What is a Collection Agency?

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  • Written By: Deborah Ng
  • Edited By: Niki Foster
  • Last Modified Date: 04 October 2019
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It's never a good thing to be so far in debt the bills can't be paid. As embarrassing and frustrating as this is for the person who is responsible for paying the bills, it's equally as frustrating for those trying to collect payments. After all, they provided a service and should be adequately compensated for it. It's even more frustrating if the person whose account is several months in arrears makes no attempt to contact his creditor and arrange a more agreeable set of payment terms. In this case, the creditor may feel he has no choice but to hire a collection agency.

A collection agency is an outside organization hired to help a company collect unpaid debts. The longer a debt remains unpaid, the less likely the creditor's chance of recovering all monies due. By hiring a collection agency as soon as possible, a creditor can let someone else handle the frustration of sending letters, making phone calls and being ignored by a debtor. In fact, most people who are in debt hear the word "collections" and do whatever they can to pay the bill quickly.

Of course, collection agencies don't work for free. The average collection agency can expect to bring in fifteen to twenty percent of each debt collected. While this may seem like an astronomical amount, most will agree they have a better chance of recouping any funds with the help of a collections agency and find the fee well worth it.


The reason the collection agency has received a bad rap is because many debtors feel they've been harassed by threatening letters and multiple phone calls from collection agency representatives. This may have been true in the past, but there are now laws to protect debtors from harassment. While the collection agency is allowed to reach the debtor via fax, phone, mail or telegram, they are not allowed to do so in a threatening manner. They are also not allowed to harass debtors with multiple phone calls. They must identify themselves immediately and be direct about the purpose of their phone calls.

If you're in debt and feel you're being harassed by a representative from a collection agency, simply ask him to stop. Once a collection agency is asked to stop, they must do so. If they don't stop, they can be fined. That doesn't mean a creditor can't sue a debtor for non-payment of funds; it only means they have to stop calling or writing to collect said funds. You may not receive the phone calls anymore, but until the debt is paid, it's still on the books.


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Discuss this Article

Post 5

Greenweaver- I know they also can not tell you that you will be arrested for your debt or whether they will seize your property. This is considered abuse and it is illegal under the Fair Debt Collection Act.

They also can not threaten to publish your name in a public forum with the names of others that have not paid a debt. This is also considered harassment and false statements which are also illegal.

If you want to file a collection agency complaint with the FTC you can call 1-877-382-4357, or visit their website at

Post 4

Subway11- I'll answer that. If they receive a judgment against you they might be able to do that however, there are certain types of compensation that they cannot touch.

For example they can’t touch Social Security benefits, veteran’s benefits, FEMA assistance, or any military benefits.

Post 3

Crispety- But can the collection agency letter garnish your wages to collect a debt?

Post 2

There are collection agency laws that limit the type of contact a bill collection agency can have with the debtor.

The Federal Trade Commission enforces the Fair Debt Collection Act which was passed in 1978 to combat consumer collection agency abuse.

According to this law collection agencies may only contact the debtor between the hours of 8 AM and 9 PM. They may contact third parties to get information regarding your phone number or another address where you might be staying, but they can only do so once.

If you have an attorney however, they are not allowed to contact you directly they must contact the attorney with any questions regarding your debt. This was established to reduce collection agency harassment.

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