What Is a Debt Collector, and What Do They Do? | Personal Finance

Debt collectors are heroes or villains, depending on your point of view. If you own a business and owe money, hiring a debt collector can help you get it back. If you are the person who owes money, you may be avoiding that confrontation from a debt collector.

Still, whatever your feelings about debt collectors, also often called bill collectors, the good ones are simply doing their jobs. Here’s what a debt collector is and what they do.

What Is Debt Collection?

Debt collection is an industry that exists to help businesses, big and small, get money that is owed to them. Debt collectors work for debt collection agencies, with a mission of convincing people to pay what they owe. It can be a stressful and rewarding job all at once. Debt collectors encounter a lot of people who often want to pay their bills but can’t afford to; at the same time, debt collectors are helping businesses, many that can’t afford to let unpaid bills slide.

There are a lot of reasons somebody winds up owing money to a company. According to the Consumer Financial Protection Bureau, $88 billion of medical bills are currently with debt collection agencies, affecting 1 in 5 Americans.

A bill collector’s job is to try and help the person pay what they owe, which should help improve the debtor’s credit score, and also help the business owner.

If you’re working as a debt collector, you will probably be in a call center at a collection agency, rather than in the office of the original creditor. While it sounds like it can be a stressful job, it’s reported to be a profession with average work stress. There are a lot of pluses, too, especially if it’s a full-time job with benefits. The barriers to get the job tend to be low – you’ll need a high school diploma – although you may need more education if you want a higher-paid position. Many bill collectors report having a healthy work-life balance.

How Debt Collection Agencies Work

Debt collection agencies have one main mission – to convince somebody to pay back money that they owe on a debt. Often, if the debt is considerable, this is done by arranging installment plans. Generally, debt collectors will contact debtors by phone or mail. A new rule by the Consumer Financial Protection Bureau that went into effect on Nov. 30, 2021, states that debt collectors are allowed to contact debtors through email, text and social media. If a debt collector does reach out through social media, it’s supposed to be through a private message and not, say, on a Facebook thread that everybody can see. There should also be a way for the social media user to opt out of communication through that platform.

There are two main types of collection agencies: first-party creditors and third-party creditors.

A first-party creditor isn’t a debt collection agency so much as the debt collection wing, or a subsidiary or affiliate, of a company. If you’ve had somebody from your credit card, auto loan lender or a financial institution to get you to catch up on a loan, you worked with a first-party creditor.

Third-party creditors are collection agencies or debt buyers. These collection agencies are often hired by the first-party creditors, often after 30 days from the due date of a bill and once the first-party creditor feels that there is no use spending much more time and effort collecting a debt.

Often, the third-party creditor purchases the right to try and collect the bill within 30 days to six months – and possibly longer, like a year or two or more.

These collection agencies are expected to collect debts in a responsible way. For instance, they aren’t allowed to belittle you or harass you. They can’t send somebody over to your house to ask for money. They’re not supposed to call more than seven times in any seven-day period, and if you do talk to a debt collector, they have to wait seven days before calling you again. They aren’t supposed to call you at work either, or before 8 am or after 9 pm

But some debt collection agencies overstep their boundaries, ignoring these rules. In 2021, the Federal Trade Commission issued more than $4.86 million in refunds to consumers who were harmed by unlawful debt collection practices.

Still, there are plenty of debt collection agencies that are reputable, and they do provide a much needed service. If you’re a small business owner who simply can’t afford to be cheated out of money, a debt collection agency can be a lifesaver.

As for how they make their money, debt collection agencies sometimes work on commission – they’ll get a portion of the debt paid back to the company. And sometimes the debt collection agency, or debt buyer, buys the debt. According to the Minnesota Attorney General’s website, “It is not uncommon for a debt buyer to pay less than five cents per dollar owed.”

So a debt buyer could purchase a $1,000 debt for $50 or less. If the debt buyer can convince the person who owes money to pay $1,000, that’s $950 profit. If the debt buyer can at least convince the indebted consumer to pay, for example, $300, that’s still $250 profit.

What to Do if a Debt Collector Contacts You

The one thing you should do is stall for some time. Not that you shouldn’t pay a debt you owe, but you have some information to gather first.

For starters, it may not be a real debt collector you’re talking to.

“One of the biggest issues with paying off debt, especially student debt, is the constant issue of fake phone calls from debt collectors as well as from those offering debt relief. Knowing exactly who to trust in this environment can be tricky,” says Melanie Hanson, senior editor for EducationData.org, which provides data about the US educational system.

“As a good rule of thumb, never trust a phone call on its own merits,” Hanson advises

She suggests confirming anything you hear over the phone about your student debt by checking out the debt collector on the internet and, ideally, directly checking your loan accounts with your lenders.

“Fake collectors and fake relief programs thrive on getting personal information from credulous debtors who think they’re talking to someone official,” Hanson says.

Ashley Morgan, a bankruptcy attorney who owns Ashley F. Morgan Law in Herndon, Virginia, agrees that you don’t want to hastily agree to pay a debt, even if you’re pretty sure that you do owe the money.

“If a debt collector contacts you, it is important to verify the debt,” says Morgan.

She also advises not to admit on the phone that you owe money. After all, maybe you don’t, and this isn’t the time to give a debt collector ammunition that they can use against you later. Instead, Morgan says, “You should request that they send you written correspondence about the debt they believe you owe them.”

Once you have that information, if you have any questions about the debt, you should send a request for information through writing, says Morgan.

“The information requested is important to help you figure out if the debt is actually owed or not, and if the debt collector has the ability to collect the debt,” Morgan says. She points out that the debt may fall under the statue of limitations. After three to six years, and possibly longer – it depends on the state law – debts often cannot be collected. As in, nobody can sue you for the debt.

In fact, you may want to be careful about making a partial payment on an extremely old debt. In some states, if you do that, the time period will restart, and suddenly the statute of limitations may not run out for many more years.

It also helps to learn everything you can about the consequences of not paying a debt – such as seeing your credit score drop. Remember that you can negotiate with debt collectors and get them to agree to allow you to pay a smaller amount than what’s owed. Know your rights with a debt collector, so you can know whether you should report them to the Federal Trade Commission or the Consumer Financial Protection Bureau. Some of the tactics that debt collectors are not allowed to do include:

  • Calling you before 8 am or after 9 pm
  • Calling you repeatedly.
  • Posting any messages on social media about your debt.
  • Using obscene language or curse words while talking to you.
  • Making threats.
  • Publishing lists of people who refuse to pay debts. (They can report information to a credit reporting company, however.)
  • Lying about the amount you owe.
  • Lying to you at all. (They can’t, for instance, tell you that you’re going to jail if you don’t pay up. They can’t call pretending to be somebody else.)

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