In 2015, the U.S. already had more than 4,100 debt collection agencies with 450,000 employees, but the industry expects continued growth. The demand is driven by a 20 percent average recovery on unpaid balances, down from 30 percent from previous decades.
First Attempts at Debt Collection
Creditors tend to keep collections in-house and out of court. This usually involves the creditor calling or contacting the debtor directly. However, if payment is not received, many businesses send the account to a debt collection agency. This is a carefully regulated industry designed to protect the rights of the consumer. The Fair Debt Collection Practices Act (FDCPA) stipulates when, how and where debt collectors can contact those who haven’t paid their bills. The stakes are high since a debtor can file a lawsuit against debt collectors who cross the line laid out by the law. The FDCPA only applies to actual collection agencies, not the companies owed money.
Some transactions are secured transactions, where the debtor gives the collector claim to some property to ensure the payment of debt. If the secured property is sold, creditors have priority over other claims. In order to take advantage of this status, the creditor “perfect” its interest, such as by filing a lien on the property. For example, vehicle financing is secured by the actual vehicle. In other words, the lender can take away the car in the monthly payments stop.
Sometimes, a creditor decides to take the matter to court. They may be able to take the debtor’s property even before the court reaches a decision. These extraordinary measures are generally used if other methods failed, and they don’t work if the product is perishable or dependent on the debtor’s action to retain their value.
The key to successful debt collections seems to be tenacity, peppered with just the right aggressively proactive message. “Judgment enforcements generally end when either the creditor gets tired, gives up and goes away, or the debtor gets tired, gives up, and pays. We never get tired and never give up, so eventually, we make them pay,” according to Richard Evanns, an LA collections attorney.
Most businesses want to stay ahead of the curve and recover more than 20 percent of their debt, but they shouldn’t expect to do that with in-house collections only.