Bad Bill Collectors
Are They Really That Bad?
By Daniel Muniz

That was perhaps the stupidest article I've ever read. I worked in the collection business for 35 years, have known hundreds of agency owners, and I can tell you that no agency that wants to stay in business engages in the kind of thing described. This author simply made the entire story up.

The above comment is in reference to an article I wrote about abusive bill collectors in which I described the outrageous behavior of people I personally knew who incessantly lied and even made threats of physical violence to debtors. Although the conduct I wrote about sounded outlandish, was it true?

Absolutely! However, it is just not me that has a beef with abusive bill collectors.

The Federal Trade Commission (FTC) which administers the Fair Debt Collection Practices Act (FDCPA) is constantly inundated with complaints about the disturbing and downright creepy practices of some debt collectors. Huge nationwide collection agencies as well as many small time outfits have also been sued by debtors. In addition, attorney general offices in every state have levied harsh penalties against them. And finally, even the trade organizations that represent bill collectors have admonished their members for bad behavior.

So it is not any secret that some collection agencies are abrasive or deceptive. And just like in any demographic, there is always some fringe group that goes overboard. But does that mean that all collectors are evil?

No, but perhaps the dynamics of the industry needs to be explained because there are some collection agents who are scumbags who humiliate people while there are others who are ordinary employees who harbor no malicious intent.

To start off with, first party agencies are perhaps the most benign of all collectors. They exist as a department of the original creditor although some of them perform their duties as a separate subsidiary. And because they are the original creditor, they have stringent policies to follow because their collections department represents only a tiny portion of their business organization. A medium sized company or a big corporation is not about to tarnish its image by bullying people who fall behind in their bills although a small outfit may be tempted to do so.

Besides, the original creditor has everything to gain and so much to lose when dealing with a past due account. After all, they still have the full value of that debt listed in their accounts receivable and they have a lot of flexibility in hammering out a creative repayment plan. Plus, they also have the opportunity to get involved early when an account gets 30 days past due to try to work something out before it gets out of hand.

However, after being past due for too long and not getting anywhere, some original creditors don’t want to waste any more time hounding a customer but they are not just ready to write off the account. So they then “assign” these accounts to a third party by a contingency-fee basis. There are also other companies with limited means to chase after delinquent accounts so they too would rather hire someone else to collect it.

And the beauty of a contingency-fee basis is that it costs the merchant nothing or almost nothing because of a service level agreement (SLA) in which the collection agency takes a cut of whatever is collected. Otherwise known as a "No Collection - No Fee" basis, the fee is usually in the neighborhood of 15% to 35% although it can go as high as 50%.

Unfortunately, this commission structure creates a lot pressure for bill collectors to find creative if not harsh ways to pester debtors. However, after a plethora of consumer lawsuits and after being badgered by the FTC and a number of states, many collection agencies have cleaned up their act although the pressure always remains. Bill collectors know that the harder they push, the better the result they will get and that is where some of them have gotten into trouble with the law. Many agencies have tried to reign in belligerent collectors but some still slip through the cracks.

Now after being delinquent for too long, a creditor doesn’t have a choice but to write it off as a bad account and pull it from their books. At this point, the account is practically worthless because their own collection efforts have failed and the collection agency that it was “assigned” to didn’t get anywhere with it either.

However, such an account is not completely worthless.

There are collection agencies and plenty of small outfits and individuals who are more than willing to beat a dead horse once more by purchasing these bad debts. The original creditor is now able to generate at least a tiny bit of revenue even if it is just selling it for pennies on the dollar.

Regrettably, most of these debt buyers are the dirt bags of the industry because of their aggressive collection efforts. After all, the profit margins are enormous because they purchased the account for a tiny fraction of its original amount. So even if they can collect on half or a quarter of the amount owed, that still is a lot of money. And it is this kind of temptation for easy cash that encourages bill collectors to do outrageous things.

And if they get nowhere, then they will then sell the account. A new debt buyer will purchase it and then this cycle repeats itself in which it can go on for decades. But the worst part of this situation is that the longer this cycle continues (like for 10 or 20 years), then the greater the chance that the necessary legal documentation that is required to validate this debt is no longer available. And according to the FDCPA and to the FTC who administers that law, if there is no way to validate the debt, then absolutely nobody can collect on it.

In fact, the organizations that represent the collection agencies have even reprimanded its members who still pursue collection efforts on debts that no longer have any valid documentation to back it up.

Yet, some of these rogue operations don’t care. And many don’t even care if they are pursuing the wrong person as long as someone pays up. That pursuit of big profits leads some collectors to engage in shocking and despicable tactics which is exactly what I described in my article.

So yes, there are some collectors who do act like thugs and the ones I have personally known actually enjoy humiliating and terrifying people. They even revel in the fact that they are exploiting a debtor’s worst fears by lying and making threats of physical violence. But this shouldn’t be of any surprise to anybody in any industry because money makes people do some very extreme things.

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