Debt Collection, Part Two
If the creditor’s collection department cannot collect the debt from you, it will next be turned over to an outside collection agency. A collection agency is a company in the business of collecting debts. Many collection agencies work on commission: They usually collect between a third and two-thirds of the amount they bring in for the creditor. Alternatively, some collectors or investors will “buy” bad debts for somewhere around 50 percent of the face value and try to collect for themselves.
Delinquent accounts are usually first turned over to “primary” debt collectors. These collectors try to bring in easier loansones that are only a few months behind. If they are successful, they receive about one-third of what they collect. If a primary collector can’t get you to pay within six months or so, the loan is usually turned over to a “secondary” collector. The secondary collector tries for another six months or so to collect. If successful, the debt collector will receive a commission of up to 45 percent. If the secondary collector can’t secure payment, the debt may be turned over to a third collectorthe “tertiary” collector, who will earn a commission in the 50 to 55 percent range.
Credit card accounts are considered tough by many collectors, because in most cases the bank’s internal collectors have already triedand failedto collect. For that reason, some agencies start legal proceedings very quickly on delinquent credit card accounts. Others hire lawyers to send letters threatening legal action: If you don’t pay, they say, they’ll turn your account over to a lawyer for legal proceedings.
Remember, paying the creditor before the account is sent to collections is beneficial both to you and to the creditor to which you owe the money. The creditor saves the collection fee and you avoid a collection account listed on your credit record. Although not frequently the case, creditors’ internal collection agents may also earn commissions on the debts they collect. If that is the case, it is in the collector’s personal interest that you pay. Make it clear to the collector that you understand how this process works, and that you are amenable to working with them.
Once your account has been turned over to a collection agency, you usually can no longer negotiate with the original lender. If you call them to discuss the debt, they’ll just refer you to the collection agency.
Don’t assume a debt has been “forgiven” if you don’t hear from a creditor or collector for a while. Collections may start three, four, or five years after a debt was charged off by the bank, if it has been passed on to several collectors, or if your financial situation has improved and a collector discovers you may be able to pay.
It usually takes debt collectors about thirty days to “close a case.” During that time, a collector may contact you almost a half dozen times.
