Collection Agency

Collection agency summary: 

• A collection agency is a company that tries to persuade people to repay or renegotiate past-due debts.

• Some collection agency teams work with the original creditor, while others are debt buyers who purchase charged-off debt for pennies on the dollar.

• If you’re contacted by a debt buyer collection agency, you have additional rights under the federal Fair Debt Collection Practices Act (FDCPA).

Collection Agency Definition and Meaning

A collection agency is a company that earns money by getting people to pay overdue debts. When people fall behind on their bills, such as loan payments, credit cards, or medical bills, sometimes those debts can “go to collections” by being assigned to (or sold to) a collection agency. 

Collection agencies often work with a creditor like a bank or a credit card company to collect debt that is owed to that creditor. But if these overdue bills go too long without being paid, the overdue debt sometimes gets “charged off” (written off as a loss) by the original creditor and sold to debt buyers. 

Collection agencies sometimes use high-pressure methods or unscrupulous tactics to persuade people to pay their bills. But being contacted by a collection agency doesn’t mean you did something wrong, or that you’re in trouble. The collection agency might be easy to work with, and help you set up a payment plan, or agree to settle the debt for less than the full amount you owe.

Even if you owe money to a collection agency, you have legal rights and options for navigating the debt collection process and resolving the debt.

Types of Collection Agencies 

There are a few types of debt collectors. They can all be called collection agencies. Your experience might be different based on the type of collection agency that contacts you: 

• Internal collection department: Some banks, credit card companies, and other big creditors have teams of employees who work as the in-house collection department. This internal team of debt collectors might contact you by phone or in writing to ask about overdue bills or unpaid debts. 

• Assigned collection agency: Some collection agencies work with creditors to collect unpaid debts. You still owe the debt to the original creditor. But you might hear from a  third-party company that’s been hired to try to create a repayment plan or otherwise negotiate the resolution of your debt. 

• Debt buyers: If you have a debt that goes unpaid for too long, it might become a charge-off. This means that your creditor has decided to write off the debt as a loss, and has sold your debt to a debt buyer, often for pennies on the dollar amount of the original loan. When this happens, the debt buyer collection agency becomes the owner of the debt. You no longer owe money to the original creditor. 

Collection Agency Key Attributes

The type of collection agency that contacts you about your debt affects your rights as a borrower, and your options for negotiating or resolving your debt: 

• Original creditor: When your original creditor is paying the collection agency to collect, the agency is considered the original creditor. 

• Debt buyer: If the collection agency is a debt buyer who purchased the right to collect your debt, different rules apply. This type of collection agency is covered under the Fair Debt Collection Practices Act (FDCPA). As a borrower, you have rights under the FDCPA to verify your debt, ask the debt collector to stop contacting you, dispute the debt, and more.