Debt collecting agencies are one of the profit-driven businesses. They basically work to make profit from creditors by collecting the debt or by purchasing the debts by themselves. They also work for certain percentage of money on the total amount collected that can be 50% in some situation. These agencies are often pushing their limits towards aggressive collection practices which are not allowed under the federal law. These types of practices sometimes result in breakdown of the business or agency. So, you should know all the laws and guidelines before debt collection agency startup.
How do they work?
They act as intermediaries between creditors and debtors. These agencies have the contract which show that they will be only paid after the collection of debt. The more they collect debt the more profit will be given to them. These agencies are also hired by the creditors for judgment if they are successful in filing creditor’s lawsuits in against of debtors.
In this case, the debts are originally owned by the creditors. But the collectors are authorized to negotiate the settlements for less than the amount of debts if the debtors are not in the situation to pay full debt. The debtors can also file lawsuits by the agencies, if they are not ready to pay the debts.
Best buying agencies
Sometimes creditors may decide to sell the debts to these agencies even if they know that there are low chances to get it back. These debts are sold at a much low cost of total amount because these are a low likelihood of collection. Purchase of old debt also involves the risk of illegal collection practices. In the case of old debts, all the information is provided to the agencies regarding the debtor, whether they are inaccurate or outdated.