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Credit Education > Credit Repair > Understanding Collection Agencies

Understanding Collection Agencies

By Janet Lacey
Published: Thursday, March 11th, 2010

Some borrower can be confused with the reason why collection agencies or CAs are more than willing to exert full efforts in collecting debts. Collection agencies like all other businesses are profit based companies; they give these collection efforts in exchange of percentages and allowances from the collected debts.

Most of these companies have commissions in every debt account that they will be able to collect and re- age. In a way collection agencies are the opposite of credit repair companies. Having collection agency information will result to negative effects on the credit history record of the individual. On the other hand, repairing companies spend a lot of time and efforts to delete negative accounted information such as a collection record.

During the late 1980s and early 1990s, creditors sell their debt account to collection agencies. This made many collection agencies too aggressive in trying to collect from the borrowers. After the passing of some laws that protect the borrowers from the possible harassments of collectors, the collection business slowly weakens. Today, debts are just assigned by creditors to their collection agencies. In this way, the creditor still shoulders some weight in the collection process. Nonetheless, credit reports are still badly damaged in situations wherein it will be recorded with collection record. A collection record is independent of the factors whether the debt was sold or assigned.

There are cases where the creditors have opted to sell their debt portfolios to Junk Debt Buyers or JDBs. This is because of failed attempts to collect from their borrowers. These companies are now being traded in the main business centers such as Wall Street. These companies are responsible for the mass sending of letters made by certified attorneys of the law. These companies are also responsible for disrupting ongoing credit repair efforts by most indebted individuals by making some of their debts re- aged and spring back to their statutes of limitation. Among the collection agencies, JDBs have the worst reputation.

In the event that regular collection portfolios are fully sold by the creditor to the collection agencies, it will not be equivalent in making the collection agency the primary creditor. Thus, the collection agency even if it has purchased the whole debt account will still be subject to the Fair Debt Collection Practices Act or FDCPA. The collection record that will appear on the credit report of the borrower will still be the same even if his or her creditor has fully sold his or her debt account to the collection agency.

The failure of the collection agency and the creditor to validate the debt of a borrower would primarily mean that they are not allowed to make collections for the debt. They are also not allowed to contact the borrower in any reason related to the invalidated debt. An invalid debt also cannot be reported to the major credit bureaus. If an invalid debt will appear on the credit report of the borrower, he or she will have the upper hand of filing a legal case against the collectors which can result to a fine of $1,000.

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