TIPS AND ADVICE


The DebtClear Roadmap

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The Business of Debt Collection

The Business of Debt Collection

Debt Collection is a business just like any other business. Debt collectors try to make the most profit they can given their limited time and resources. And no business that is trying to maximize profit is going to spend their limited time and resources chasing their most difficult and expensive clients.

Collection agencies count on your generosity and naiveté. Generosity because they cannot force you to pay a dime unless they sue you and win and enforce the judgment. Naiveté because they are hoping and praying you don't understand your rights under the Fair Debt Collection Practices Act (FDCPA).

Unfortunately, most people don't know their rights under the FDCPA and so debt collectors will employ creditor harassment, threats, intimidation and other illegal tactics to scare or shame you into paying for your debts. Through a barrage of letters and phone scripts carefully constructed to make you pay, they will come at you relentlessly with the hopes that you will eventually pay.

However, if you understand the business of debt collection you would understand that phone calls and letters are inexpensive and lawsuits are expensive. Attorney fees, filing fees, motions and enforcing judgments all cost money without any guarantee of return because as a group those who default on their debt don't have many assets to begin with. So the overwhelming majority of debt collectors will simply call and send letters.

Did you know there is no law requiring you to speak with a debt collector on the phone? In fact, there are laws on the books that allow you to easily stop debt collectors from calling. Chances are that if you ignore their mail as well, eventually the statue of limitations will expire on your debt and it will fall off your credit report.

Original Creditors vs. Debt Collectors

Original creditors are the ones who extended you credit in the first place. They are also the ones who will start calling if you fall behind on your payments. If you fall behind by more than six months, the original creditors will either assign the debt to a debt collector who collects on behalf of the original creditor, or they will sell the debt to a debt buyer or what is also referred to as a 3rd party debt collector.

Original creditors are governed by the FCBA. Debt collectors, who are any people trying to collect after the debt was assigned or sold, are governed by the FDCPA. It is important to know whether you are being contacted by original creditors or debt collectors so that you can understand which consumer protection laws apply to your situation.

Unfortunately, it is just good business for debt collectors to violate your FDCPA rights. Most people don't understand their rights, and of those that do, few seldom use violations to their advantage. Learn about your rights under the FDCPA and sue for violations. You will receive a free case evaluation and free representation if you can demonstrate your rights have been violated.

Defining 3rd Party Debt Collectors

Any companies or agencies that purchase debt from the original creditor debt are defined as a 3rd party debt collectors. Their sole intent is to try to collect on the debt that they have bought. Most likely, they have purchased this debt for 10—15 cents on the dollar so they have more to gain and less to lose than the original creditor.

The 3rd party debt collectors often employ a team of call center staff along with sophisticated technology, including an automated system that includes a data bank, auto phone dialers, and software that shows the data about each caller when the call goes through to the debtor.

The employees of 3rd party debt collectors usually have a script to help them influence you to admit to the debt and agree to some sort of payment. In doing so, they circumvent some very important consumer protection laws you have working for you.

Because you never had a contract with their party debt collector, they are in a precarious position. Can they prove you owe them money? Maybe not. Oftentimes all they have is a phone number, an account number and an amount that you allegedly owe them. If a stranger phoned you up from a company that you never heard of and insisted that you owed them money you would tell them to prove it, right?

Right.

3rd party debt collectors are also easier to settle with because they bought your account for pennies on the dollar. They are also less likely to sue you and less likely to be able to comply with your verification and validation requests.

Knowing Debt Collector Rules

By knowing debt collector rules, there is a lot you can do to make the business of debt collection difficult and expensive for a debt collector. Educate yourself about how to respond to a dunning letter, how to handle "do not call" requests, what your rights are, and how to document violations that can carry serious fines. You can even use the threat of a federal lawsuit for violations of the FDCPA as a negotiation tool to settle or maybe even zero out your account.

For example, did you know that a debt collector's primary job is to get you to admit the debt they are calling about is yours and to get you to pay something, even if it is a dollar? They do this because in doing so you give up your right to dispute the debt and make them prove you owe it to them (something which is hard for them to do) and even a payment of $1 can reset the statue of limitations on your debt (usually between 3-6 years).

Debt collectors count on the fact that you don't know the rules of the game...so you will lose. Fortunately, debt collector rules actually favor you. Read our tutorial on Debt Relief. We'll show you how to play the game, and win!

Handling Creditor Harassment

Before you can handle creditor harassment, you need to know what constitutes harassment. For example, calling your phone once a day may or may not constitute creditor harassment, but calling multiple times does. If you request in writing or by verbal message that a creditor stop calling and they continue to call, you have just been harassed again. If you feel like you are being harassed through the use of threats, verbal abuse, or profanity, this is also considered creditor harassment.

Because being constantly harassed about your debts on the phone is not an enjoyable experience, your first instinct might be to unplug the phone or send a formal do not call letter to the debt collector to get them to stop. However, these actions may inadvertently give them the upper hand.

Creditor harassment that is documented as a violation can carry significant fines and jeopardize a debt collector's business license. If you can prove that a creditor has been harassing you, you might just have the leverage you need to make them back off for good.

Armed with the right information, getting harassed by a debt collector might just not be so bad after all. To learn more about what constitutes creditor harassment and what you can do to turn it to your advantage, check out our tutorial on Debt Relief.

Practically anyone can start a collection company. All you need is a business license, a telephone, and debtor information. Those who work for collections companies most likely earn minimum wage and their day consists of sitting in a cubicle—think call center boiler room—with auto dialers and the objective of trying their best to get people to pay.

You do not—and you shouldn't—have to tell collection companies anything. You don't need to verify who you are, where you work, bank or live. In fact, you don't even have to be polite or talk to them at all. The thing that debt collectors hate to hear most of all is, "I don't discuss financial matters on the phone. Please don't call here again. If you have anything to communicate to me send it in writing."

Collection companies, on the other hand, must follow a number of debt collection laws that, if violated, could lead to serious fines and penalties. For example, debt collection companies do have to be polite and are required to divulge certain information upon request.

The truth about collections companies is that they can only do three things—write, call, and sue. The cheapest thing is to write specifically crafted letters to get you to "buy" what they are "selling". Then, they will call and hope that you don't understand your rights and try to bully, shame and scare you into paying. Finally, most collections companies don't sue because it is expensive and judgments can be difficult to collect on.

The truth is you should only be talking to your creditors on the phone if you know your rights. Armed with the right information you can actually use documented violations and the threat of fines and other penalties as leverage to make them back off or even settle the account.