No one wants to receive a phone call from a debt collector. But for many creditors, debt collectors play a crucial role in helping them recover payment from multiple delinquent accounts. Creditors often get a bad reputation because they use the services of debt collectors. It is essential to understand that these creditors are only acting within the bounds of the debt recovery guidelines.
What is a debt collection agency?
A debt collection agency is categorized as an institution that UK law gives license to collect outstanding debt and past-due receivables on behalf of its clients. These institutions can limit their operation to a defined territory, but some operate on a national or international level.
Many companies around the UK hire the services of a debt recovery agency because maintaining an in-house collection department can be quite costly. A third-party collections agency saves not only money, but also time and resources that a company will need to spend to contact the debtor, arrange visits, legal fees, and hiring bailiffs.
Therefore, it makes more sense for the creditor to turn over the task to a professional debt collection agency so that they can focus on more critical operational aspects of running the business. Another reason why creditors hire collection agencies is that they could potentially earn money for every debt that is already written off as a loss.
Limit of debt collection agency actions:
Contrary to the impression of many people, the actions of debt collection agencies are strictly regulated by the UK government. Any activity that is considered a breach of regulations may result in litigation. In general, the following are specific actions that are considered legal as a debt collection agency attempts to collect payment from debtors:
- Use sophisticated tracing tools and technology to locate a missing debtor
- Send several reminders that are both written and oral. This includes phone calls, text messages, fax messages, and letters.
- Send the debtor demand letters or letters informing them of specific legal actions that will be taken against them.
- Use a debt solicitor or a bailiff to seize personal belongings
- Send an agent to visit the debtor and negotiate a payment plan
- Proceed to court action if the debtor fails to settle the debt through a pre-legal proceeding
In addition, the following institutions regulate debt collection agencies: Credit Services Association, Consumer Credit Act, the Limitation Act of 1980, and many others.
Debt collection agency categories in the UK:
Debt collection agencies in the UK are generally categorized as:
- Debt buyer
A first-party debt collection agency is part of the creditor’s company, while a third-party debt collection agency is an independent institution duly licensed and registered by the UK government. On the other hand, a debt buyer is an institution that purchases delinquent or default accounts from the original creditor at a fraction of the initial value. Through the purchase process, they become the legal owners of the debt wherein UK laws afford them the authority to recover the payments independently.