Debt Collectors Versus Collection Agencies

As one of the top credit repair companies supporting clients in New York and throughout the US, The Phenix Group regularly confers with families concerned about debt collection action and unsure of the best way to respond to avoid causing further issues that will compound their low credit rating.

The first step, as always, is to seek independent, qualified advice before you make any decisions that could have a meaningful impact on your credit report, access to future financing, and long-term opportunities to purchase a home or car or cover major medical expenses.

Let’s look at the contrasts between a debt collector and a collection agency, explain what happens if you ignore a debt collector, and how to safeguard your finances while taking responsibility for unpaid debts.

What Authority Does a Debt Collector Have?

A debt collector might be a certified individual or work on behalf of an organization that collects debts owed to their clients. Most collection agents work on a commission basis, which means they will do whatever they can, within the constraints of the law, to recoup default debts owed to the company they represent.

However, households must recognize that many debt collectors–although not all–have effectively purchased the debt from the original creditor. This practice works by buying debt at a discount from a company, then aiming to claim back the maximum amount possible against the original default, making a profit on whatever they can recover over the fee paid.

Debt collectors must adhere to the regulations introduced by the Federal Trade Commission (FTC) through the Fair Debt Collection Practices Act (FDCPA) and are forbidden from using abuse, deception, or unfair practices to pursue any debt.

They must comply with various rules, such as sending a communication that details the debtor’s name and address, the creditor’s name and any identifying account numbers, and an itemized list of debts owed. Collectors are also legally obliged to provide details about the rights of the debtor and the steps they can take to raise a dispute if they believe the claim is incorrect or unfair.

How Does a Debt Collection Agency Work?

Collection agencies are similar to debt collectors; they are not bailiffs nor enforcement agents and cannot by force remove assets or possessions of a debtor, regardless of the amount they claim to be owed. Instead, a debt collection agency is a middleman, often purchasing rights to debts at least two months overdue or working for companies to collect debts owed and charging a commission on the amounts recovered.

New rules introduced in 2020 protect consumers who are struggling with debt issues, safeguarding the statutory rights of debtors, whether they are being chased for unpaid medical bills, private commercial debts, unpaid credit cards, or student loans. Debt collection agencies cannot seize a debtor’s paycheck unless they have a valid court order, so you should never feel pressured into making payments or handing over assets that would put you in a financially challenging situation if the collection agent does not present a signed court order.

Collectors must be respectful and honest, providing a written itemization to verify the debt’s validity. If they cannot do so, they must cease activity and remove the record from your credit report.

Is it Okay to Ignore a Communication From a Debt Collector?

We’d never suggest disregarding a debt collection notice as the right course of action. That is because if the debt is valid, it could escalate and generate a court-supported claim.

Rather, the best way forward is to speak with a credit advisor or credit report dispute attorney to confirm your rights and protections, determine whether the debt is legally enforceable, and take responsible steps to reach a long-term settlement agreement or repayment plan. The most advisable strategy depends on analyzing your position, the debt concerned, and the information the debt collector or collection agency provides. 

Therefore, our advice if you are worried about debt collection demands is always to contact the experienced team at the Phenix Group to ensure you make informed, sound, and sensible decisions to set your course for credit parity in the future!