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Frequently
Asked Questions (FAQs)
Overview
Debt collection
may be one of our nation's most misunderstood professions.
Eliminating misconceptions affords the industry more support
and allows the public to more effectively evaluate professional
collection services and their benefits to consumers, business
and the economy. Defining the basics--what collection
professionals do and how they work--is ACA's first step
toward providing a clear picture of one of society's most
beneficial industries.
What is
a professional debt collection service?
Third-party
collection services collect on past-due accounts referred
to them by various credit grantors--including credit card
issuers, banks, care dealers, retail stores, healthcare
facilities, funeral homes--any business that extends or
offers payment installment plans.
What does
a typical professional collection office do?
Often creditors
cannot locate consumers who have moved or changed their
phone numbers. The first thing a collection service must
do is locate the consumer's current address or phone number
through a process called skip tracing. The collection
office then sends the consumer a notice that allows him
or her to dispute the validity of the debt and/or request
verification of the debt. Once the notice is received,
a collector may call or write to the consumer and ask
for full payment of the debt. If payment in full is not
possible, the collector helps the consumer make arrangements
to solve the problem.
Why are
accounts referred for collection ?
Most accounts
are referred for collection because they have gone unpaid
for an average of eight months and the creditor has not
received communication from the consumer. Since third-party
collection services use specialized phone systems and
computers and software designed specifically for the collection
industry, they are more effective than credit grantors
at retrieving payment on delinquent accounts.
What is
the difference between "in-house" collections
and third-party collections?
Third-party
collectors are directly regulated in the USA by the Fair
Debt Collection Practices Act (FDCPA), which is administered
by the Federal Trade Commission (FTC). The FDCPA sets
forth strict guidelines designed to protect consumers
from abusive, misleading and unfair debt collection practices.
They are regulated in Ontario (Canada) by the Collection
Agencies Act and in Québec (Canada) by La loi sur
le recouvrement de certaines créances etc. Credit
grantor collection techniques are covered by law only
under certain instances.
How can
collectors call people about their debts day in and day
out?
Many professional
collectors maintain that debt collection is actually a
very rewarding profession. Blinded by the misconceptions
and stigmas surrounding the industry, the public should
see the notes of thanks and words of praise collectors
receive every day from consumers whom they have helped
through a financial crisis. Since credit grantors deal
with large volumes of accounts receivable, the third-party
collector is often the first to engage consumers in problem-solving
discussions. A paid account represents success for the
collector, recovery for the client and peace of mind for
the consumer.
Is there
a typical debtor?
No. People
from all walks of life face financial problems. These
problems can stem from poor money management and budgeting
skills to the loss of a job, prolonged ill health or a
multitude of other unforeseen circumstances.
What about
those people who have fallen into debt because of unexpected
or catastrophic events? American Collectors Association
(ACA) Code of Ethics requires members to "show due
consideration for the misfortunes of consumers in debt
and to deal with them according to the merits of their
individual cases." Realizing that every account is
unique, collection professionals are trained to carefully
listen to the consumer's situation, and find a mutually
agreeable solution to their individual payment problem.
How has
the collection industry changed over the past 15 years?
In addition
to more thorough training for collection agents, the greatest
changes in the collection industry have resulted from
significant increase in automation. Fifteen years ago,
most collection offices kept track of accounts on paper
cards; information was recorded manually and collectors
dialed their telephones themselves. Today, offices are
computerized, use collection-specific software and have
sophisticated telephone systems with automated dialers.
How is the
collection industry likely to change in the next 15 years?
Collection
businesses are likely to offer a wider variety of client
services, including billing, increased "early out"
or pre-collection services and an increased capacity for
greater billing and accounts receivable management. Many
agencies are investigating expanding the uses of existing
services and technology beyond the traditional contingency
collection functions.
How does
bad debt affect the economy?
Because
businesses need to cut losses, the cost of bad debt is
often deflected by raising consumer prices. ACA estimates
that bad debt costs every adult in the United States more
than $680 per year. Since there is a limit on how high
prices can be increased before businesses begin losing
customers, bad debt also results in business failures
and job loss. How do third-party collections affect the
economy? ACA and the Bureau of Labor Statistics (BLS)
expect the number of jobs created in the credit and collection
industry to grow by 36 percent through the year 2006.
The reason for the increased growth is rising consumer
debt, which stands at $6.3 trillion.
Collection
Fact Sheet
ACA estimates
that bad debt costs every adult in the United States more
than $680 per year. This means that bad debt costs an
average non-supervisory worker nearly 54 before-tax, labor
hours each year.
According
to SMR Research, consumer debt per capita in the United
States reached a record $30,067 by June 1999, up from
$19,106 in 1990. This increase vastly exceeds the rate
of inflation during the same period, meaning that consumers
by the end of the century were borrowing much more aggressively
than they were 10 years earlier.
By the end
of the third quarter of 1999, outstanding consumer debt
totaled $6.3 trillions. (Source: G.19 release, Federal
Reserve Bank, December 1999)
According
to Federal Reserve Board statistics from June 1999, home
mortgage debt totaled $4.53 trillion, auto debt totaled
$465 billion, and credit card related debt totaled $572
billion. (Source: Federal Reserve Bulletin, June 1999)
In 1998,
credit card companies mailed 3.45 billion solicitations.
The response was 1.2 percent, or 41 million cards. (Source:
"Bankruptcy for Profit," August 25, 1999, p.
A17, www.abiworld.org)
ACA estimates
that in 1998 approximately $170.4 billion in bad debt
was placed for collection with professional, third-party
debt collection agencies, and of that figure approximately
$23.8 billion was recovered.
According
to ACA's 1998 Cost of Operations Survey, member agencies
acquired new business that totaled more than $29 millions
and had gross collections totaling more than $4 million
in 1998 (Source: ACA Cost of Operations Survey, 1998,
p. 3)
ACA cites
recent estimates by the Bureau of Labor Statistics that
show employment in the collection industry is expected
to grow by 36 percent through the year 2006, a rate that
is much faster than any other small-business-dominated
industry in the nation. (Source: Bureau of Labor Statistics,
1998-1999 Occupational Outlook handbook, www.bis.gov/oco/oco20016.htm)
The Fair
Debt Collection Practices Act (FDCPA), the federal law
regulating third-party collection businesses, which was
enacted in 1977 with the support of the American Collectors
Association, Inc. (ACA), was designed to protect consumers
from unfair and abusive collection practices. (Source:
A Guide to the Fair Debt Collection Practices Act, 1999,
p. 2)
THE NATION'S
FINEST COLLECTORS!
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