The word collection agency is generally applied to third-party agencies, labeled as such due to the fact that they were not a party to the original contract. The creditor places accounts directly to such an agency on a contingency-fee basis, which ordinarily at first costs nothing to the creditor or merchant, except for the cost of communications. This anyhow is dependent on the individual service level agreement that exists between the creditor and the collection agency.
The agency will accordingly obtain a percentage of the debt that is successfully collected; frequently known in the industry as the “Pot Fee” or potential fee upon successful collection. This does not accordingly have to be upon collection of the full balance and oftentimes this fee is paid by the creditor if they scratch out collection efforts before the debt is collected. The collection agency makes money only if money is collected from the debtor. Depending on the kind of debt the fee ranges from 10% to 50%.
A couple agencies offer a flat fee, typically $10.00, “pre-collection” or “soft collection” service. The service sends a chain of increasingly compelling letters, usually ten days apart, instructing debtors to pay the amount owed directly to the creditor or risk a collection action and negative credit report. Depending on the stipulations of the contract, these accounts may change to “hard collection” status at the agency’s regular rates if the debtor does not answer back.
In the United States, consumer third-party agencies are bound by the Fair Debt Collection Practices Act of 1977 (FDCPA). This federal law is directed by the Federal Trade Commission or FTC. This act limits the hours during which the agency is allowed to call the debtor and thwarts communication of the debt to a third party. It also prohibits false, deceptive or misleading representations, and prohibits the agency from making threats of actions the agency cannot lawfully or does not intend to take.
In the United Kingdom third party collection agencies that pursue debts regulated by the Consumer Credit Act must themselves hold a Consumer Credit Licence; this is a requirement under the Consumer Credit Act 1974.
Licenses are distributed and regulated by the Office of Fair Trading a government body which protects consumers from dishonest traders. In order to retain their license third party agencies must work within the framework outlined within the 2003 fair debt collection guidance.
is a medical debt collection company.