Let me explain.
When your creditor turns your debt over to a collection agency, nine times out of ten it sells the debt. In some cases, it outsources the debt and pays the debt collector a percentage of the recovered amount, but that is no longer a common practice.
The collection agency will then go to work trying to collect the debt. It will try...and try....and try. Sometimes this process goes on for years. Phone calls, settlement letters, phony threats to sue...blah blah blah. Somewhere along the way the company will give up and you'll hear from them less and less. Eventually, they'll stop contacting you....but you aren't out of the woods yet.
Enter...the junk debt buyer (I want you to mentally play some scary sound effects in your head right about now).
|Here come the junk debt buyers!|
Surprised? Don't be. The collection agency didn't forget about you. Not by a long shot. Businesses know when to cut their losses and you just got cut.
When a collection agency decides that an individual costs it more to track down, call and send letters to than its ever going to recover, and a lawsuit isn't an option due to an expired statute of limitations or the person's judgement proof status, they sell the account to a junk debt buyer.
Junk debt buying is a much seedier industry than run-of-the-mill collecting, if that's even possible. While collection agencies will pay a percentage of the total debt when they purchase it from the original creditor, junk debt buyers pay mere pennies to claim ownership of your account. They're also far less likely to bother following federal laws that protect debtors' rights.
Debt Recovery Cleans Up Its Act
Once upon a time, all collection agencies harassed debtors using threats, swear words and intimidation. It was an industry standard. Believe it or not, over the past ten years that practice has died down quite a bit. Around 2001 the FTC decided to start enforcing the consumer protection laws that govern debt recovery and credit reporting. Around the same time, a consumer information movement was spawned and forums everywhere exploded with various techniques for going on the offensive and dragging collection agencies to court.
The end result of all this is that many (note that I say "many" and not "all") companies dedicated solely to debt recovery starting training their agents better regarding how to avoid getting the company into deep water legally. Thus, collection agencies still break the law, but not nearly as blatantly as they once did.
|Collection agencies don't want to get sued.|
Why Junk Debt Buyers Break the Law
Junk debt buyers don't get their grubby little paws on unpaid consumer accounts until after the collection agencies deem the debts worthless. If a collection agency considers your debt worthless, you can pretty much rest assured that it is.
A representative will then call you asking for payment. He's unlikely to harass you or utilize any other sort of illegal tactic. This is the first call and he's feeling you out. You see, the junk debt buying company knows that, if you're well-informed of your rights, you'll tell that representative all the reasons why the debt is uncollectable and you cannot be contacted and so on and so forth. If you stammer around a bit, claim you don't know anything about the debt, promise to pay, apologize, etc., they know you know absolutely nothing of your rights and they have you over a barrel. At that point, the real harassment begins. You won't sue them, because you don't know that they're even breaking the law. The goal is simply to harass and frighten you into doing one of two things.
1. Paying up – either via settlement or in full.
2. Resetting the statute of limitations
Don't get me wrong, collection agencies have the exact same goal and many use almost identical tactics to achieve it. There are, however, a few major differences:
1. Collection agencies often still have the right to file a lawsuit. Thus, their threats are only illegal if they don't intend to follow through. Most don't, but since they have the right to do so, you can't prove that.
2. Junk debt buyers often have NO documentation of the debt at all. NONE. ZIP. ZILCH. ZERO. Collection agencies may have records, depending on who the original creditor is, but junk debt buyers almost never do. No records = no debt validation.
3. Companies that purchase junk debts are lower budget operations. Their collection success rate is lower than that of the companies that purchase fresh debts. These aren't the people who buy their debts from Citibank. These are the people who buy their debts from the people who buy their debts from those that originally purchased the overdue accounts from Citibank. Convoluted? You bet.
4. If you don't pay, a junk debt buyer has no option other than to break the law and harass the hell out of you. It can't sue you; the account is too old. It can't take a tax loss like a normal collection agency (ok, it could, but a tax loss of a few cents? C'mon) and there just isn't anybody else to sell the debt to that would give the company even a shred of profit.
There you have it. This information is important as occasionally (not often, but sometimes) fighting tactics differ depending on which tier of this dirty little system you're dealing with. Regardless of what you may hear or see while perusing the web, now you know the actual difference between a collection agency and a junk debt buyer.