How to Deal with Collection Agencies

By Allison Martin Last updated Jan 16, 2020

Are you worn down by the constant letters and calls from collection agencies? Maybe you’re drowning in debt, strapped for cash, and don’t which way to turn for help. Regardless of your situation, there are ways to find relief from those pesky debt collectors.

But it’s important to understand what types of collection agencies exist, their role in the debt collection process, and your rights when dealing with them.

The Role of Collection Agencies

In a nutshell, collection agencies are entities that work on behalf of creditors to collect amounts owed on delinquent accounts. There are two types of collection agencies to be aware of.

In-House Collection Departments

Before an account is turned over to a third-party debt collector, most companies will attempt to collect what is owed through their in-house collection department. Doing so gives them a better chance of recouping most or all of the outstanding balance. Furthermore, they won’t take a substantial loss by writing off the debt and selling it to an outside agency since they’ll only get pennies on the dollar.

In-house collection departments may be willing to negotiate a settlement agreement, but the chances are highly unlikely. Instead, you’ll usually find that they’re open to working out some sort of payment arrangement to help you pay back what you owe over time without spreading yourself too thin. They may also agree to refrain from reporting additional late payments on your credit report so you can preserve your credit rating.

Outside or Third-Party Debt Collection Agencies

If the account sits on the books for too long in an unpaid status, usually between 90 and 180 days, the company will write it off and sell to a third-party debt collection agency. At this point, the debt collector will reach out in writing with a notice that indicates you have 30 days to respond regarding the validity of the debt. If you don’t, it will be reported to the credit bureaus as a collection item and the collection texts, calls, and letters demanding payment will commence.

They may be willing to work with you to get the debt handled, but paying it in full won’t necessarily improve your credit score. In fact, the debt will still linger for seven years from the initial date the delinquency was reported, but they will update the account status to settled or paid in full. However, you may be able to negotiate a pay-for-deletion to make them remove the negative entry from your credit report and go away.

But if you ignore them altogether, they may sue you in the court of law to collect the amount owed. This could result in a judgment and more severe consequences, like wage garnishments.

What Do Debt Collection Agencies Do?

Ultimately, their goal is to get you to pay up, even if it’s for a portion of what you owe. But they can’t just go about collecting on the debt in any manner that they please. Instead, they must follow the rules outlined in the Fair Debt Collection Practices Act (FDCPA) or they could face harsh consequences.

Your Rights Under the Fair Debt Collection Practices Act

According to the Federal Trade Commission, it’s “illegal for debt collectors to use abusive, unfair, or deceptive practices when they collect debts.” And if they do so, the debt collector will be in direct violation of your rights under the FDCPA.

Below is a summary of your rights under the FDCPA:

Debt collectors cannot call you before 8 am or after 9 pm. However, they can reach out if you agree to be contacted outside of these hours.
Debt collectors cannot call you at your place of employment if you notify them that these types of calls are not permissible or that you do not wish to be contacted there.
Debt collectors cannot divulge the details of the debt to anyone outside of your spouse or parents (if you’re a minor).
Debt collectors are obligated to mail you a written validation notice detailing the applicable balance, creditor’s information, and how to handle the debt if it doesn’t belong to you. They have five days from the initial date of contact to do so or they are in violation of the law.
Debt collectors cannot use language that is abusive, make false threats, or harass you regarding the debt.
Debt collectors must stop contacting you if you send a letter requesting that they do so. It’s called a Cease and Desist Letter should be sent via certified mail with a return receipt so you’ll know when it’s in their possession. Upon receipt of the letter, the debt collection agency is permitted to reach out one more time notifying you of their next course of action. (Quick note: by sending out a Cease and Desist Letter, you may be putting yourself at an increased risk for a lawsuit since the debt collector will no longer be able to communicate directly with you to find a resolution).

Are Business Debts Covered Under the FDCPA

Unfortunately, business debts are not covered under the FDCPA. The rules only apply to revolving and installment personal debts, including credit cards, personal loans, auto loans, home loans, student loans, and mortgage loans.

What To Do If Your Rights Are Violated

If you feel as if a debt collection agency has violated your rights under the FDCPA, you can reach out to the Federal Trade Commission (FTC) or the Attorney General’s office in your state of residence. You can also file a formal complaint online using the tool offered by the Consumer Financial Protection Bureau.

You also have the option to file a lawsuit. And if you win, you could be awarded damages or fines of up to $1,000 in addition to any legal fees incurred. The latter includes court costs and expenses associated with hiring an attorney.

But keep in mind that even if one of these agencies rule in your favor, you’re still on the hook for the debt.

Debt Collection Scams

Not all collection agencies are created equal. In fact, some are scam artists looking to prey on consumers that are already in dire financial straits.

The first sign of a scam artist is one that is calling about a debt you have no knowledge of and are certain that you don’t owe or doesn’t exist. Other signs to be on the lookout for, per the FTC, are companies that do not have a mailing address or phone or request information that is highly sensitive. They may also be a scam artist if they threaten to turn you over to the local authorities.

If you’ve been contacted or have fallen victim to debt collection a scam, report the incident to the FTC right away. You should also call your state Attorney General’s office and request assistance regarding what your next course of action should be.

Best Practices When Dealing with Collection Agencies

Validate the debt first.

There’s no way to know if the debt collection agency is legally able to collect on the debt without validating it first. By sending a letter to the credit bureaus disputing the accuracy of the debt or communicating that you have no knowledge of it, you’ll force the debt collector to provide documentation showing that you actually owe and that they can legally collect on it. If they’re unable to do so, the collection efforts stop right there.

But if you recently received a written validation notice and still in the 30-day window, all collection activities must come to a halt until the debt collector sends over proof that you owe. This could be in the form of a bill from the creditor or a copy of the original contract.

Ask the collection agency to only communicate in writing.

Debt collection agencies can make one deal on the phone and act as if they have no idea what you’re referring to when it comes up later on down the line. That’s why it’s best to only communicate with debt collectors in writing.

Record all telephone correspondence.

If they do insist on calling, don’t answer right away. Instead, allow them to leave a message and only return the call once you’re able to record it via a handheld recorder or your mobile device. During the call, reiterate that you’d like to receive written correspondence. And if you reside in a state that requires you to disclose that conversation is being recorded, be sure to let them know.

Take detailed notes from phone conversations.

Request the name of the representative that you are speaking to and not the date and time. And simply listen to what they are saying. Refrain from divulging any information or it can be used against you later on in the court of law. As mentioned earlier, remind them that you’d prefer that they stop calling and forward all further communication to you in writing.

How to Remove Collection Accounts From Your Credit Report

Looking to remove collection accounts from your credit report? Follow the detailed instructions in our handy guide found right over here. (insert hyperlink to other article) Another option is to hire a reputable credit repair company to do the legwork for you.

The Bottom Line

By knowing how to deal with collection agencies, you’ll be able to alleviate the stress that comes with the letters, calls, and texts demanding payment. And if all else fails, you can always send a Cease and Desist Letter and hire an attorney to take it from there.