It is very common for consumers receiving collection calls to be confused as to which firm is calling them demanding payment of an unpaid account.
If you are receiving collection calls it can sometimes be very confusing. This is particularly true when your original creditor has sold your unpaid account to a debt buyer. Your creditor will likely initially try to collect your unpaid account using its own employees in its inhouse collection department. It is common for creditors to place unpaid accounts after six months with a collection agent.
In some circumstances where you are receiving collection calls you will know the firm employing that bill collector calling you. In some instances, however, it can be difficult to figure out the employer of the individual phoning you to demand payment of an account
The purpose of this article is to provide you with a framework for understanding which entity is calling you to demand payment of an unpaid account.
i. Which firm owns your unpaid account?
Your unpaid account will be owned by one category of owner. Your original creditor is the firm that provided you with goods, services or credit. Some, but not all, original creditors might at some point make the decision to sell a portfolio--or block of hundreds or thousands of unpaid accounts--to a debt buyer.
A debt buyer is a firm that purchases an account that was previously owned by your original creditor. There are two categories of debt buyers. There is one category of debt buyer where their primary source of revenues is purchasing the debts of others and then collecting them. I will refer to this category of debt buyers as pure debt buyers.
There is a second category of debt buyers where purchasing debt and collecting it is a secondary source of revenues. Collection agencies are firms that collect unpaid accounts owing to others and this is their primary revenue source. Some, but not all, collection agencies, however, will purchase debt and attempt to collect it.
ii. Is your creditor using its own employees to collect your unpaid account?
For the first three to six months that your account is unpaid your original creditor will typically attempt to collect your debt using collectors that it employs. These collectors work in your original creditor's in house collection department. In Canada provincial laws regulating the conduct of collection agencies do not apply to collectors employed by your creditor.
iii. Has your creditor placed your account for collection with a collection agent?
At some point your creditor--regardless of whether it is your original creditor or a debt buyer--may decide to place your account for collection with a collection agent. A collection agent is a firm authorized by a creditor to collect an unpaid account on the creditor's behalf.
There are two types of collection agents, collection agencies and collection law firms. Collection agencies do more than ninety percent of all the collection agent work in Canada. A small percentage of collection agent work is performed by collection law firms. Some collection law firms in Canada carry on business in a very similar manner to collection agencies.
Collection agencies are almost always compensated by creditor-clients on a commission basis. In those circumstances where a collection law firm sues a consumer there is a good possibility that it may do so on a fee-for-service basis where the law firm earns fees regardless of whether or not the creditor actually recovers any monies from the consumer.
You can watch a short video on the Debt Coach Silverthorn YouTube channel on the same topic.
This short YouTube video sets out the framework for identifying which entity is making collection calls demanding payment of an outstanding account.
My knowledge of the debt collection industry is based upon the twelve years that I worked as a collection lawyer for four of the largest collection agencies operating in Canada as well as nine years spent working as a consumer lawyer representing consumers struggling with debt.
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