Something went wrong.

Try again or contact us.

Check your inbox!

Reset your password with the link we just sent to your email.

Hub Culture logo

How the Debt Collection Agency Business Works

< Previous | Main | Next >

2nd Mar 2020

Article Image

Understanding how the debt collection agencies work can come in handy if you ever find yourself falling behind on the bills. This way you will know what to expect and how to handle any situation. This article will provide you with some of the basic information you need to know about these agencies. 

The Business of Debt Collection

Some debt collectors choose to work independently, while others work for debt collection agencies. So, how do these agencies work? In some cases, these agencies even serve as intermediaries since they collect unpaid debts from consumers and then hand them over to the original creditor. The lender usually charges about 25 to 45% of the total amount collected to the debtor. Debt collection agencies are known for collecting all forms of outstanding debt: medical debt, car loan debt, credit card debt, student loan debt, and so on. 

These agencies are often specialized in specific debt forms. This means that they often restrict their work of collecting debts within the law limits and that is something that varies by country. Many of them also have negotiating agreements with creditors for less than what the borrower owes for those debts that are a bit difficult to collect. Debt collection agencies also have the right to contact lawyers and sue the clients in case they refuse to pay their collection agency. 

Agencies That Buy Debt

In case the initial lender realizes that it is impossible to pay the debt, they will most likely reduce its damages by selling it to a debt buyer. This will help reduce overall losses. Debt investors even have the freedom to choose from various accounts, both older and newer ones. 

Debt buyers usually use a bidding process for purchasing such packages, where an average of paying is 4 cents for each 1$ face value of debt. Also, the older the debt is, the less it will cost. However, another factor that can affect the price is a type of debt. For example, loan debts are generally worth more and service debts are pretty much worthless.

What Debt Collectors Do

Debt collectors’ job includes reaching out to those who have not yet paid their debts and convincing them to pay back what they owe. And if it isn't possible to reach them because the collector can't find the creditor's contact information, then they use computer software and private investigators to investigate further. They also have the right to disclose unpaid debts to motivate consumers to pay on time. 

Debt collectors mostly have to rely on the borrowers to pay and won't be able to take a paycheck or enter their bank account, unless a judgment is issued. That means that the court will have to require them to repay a specific amount. Essentially, it all comes down to making sure you reach out to a reliable debt collection agency whose debt collectors will be willing to come to the best possible agreement that will benefit everyone. 

How Reputable Collectors Operate

Debt collectors don’t really have the best reputation. That’s for sure. However, that’s why you can always rely on the Equal Debt Collection Practices Act to regulate the process of recovering a debt so that it runs smoothly and without any injustice. A respectable collector should, above all, aim to be fair, polite, truthful and law-abiding in all situations. Their responsibility is to provide you with written notice of the amount owed, the agency you owe it and how to pay it. 

In case the creditor can't check the debt, the agency has to stop attempting to collect the money and they will also tell the credit offices that the item is to be disputed or removed from your credit report. Respectable collectors will try their best to get accurate and complete information and meet the time limits. If your debt was produced by identity theft, they will make sure to verify your claim. Overall, they will never sue you for your debts beyond the limitation statue, especially not based on your race, gender, age, or other attributes. They will respect your privacy and avoid contacting you at an unsuitable time of the day without your permission.


All in all, debt collection agencies aren't as scary as many people portray them to be. It can be quite useful to understand how these organizations work so that if you ever need their service, you know what to look for.