Truths About the Debt Collection Industry

This is an expose on the 3rd party debt recovery industry and all its facets written by an insider who has spent over 2 decades in recovery, training and ownership. It will explore the why and how of what is right and wrong that as a previous bankruptcy filer I have witnessed first hand and therefore have been on both ends of the spectrum and by that I am able to see through the sometimes harmful efforts of both the industries employees and the outside organizations that contribute to the financial gain of all involved and in the process contributes to the financial and mental detriment of consumers

CALLER: Hi there, John?
>>>>>>> “No, John isn’t here”
CALLER: Hmmm, you sure this isn’t John? You sound so much like him
>>>>>>> “No I’m afraid he’s not here would you like to leave a message?”
CALLER: Hmmm, is this his dad? , How are you Mr. _________, remember me from school ? I haven’t seen John in so many years how can I reach him?


In the debt recovery world there are many players, there are those that grant credit, those that help recover unpaid credit, those that work independently by purchasing still unpaid credit and then there are debt consolidation firms. On a daily basis some operate with an unusually high level of false and misleading information that can prey on the least sophisticated consumer under the guise of help and financial responsibility that is delivered with a heavy dose of fear and manipulation. Their methods may seem to be innocuous, but don’t be fooled, be aware, be educated and know what is right and wrong.

The Collection Industry

The federal government enacted The Fair Debt Collection Practices Act otherwise known as FDCPA or Public Law 95-109, it was established after many years of extremely abusive tactics by collection personnel that included but was not limited to physical threats, face to face intimidation and sometimes actual harm to yourself or family. Prior to the statute anything was allowed in order to get the end result of remuneration. This statute of laws and guidelines provide relief to you the consumer in many ways, from providing you with the knowledge of the governmental regulations and most importantly, the ability to force them to cease communication with you. Most of the law is aimed at the agency itself, such as the content contained in correspondence, how the return address on an envelope must look or the types of notification that may or may not be used, basically things that an individual collector does not control. There are also sections of the law that directly reflects what a collector can and cannot say or when he can say it, violations of these can effect an individual collector in addition to the agency that employs them.

CONTACT: To be brief, a collector has set times allowable for calling, 8am-9pm in your time zone, Monday thru Saturday, they cannot state anything will happen legally, only that he will look to make something happen. This is accomplished by using the biggest fact broadening words they can muster, sometimes not even words that are real as part of the training is to recognize the least intelligent and use that to your advantage. Bottom line, a collector cannot say they are going to do anything that they cannot prove that they have done before, such as maintain a long record for suing people or for that matter ever suing anyone at all. NOTE: COLLECTION AGENCIES DO NOT SUE PEOPLE

CEASING CONTACT: As per the FDCPA you only need to send a certified letter return receipt requested simply invoking the FDCPA or stating “I hereby request you cease any and all contact as per Public Law 95-109” once you get the receipt back proving that it was received and if you are contacted again, you have the basis for your own legal action. Its that simple, and I remind you it MUST be certified as cease communication letters that are received non certified are laughed at and thrown in the trash, furthermore in retaliation you get extra effort put on your account(s) just because you sent the letter.

There are 9 non-garnishment states (Please see your state for its specific regulations) meaning if you live there you are not subject to having your wages garnished for non-payment. It used to be a running joke that if you face a financial catastrophe “Move to one of these states” because you will be in the clear and not have to pay any bills, just go there and start over (there are issues with your payroll account if it comes from a garnishment state, so again check with your individual state) Essentially you never HAVE to pay any non-secured credit account EVER if you reside in one of these states. This is not saying you should purposely run up an enormously large credit card account and run, but even then not a lot will happen to you, as it is only a non secured account.

Generally, a non-secured credit account (takes only a signature to obtain) of any kind is easy to get out of paying, be wary of secured accounts (such as an automobile loans or mortgage, hence the operative term “secured for future payment”) as these items could be taken from you if the situation becomes severe enough but in most cases these people do NOT want the property back, just talk to them and its easily solved without removal of your property.

There are many banks that no matter your credit or debt situation that offer secured MasterCard or Visa accounts (the secured amount, usually 250.00 or more, is kept in an interest bearing account until you make regular payments for a year or more and then you can get it back) Apply and just simply start all over, albeit a slow process, its fairly simple. In fact, if you see financial ruin in the near future, use the money that you are trying to catch up all of your past due accounts with or the accounts that have already been placed with agencies, and just get a couple of these secured cards and follow the above instructions to get third parties from bothering you.

The Collection Agency

Most collection agencies are enormous sweat shop like rooms full of cubicles, some with thousands of employees each with anywhere from 100-1000 accounts to maintain. Each collector must follow guidelines on each account as per the instructions from your creditor, which are generally made when a contract for services is agreed to. Accounts come from your creditor by the thousands, the agency generally keeps 25-40% of all monies recovered, the creditor gets the rest. There are agencies that can earn as much as 1 million dollars in a month as monthly money totals run concurrent from the 1st to the 31st, whereas you see a bigger last minute push for dollars during the last week of the month. In order to accomplish this feat the collector must simulate an office where he is the boss or, if you will, ” the big man behind the desk with a cigar with multiple secretaries and vast powers to control your destiny and financial health”, the better actor in the above procedure, gets the most money. In other words what a person hears and what a person says are two very different things.

All of this is accomplished with words and sales tactics much like a car salesman with a telephone, except he is selling you an idea of what will happen if you do not follow his instructions, instead of the new car. Collectors are taught various sound techniques, such as how to rustle papers near the phone to simulate turning pages of the notarized paperwork they are holding, they use the hold button to simulate talking with the attorney ala talking with the sales manager, to get you a deal on suit not being filed. There are many variances to these tricks that are used daily, all depending on how smart he thinks you are and what he can get away with. Well prepared collectors research you beforehand, such as what kind of neighborhood you live in, what kind of money you make or have made further leading to their ability to know who or what kind of person they are dealing with. They are taught to use voices and accents, anything to fit in with the area of the country they may be calling, such as using a southern accent when trying to get information down South. They use different aliases when calling your neighbors, relatives, cable or electric companies and also with city, state and county records offices, all the while they lie to get information in order to lie to get the money. With your Social Security number and birth date or mothers maiden name, all of which are used to obtain credit, all of the previous businesses will release information. I have even witnessed a collector that was upset with his lack of results actually prompt the electric company and cable provider to turn off services as they were advised the consumer was moving.

In most cases, if you listen closely during any call you receive you will hear inordinate amounts of noise and conversation in the background, which is clear proof your account is merely another activity on the collectors screen that must be dealt with. It is NOT with some powerful person in a big legal office where you are about to face a lawsuit if you do not do what you are told. It is a room full of collectors trying to talk fear into consumers. In essence it is a sales call in which the caller stands to make commission on every dollar he gets sent to him, hence the reason he tries so hard. Sometimes to the point of obnoxious behavior and cocky arrogance, as if that will get someone to fear them, such as actually telling someone how they should answer the phone or any verbal slight that might belittle them, In fact, there was a time when causing a consumer to cry was like a badge of honor. These instances are mainly used by junior collectors who are still feeling out the power the think they have. Collectors learn states and regional areas and the type of residents it may have, such as where religious people are more likely to live and subsequently use religion as part of the means to get them to act, Spanish speakers get the same in predominately Hispanic areas, Martin Luther Kings Birthday is used for African Americans also as a motivator. Each is used under prevalent idea of “Do The Right Thing” in accordance with your own personal beliefs.

This is further means to prove that if legal action was going to happen, you would not be getting calls day in and day out, week in and week out. For them it’s a numbers game, the more you call, the better the possibilities of the sales pitch to work.
Let me advise you now, IF you were really and truly going to be sued for non payment of a debt, it would NEVER go to a collection agency first, especially if you are truly in dire financial straits as the bad publicity the credit card company would receive for that activity would not be worth it. The previous doesn’t necessarily apply to medical debts as they are more based on circumstance, financial situation, illness and frequency of their occurance.

BIGGEST FALACY: Ever hear this one- “We will be recommending suit be filed at noon on Friday therefore to avoid this action your money MUST be sent Overnight Express Mail or Western Union in order for it to be received before the noon deadline and you MUST call back with the receipt number for said delivery so we can put a hold on your file”

This allows the collector to further laugh at all the things he is making you do that you do not have to. They will talk amongst themselves about how you are getting off work, rushing to the post office before it closes and actually you are so scared you are using a pay phone outside the post office to call in the receipt number. This tactic is used because most agencies have incentives such as cash and prizes for every special delivery received i.e. Western Union, Express Mail, etc and depending on the amount sent, the collector can make anywhere from 1.00-100.00 cash money for each delivery that is paid daily or weekly. The speedy delivery allows the agency to more closely monitor the monthly money totals as opposed to waiting on it to arrive. If this is done properly and enough consumers are afraid, a collector can easily see hundreds of extra cash dollars each week and that’s above and beyond any salary or commission. I recall 1 collection agency that held a multi month cash incentive contest that actually gave away a car to the best producer via this method. This is a further example of putting the fear into the least suspecting consumer and further belittling you as he leads you around by the nose to do as he wishes, when again NOTHING is going to happen.

If you chose to pay your bill as you believe it is the right thing to do, do it on your own terms and do not allow yourself to be bullied into believing things that are not going to happen. The account has already gone bad and is at a collection agency, no matter how fast you pay it, its still going to show up on your credit bureau as bad, it will just reflect a balance difference and that sometimes does not even happen.

In contrast, I have witnessed consumers immediately get an unlisted phone number, get a few secured credit cards and use the cease communication techniques above and start clean. But be wary, creditors and collection agencies talk to each other, so all of your application information can be exchanged in a tactic called skiptracing. Keep in mind that in dire situations (large balances owed that can mean big commissions) your credit bureau is monitored for who you may or may not be paying, new addresses or where you are obtaining any future credit. If like most, you pay your auto loan on time they are the first to get calls for information about you, including any relatives phone numbers or addresses. Some collectors maintain a vast address book of contacts at various creditors and banks all over the world and since a friendship has been maintained they can get information on anybody, even consumers that do not have an account that is referenced at the agency. It is a real tit for tat exchange of information. Smart collectors even go as far as providing gifts to contacts for being helpful, such as flowers, concert tickets, lunches, etc. Some firms have access to outside paid databases of everyone in the United States, where in one instance a search was done on this person from a magazine story and immediately we had their social security number, address, any property owned and other bits of personal information. Now this example was only to test out the new system, but it reveals a lot of what can be done. With the constant threat of identity theft that we now face, I have always thought that a collector is one of the prime persons who can get information on ANYBODY.

The Paper Buyer Collection Agency

The collection industry refers to large batches of accounts as paper and the mid nineties saw many a creditor start to break routine and after a few months at an agency with no results they would resort to selling the account(s) for pennies on the dollar, hence the term paper buying. Some credit card issuers even bypass the collection agency process and just sell the bad debt outright. Basically cut their loses and move on. Prior to and with the advent of this practice, there would be a 1st assignment agency who is contracted at a lesser commission percentage ala the newer the account the easier it would be to collect, the less the agency receives, the 2nd assignment agency (usually 6 months after the 1st if no payment was made) would be contracted for a larger commission rate, then the 3rd, 4th and so on. Now paper buyers enter the picture at any juncture in the process, sometimes without a contracted agency ever being involved, sometimes years later or in between. Generally a paper buyer has little or no contact with your original creditor, and if there is contact, it is very minimal and hardly falls under the client v. agency relationship as described in the contracted agreements above. The bottom line is a quantity of accounts are sold to a firm or really anyone with enough money to purchase them for pennies on the dollar and they are theirs to do with what they wish, possibly being sold and resold many times over. A few years ago there was an amazingly large paper buyer agency in Oklahoma that was littered with enough purchased accounts to employ thousands of collectors and that didn’t even account for support staff or management, they even briefly offered the people who paid or made payments their very own secured credit card through an outside banking institution that they also owned. It was just phenomenal that 1 guy started this out of his own kitchen and some purchased accounts. They have since closed down and those accounts once owned have since been resold again to many other organizations and agencies.

Paper buyers are everywhere and operate under the misnomer of a true collection agency, though actual agencies sometimes participate in paper buying also. In reality, they are an organization that is doing anything it can to recover quick monies which include settlements of ridiculously low amounts and under the table deals while still attempting to make the consumer believe the creditor is still involved and is truly concerned about the account and its recovery. One of the most seen accounts of this type is the deficiency balance on previously repossessed automobiles. They are near to impossible to recover and serve the consumer no purpose whatsoever to even pay, as a repossession is just that, it doesn’t change as if it never happened, furthermore it will not improve the interest rate on your next financed automobile, so why bother. Their operation is get in, get the money and get out, no long term prolonged contact, get it over with and waste as little money as possible. I’ve been involved with 10 year old accounts that had long since been dropped from the consumers credit bureau and didn’t even exist in the eyes of the Fair Credit Reporting Act, but with the proper delivery and dose of fear, the “do gooder” consumer will settle just to free their mind of the worry. Furthermore it is debatable if settlements through firms of this type are actually considered settlements in the eyes of the credit bureau or the original creditors records, as I have seen instances where a settlement was not recorded as such at the credit bureau and the original creditor which sold the account years before no longer kept records to even update. This problem, if it arises, can be solved but not without a major effort on your part that includes written and verbal communication back and forth with all parties and without proper monitoring you may not even be aware of it till many years later where you will lack all the documentation that you assumed you would not need anymore. Call your creditor and find out your account number doesn’t even exist in their records other than possibly a referenced account that once existed but no documentation that they can find, that begins the problem, so be wary of who you pay or settle with

All of the above again is under the premise of you will be sued if you do not follow my instructions right NOW. ” My client this, my client that”, when in reality the 3000.00 account that was last actively monitored by the original creditor 2, 3, 4, 5 or even more years ago was purchased for 300.00 and since your now being offered to settle it for all of 1000.00 free and clear you cannot go wrong. “Mr. or Mrs. Consumer you get this formal letter all worded with all the proper statements saying you have Settled In Full that you can keep for your records”. CONCERNED CONSUMERS FALL FOR IT EVERYTIME. That’s a tidy 700.00 profit for a few long distance phone calls and some postage. All the while everything that a collection agency collector does is being done here except for the fact that in some instances the creditor doesn’t even know who this new firm is and truly no longer even knows who you are, the person who created the debt in the first place.

The Collection Law Office

In as little as 15 years ago a new breed of recovery services began to appear, The Law Firm that collects debts. The only real difference from the collection agency above is that they are permitted to clearly state on all envelopes and correspondence that they are in fact a law firm whereas a collection agency may only use a return address with no indication of what they are as not to embarrass the consumer. Picture it, you get a letter from an attorneys office and you are most likely going to open it immediately but a non descript return address on a letter that you aren’t expecting and based on your financial situation is going to get ignored.

The Law Office collection and correspondence tactics can also be more in the gray area. Collectors are trained that there is a white very weak area, there is a black very illegal area and there is a gray area in between that must be verbally tight roped as you deliver the sales pitch and corresponding service for the client, plus the fact it is a law office which in itself can be a lot more intimidating. For example they use a tactic called a Verification Letter which entails a letter of employment verification being sent directly to your employer or direct supervisor all in the hopes that the employer will ask or discuss why a law office is attempting to verify your employment and employment address, which is supposedly to intimate that you will be served legal paper work there. This is to embarrass you into some kind of action. There are also letters based on your ownership or purchase of property i.e. your mortgage, those are to intimate that some type of lien can or will be placed on said property. These are yet more examples of fear tactics that hope to promote you into some kind of action.

The employees of such a firm are normally much more experienced in the legalese of the collection industry and are very well versed in all of it’s tactics therefore they are able to hopefully produce more professional results. But, do not be fooled, if a law office is calling at 8:45 pm some evening they are NOT a law office with important information you need, they are collectors trying to get as many calls in before 9:00 pm. We all know real legal business or any business conducted in such an office ends near or shortly after the 5 o’clock hour Monday-Friday and definitely is NOT conducted on a Saturday morning.

Be aware, that as a law office they do have the immediate resources to sue but rarely do especially if there is dire financial straits and moreover a couple of thousand here or there really isn’t enough for them to make an effort, so keep that in mind. Furthermore, unless you are hiding extensive attachable assets nothing is going to happen to you.

The Debt Counseling Firm

In recent years with the rising growth of consumer debt there has been a large influx of “consolidation firms” that are appearing out of nowhere. These firms under the promotion of non-profit are misleading consumers that they are able to help with debt counseling, reduction of interest rates which rarely happens, and to save your credit, when in reality they leave out very important information in attempting to sign up consumers for the service. Consumers in dire need of relief are not told of the ramifications of using such a service, moreover they are made to believe that nothing will happen if you use this service and in doing so your credit will be “perfect” in no time at all. After all, what better thing can a consumer in financial straits be told than “you no longer have to pay this much, you can get by with Ã?½ that amount”. What they are not being advised is that your creditor accepts ALL payments and they are ALWAYS applied, but if the minimum is not met on each billing you will eventually face account closure and referral to an outside organization for recovery. So in a few months while you have followed the required remittance to the consolidation firm, if the minimum monthly payments to your creditors have not been made you are still falling father and farther behind eventually causing the account to still be closed as an unpaid bad debt. Consumers are not advised that the account will still eventually end up at a collection agency, they are not told that you will still be called for more money as required by your original contract that you originally signed to get the account in the first place, but they are told “nothing bad will happen to you as long as we handle this for you”, knowing they just want the creditors contribution for as long as they can get it until you realize their misgivings and cancel. It is a real cat and mouse game to keep you on the books in order to keep getting the contribution fees each month. The consumer is not advised the consolidation firm “suggests” to each creditor that as much as 15% of each payment made to the creditor be given back to them as a contribution for their service. Most creditors authorize the credit department to contribute to this fund, so it is like free money.

The supposed counselors are nothing more than salespersons being commissioned to get you on their books which is very similar to the hard sell you may experience at say a health club when prompted to join. Therefore the more people signed up for the consolidation agreement, the more money the consolidation firm makes. The bottom line is, the debt consolidation firm is not in the business to help you but is in the business to make money under the guise of helping you with misleading information, again fooling the least sophisticated consumer. None of this includes the set-up fees or start up cost you may be asked to pay just to begin using the service. Essentially the debt consolidation firm is nothing but a glorified accounting service for you to remit 1 large payment to each month which they then disperse to each of your creditors. It sounds eerily similar to what it would be like if you could afford your own Certified Public Accountant, which if you could, you would not need their services anyway.

EXAMPLE: 500.00 Your monthly consolidation remittance
X 15% Suggested creditor contribution
$75.00 Creditor contribution to the consolidation firm

Now multiply that 75.00 by thousands if not millions of consumers nationwide on a monthly or bi-monthly basis. This is NOT a non-profit organization as you have been told and they are not going to save your credit in anyway. In fact they operate very similar to a collection agency in the fact that each month they too are calling you for payment, but in their case the threat is the dreaded removal from the program which will entail more set-up fees to get started again or even the dreaded collection agency becoming involved again.

I have even seen a few terribly rogue firms that charge consumers hundreds of dollars just to set up the program and monthly maintenance fees of 10%-20% of your remittance to them and that is above and beyond what they solicit from the creditor. These firms were not surprisingly in small cities where the “sale” of maintaining your reputation and credit would definitely go over better, than in larger cities where people are more likely to be educated on the topic and the availability of other such firms.

Do not be fooled by the television commercials soliciting you with the promise of debt relief and credit repair, do not be fooled by the small print that no one ever reads. There is NOTHING that that they can do for you that you cannot do yourself.

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