually the original owner of your debt. Due to this there are clear federal guidelines on what they can and cannot do in order to collect. Original creditors are typically allowed more leeway in pursuing collection activity.

How Do They Buy Your Debt?

After a set amount of time, credit card companies and banking institutions sell your debt for a lot less than the original amount so that they can bypass the work of having to collect from you.

What Should You Know About Collections?

The main thing to know is that you as a consumer have rights. All consumers should be aware that they have rights under the FDCPA (Fair Debt Collection Practices Act). The FDCPA was put in place to help protect consumers from abusive or deceptive debt collection practices. Debt Collectors are legally not allowed to contact you before 8 am or after 9 pm or at your place of work (as long as you make them aware they are doing so) and not allowed to you incessantly harass you. Debt collectors that clearly violate the terms of the FDCPA can be sued for damages and legal fees within one year of the violation. You can even counter sue creditors who practice bad collecting habits such as calling at illegal times or harassing you at work. This can cost the collections agency more than the debt they are collecting on is worth.

Ask for Written Correspondence

The best move for you to make is to request that they send all further communication in writing or stop contacting you entirely. You can do this by sending a letter to the debt collector telling them to stop contacting you. They will need to stop calling you at that point. This doesn’t mean that they can’t still report to credit bureaus or look to sue, but it will allow you time and quiet before figuring a plan out.

What Should You Do if You’re Harassed?

If you do experience any harmful practices by a debt collector it is best to file a complaint through the CFPB, FTC, and your states attorney general. If you win a case against the collector, they will have to pay for your attorney fees and possible damages as well.

Post-Covid

Under Covid, collection practices have slowed down. Collections on federal student loans were stopped, with most court houses being shut down or operating at less than normal speeds legal pursuits have slowed down, many states have added protections for families facing garnishment and limiting how much can be taken, as well as what can be taken. The leniency has now passed and things are back to normal but many of these post-Covid precedents have stuck. Ultimately this is a good thing for consumers and a win to those experiencing harmful debt collection activities.