Contingency debt collection agencies: All bark & no bite?

Contingency debt collectors are agencies that work on behalf of creditors to get delinquent accounts paid. They may work for the original creditor, like your credit card issuer, or for a debt buyer that purchased the debt from the original creditor. Their objective is to get consumers to pay delinquent debt on everything from credit cards and mortgages to car loans, and medical, utility and telecommunications bills. Most often, they are paid a percentage of whatever percentage of the outstanding debt they are able to recover.

These agencies use letters, phone calls and other collection tactics to get you to pay. While all of that may seem daunting, it can help to know that these debt collectors are limited in what they can do in their efforts to collect that debt.

In fact, the only things contingency debt collection agencies can do  is send letters and make phone calls (though soon new federal rules will provide a structure for them to email and text). And taking the time to read their communications may actually help you because you may glean important information about your account, like learning if you may soon be sued by the creditor. By understanding how collection agencies work, the stage of your debt and your rights, you can wisely consider if it’s in your best interest to work with the collector toward resolving your debt.

What is contingency debt collection & how does it work?

Contingency debt collection is the term used to describe the outsourcing of debt collection by the creditor, company or agency that you owe. These contingency collectors typically take on attempts to collect on overdue accounts for 90-day periods on recently delinquent debt, and charge the originating creditor a fee for pursuing these debts. Most often, they are paid a percentage of whatever they end up collecting, so their payment is contingent upon their success, thus the name.

Because of this structure, working with a contingency collector to settle your debt can often be easier than working directly with the creditor. They are motivated to get at least a portion of the debt you owe so that they can be paid, and may be willing to try to settle your debt for less than what is owed.

It often makes sense for companies to turn debt collection efforts over to these contingency debt collectors when the outstanding debts are 120 – 180 days past due (when many of these debts are are often charged off). By this point, it’s obvious that a creditor’s efforts to collect the debt aren’t working and a new approach may be beneficial in getting the money they are owed.

How contingency debt collectors try to get you to pay

Some contingency debt collectors will use a scoring system to determine your likelihood of paying. They send those accounts with the highest likelihood of paying to their top tier collectors. They will call and write and sometimes send emails – all with a variety of messages to motivate you to make a payment. Aside from a few smaller agencies that have in-house legal, most contingency collectors do not have the power to sue you.

However, if your original creditor intends to sue you, the agency can inform you that your account is in a pre-legal phase. However, if you are not in any danger of a lawsuit, they are not permitted to tell you that you are. They can’t lie, but that doesn’t mean some don’t still bend rules to coerce you into paying. What’s key for you to understand is that if your account is turned over to an attorney, the collector doesn’t get paid. So, even if they make it sound like you’re the one they’re looking out for, it actually benefits the collector to work with you to pay off your debt and avoid a lawsuit.

In addition to legal action, contact from a collection agency may bring up the impact your outstanding debt has on your credit report. While a delinquent account does have a negative impact, if your original creditor is already reporting your overdue balance to the credit bureaus the contingency collector should not.

The rules collectors must follow

Collectors must follow the Fair Debt Collection Practices Act (FDCPA), which was passed in 1977. This law outlines rules of behavior for debt collectors. The FDCPA applies to credit card, medical debts, mortgages and other debt related to personal, household or family purposes.  Some of the guidelines include:

  • Collectors cannot harass, threaten or lie.
  • Collectors can’t call between 9 p.m. and 8 a.m. local time.
  • Collectors can’t contact other people about your debt, but may inquire about your current address and phone number if they do not have it.

In communications with you, the collector must:

  • Indicate the amount of the debt
  • Tell who the current debt owner is
  • Specify that you have 30 days in which to dispute the debt or it will be assumed valid. (If you dispute in writing within 30 days, the collector is to provide verification of the debt or a copy of any judgment.)
  • Inform you that you may request the name and address of the original creditor if it is not the same as the current debt owner.
  • Stop all collection efforts until verification and/or the original creditor’s information is provided to you if you dispute the debt or request the creditor’s information within 30 days from the date of their written notice.
  • Let you know that any information you provide will be used toward the collection of your debt.
  • If you inform them in writing to cease their communications with you, they must honor that request except to inform you that collections have stopped or legal action is pending.

The importance of knowing your rights

Not all collectors have or do abide by these rules, though in recent years, actions by the Consumer Finance Protection Bureau (CFPB) have led to improved collection practices. Also, some states have tightened regulations.

“The industry has cleaned up tremendously,” said Jared Strauss, founder of Debt Relief A La Carte. He has found this to be particularly true for agencies working for major banks. The banks, he explained, are serious about compliance.

Despite that, the CFPB received approximately 81,500 complaints about debt collectors in 2018, so, it’s important to understand your rights.

If you believe a collector has violated the FDCPA, you have up to a year to file a lawsuit. You may want to contact a consumer law attorney to assess your case. Keep in mind though that any violation by the collector doesn’t negate your responsibility to pay a legitimate debt.

Determining if this is an opportunity for you

It may sound odd, but your debt landing in the hands of a contingency collection agency may actually be to your benefit if you planned to resolve it at some point anyway.

“It is in your best interest if you intend on making an agreement that you do this with an agency. They’ll be more willing to negotiate because they’ll be paid a bonus or commission,” Strauss explained. Even if you can’t negotiate a settlement with a lump-sum payment right now, you can still work with the collector.

“If you know you’ll have money in the future, work out a small monthly payment as that will likely keep your account with that agency and then you can negotiate an amount to settle later,” Strauss said. He recommends setting up an auto debit because this increases the likelihood that your account remains with the collection agency and is not sent to a collection law firm.  

“When trying to resolve a debt, debt collectors are part of your solution. They want to get paid so they’ll find a way to work with you if it’s within their parameters,” said Michael Bovee, co-founder of Resolve.

These parameters are the criteria set by their client for negotiating settlements. So it does matter who owns the debt. The specifics of each consumer’s debt and financial situation also impact how that account is handled, Bovee said.

It may not always be clear what the best payment terms are for your situation. While things have improved in the industry, Bovee has found that some collectors withhold information or press emotional buttons.

“Remember they’re not your friend or guiding you into what’s in your best interest,” he said. “You are responsible for that.”

He suggests getting your agreement in writing before paying a debt collector. You can learn more about debt settlement here.

Understanding today’s collection agencies

To better understand the agency you’re dealing with, it can help to know what types of clients they represent (banks, telecommunications companies, health care providers), their standing with the BBB, and if there are any consistent complaints lodged against them. This enables you to spot any known unethical behavior as well as anticipate how they might negotiate your settlement.

Here’s a quick look at a few of the larger agencies:

AFNI is a large collection agency with clients in telecommunications, satellite and cable, health care, and insurance. Significantly more complaints were lodged against AFNI with both the BBB and CFPB than the other three agencies (below) combined. Learn more about AFNI here.

Alltran, formerly United Recovery Services, has grown through acquisition and serves clients in government, health care, financial services, and higher education. With a somewhat scientific approach to collections, and at times an unwillingness to provide negotiated settlements in writing, it’s wise to seek guidance when responding to their collection communications. Learn more about Alltran here.

Client Services, Inc. (CSI) markets itself as a full-service account receivable management company serving banks, utility companies, municipalities, county governments, private educational institutions, and medical providers. It has a fairly typical number of complaints lodged with BBB and CFPB when compared to the other three agencies. Learn more about Client Services, Inc here.

United Collections Bureau (UCB) collects on accounts for clients in health care, government, finance, and student loan industries. It has a fair number of complaints with the BBB and but very few with CFPB. It is not a member of ACA International, the credit and collection professionals industry association that establishes professional standards. Learn more about United Collections Bureau here.

Because negotiation tactics will vary based on the specifics of your account, it can be helpful to chat with a debt counselor, such as Bovee or Strauss, prior to responding to a collection agency.  

Why Resolve?

If you’ve received collection letters or a call  from a debt collection agency, it’s time to assess your options for resolving your debt. You can access the Resolve financial management platform absolutely free and receive guidance from our experts. Get started here

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