Legal, Regulatory, and Privacy Issues

Understanding credit card debt collection


Learn how credit card debt collection may be aggressively pursued by collection agencies.

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If you fail to pay back your credit card debt, you may find that a debt collector is seeking to recoup the money you owe to the card issuer.  The debt collection agency has established some form of a deal with your creditor that allows the collector to get the money from you.

There are two basic types of debt collection agencies.  The first type, which represents the vast majority, works on a commission on behalf of your creditor and gets a percentage of the debt they collect from you.  The second type of debt collector purchases your debt from the creditor at a discount, often contracting to buy debt for pennies on the dollar.

Among the first category, these commission debt collectors do not own title to the debt.  Instead, the agencies collect debt on delinquent accounts referred to them by different creditors, including credit card issuers, banks, hospitals and other health care services, retail stores or by federal, state and local governments.  According to ACA International, the Association of Credit and Collection Professionals, 33 percent of the original debt is usually considered a reasonable commission.

When considering the second category of debt collector, a creditor who sells a portfolio of past-due accounts gives up all right, title, and interest to the accounts once the sale of the debt is closed.

To show the value of the collection industry, for the first time, ACA surveyed collection agencies to learn exactly how much is being returned to creditors.  In the survey, conducted by PriceWaterhouseCoopers LLP, ACA found that third-party debt collectors recovered about $51.4 billion in 2005, out of the $141 billion in bad debt charged off by private businesses that year.  Minus the cut the to the debt collection agencies, $39.3 billion was returned to creditors.

Out of that total debt, most was collected on commission.  The ACA report discovered that of the debt collected by agencies in 2005, only $2.3 billion was on purchased debt.

The arrangement used by a specific debt collection agency is between that agency and the creditor.  Since you are not involved in the deal your creditor cut to get the money you owe or what commission a debt collector may earn for collecting your money, just remember that you are clearly and morally obligated to pay back any debt you contracted.

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